Journal of Corporate Finance 12 (2006) 321 – 341 www.elsevier.

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Family ownership and firm performance: Empirical evidence from Western European corporations
Benjamin Maury*
Department of Finance and Statistics, Swedish School of Economics and Business Administration, P.O. Box 479, 00101 Helsinki, Finland Received 17 November 2004; received in revised form 8 February 2005; accepted 24 February 2005 Available online 23 June 2005

Abstract This paper empirically examines how family-controlled firms perform in relation to firms with nonfamily controlling shareholders in Western Europe. The sample consists of 1672 non-financial firms. Active family control is associated with higher profitability compared to nonfamily firms, whereas passive family control does not affect profitability. Active family control continues to outperform nonfamily control in terms of profitability in different legal regimes. Active and passive family control is associated with higher firm valuations, but the premium is mainly due to economies with high shareholder protection. The benefits from family control occur in nonmajority held firms. These results suggest that family control lowers the agency problem between owners and managers, but gives rise to conflicts between the family and minority shareholders when shareholder protection is low and control is high. D 2005 Elsevier B.V. All rights reserved.
JEL classification: G3; G32 Keywords: Family firms; Ownership structure; Corporate governance

1. Introduction Family control is common in publicly traded firms around the world (Burkart et al., 2003). For the US, Anderson and Reeb (2003) show that one-third of S&P 500 firms can
* Tel.: +358 9 43133422; fax: +358 9 43133393. E-mail address: Benjamin.Maury@hanken.fi. 0929-1199/$ - see front matter D 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.jcorpfin.2005.02.002

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B. Maury / Journal of Corporate Finance 12 (2006) 321–341

be classified as family-controlled. In Western Europe, the majority of publicly held firms remain family-controlled (La Porta et al., 1999; Faccio and Lang, 2002). Such controlling families often hold large equity stakes and frequently have executive representation. In Western European corporations, founding families often continue to hold significant equity stakes after they retire from managerial positions (Burkart et al., 2003). Despite the vast amounts of capital these family owners administer in Europe, empirical evidence on the performance of family firms remains sparse. In the US, family firms tend to have higher valuations and profitability than nonfamily firms (McConaughy et al., 1998; Anderson and Reeb, 2003). Villalonga and Amit (2004) find that the bUS family premiumQ is mainly due to founding family CEOs. Anderson and Reeb (2003) show that the gains from family control starts to taper off when the ownership stake exceeds about 30%. In contrast to family premiums, Faccio et al. (2001) report that family control may harm minority shareholders in East Asian firms where transparency is low. For Western Europe, I hypothesize that family control should increase firm profitability, whereas value premiums should arise in such legal environments that succeed in protecting their minority shareholders against family opportunism. Using a sample of 1672 non-financial firms from 13 Western European countries, I show that family control is associated with 7% higher valuations (Tobin’s qs) and 16% higher profitability (return on assets) in relative terms as compared to firms controlled by nonfamily owners. The benefits to family control arise in nonmajority-controlled firms, and are reflected in higher valuations at lower control levels but in higher profitability at higher control levels. Active family control, in which the family holds at least one of the top two officer positions, strongly increases profitability, whereas passive family control is associated with profit rates comparable to nonfamily firms. Valuations are similar for active and passive family control. The efficiency gains in terms of profitability from active family control do not vary with the level of legal shareholder protection to a large degree, whereas the value benefits from family control tend to disappear when minority shareholders have lower legal protection. Firms without any controlling shareholder have comparable valuations to family firms but do not have significantly different profitability ratios from nonfamily-controlled firms. The results in this paper are consistent with the argument that family control can reduce the classical agency problem between owners and managers (Fama and Jensen, 1983), and give rise to conflicts of interest between minority shareholders and the controlling family when family control is tight (e.g., Shleifer and Vishny, 1997). It is also important to note that while active family control increases profitability compared to nonfamily firms even when different judicial settings are considered within Western Europe, such increased profitability does not translate into higher valuations when shareholder protection is low. These results fit rather well with recent evidence that family control can increase firm value in a well-regulated economy (e.g. Anderson and Reeb, 2003), whereas family control may harm minority shareholders due to the risk of expropriation when transparency is low. This paper proceeds as follows. Section 2 briefly reviews prior literature and discusses expectations on the relation between family control and firm performance. Section 3 describes the data and presents descriptive statistics. Section 4 presents the empirical

On the other hand. 2.1 On these views. Faccio et al. Burkart et al. 1 . Morck et al. Are there systematic performance differences between active and passive family control? Villalonga and Amit (2004) find that the higher valuation of family firms arises when the founder serves as CEO or as Chairman of the board with a hired CEO. for various reasons. I hypothesize that there will be an ownership range in which family-controlled firms will outperform comparable firms with nonfamily controlling shareholders. 2004) and outside shareholder monitoring (Maury and Pajuste. However. 2002. Section 6 concludes the paper. Villalonga and Amit.. Thus. Taken together. Does the impact of family ownership on firm performance vary with the legal environment? Anderson and Reeb (2003) argue that family ownership in listed firms operating in well-regulated and transparent markets reduces agency costs. (1988) find that founding family members among the top two officers in younger firms (in which they supply entrepreneurial talent) increase firm value. 2003). Holderness and Sheehan (1988) also find a tendency that firms majority-controlled by a family have lower performance than diffusely held firms. 2003. whereas they or their descendants reduce value in older firms (in which they may become entrenched). (2001) claim that politically powerful families in control of public firms have been able to expropriate minority shareholders in East Asia where transparency is low. Theory and hypotheses Do family firms outperform nonfamily firms? In the US. family ownership may harm minority shareholders. They argue that the owner-manager agency problem in nonfamily firms is larger than the familyminority owner conflict in founder-CEO firms. Faccio et al.B. but also that hiring a professional manager will lead to misalignment of interests (Bhattacharya and Ravikumar. Maury / Journal of Corporate Finance 12 (2006) 321–341 323 results on the relation between family control and firm performance. whereas the family-minority owner conflict is larger in descendant-controlled firms than the owner-manager agency problem in nonfamily firms. publicly traded familycontrolled firms—that represent one third of the firms—have higher Tobin’s q values and higher return on assets than comparable nonfamily firms (Anderson and Reeb. These studies support the view that family ownership reduces the classical agency problem between managers and shareholders. Theoretical models on succession assume that professional managers will be more productive than family descendants (due to the restricted size of the labor pool to choose from). 2005) may help reduce family opportunism. and that controlling shareholders in European firms have less incentive to expropriate because they hold on Independent directors on the board (Anderson and Reeb. (2001) also point out that controlling shareholders in Europe have less control in excess of cash-flow rights than East Asian firms. Section 5 offers robustness tests. Anderson and Reeb (2003) find that the positive effect associated with family ownership starts to taper off at around 30% ownership. such managerial ties should improve firm performance. when control is highly concentrated. if the benefits with having a family member among the top two executives will exceed the costs. 2004).

1. and the UK (635). and zero otherwise. 3. Sweden (104). Ownership. Switzerland (75).2. Honorary Chairman. a variable called Widely held dummy is used to control for firms that do not have any controlling shareholder at the 10% cut-off level. an individual. In the robustness section. Data 3. I hypothesize that family ownership may be more beneficial to firm value in legal environments where minority shareholders better can protect themselves against family opportunism and where family owners participate with significant cash-flow rights. Italy (59). The last definition of family control is intended to distinguish active family control from more passive family ownership. Portugal (9). The countries included are Austria (46 firms). La Porta et al. Finland (73). However. The third variable. Financial data come from the fiscal yearend closest to end of 1998. and zero otherwise. Ireland (39). or an unlisted firm. 2002). which excludes firms that are majority controlled by foreign investors or controlled by nomineeregistered shareholders. 3. equals one if the family controlling shareholder is an unlisted firm. The first variable. Spain (58). but excludes unlisted firms as well as family-managed firms from the family definition. Maury / Journal of Corporate Finance 12 (2006) 321–341 average more cash-flow rights. equals one if the largest controlling shareholder is an identified family or individual. financial firms are analyzed separately (393 firms). Sample and data sources The data set is obtained by combining Faccio and Lang’s (2002) sample of Western European firms with ultimate ownership data and the January 2003 edition of the WorldScope database. 2 . this does not imply that the legal environment should significantly affect the profit rate in family firms. There are 5232 firms in the original ownership database.2 In addition. France (209). Norway (76). and legal regime variables I use four dummy variables to measure family control. Thus. The second family ownership variable. The last family variable measures active family control (Family _management) and is set equal to one if the controlling shareholder is a family or an individual who holds the CEO. Chairman. (2002) propose that the positive influence of entrepreneurial cash-flow rights on firm value should be greater in countries with inferior protection of shareholders.324 B. Belgium (30). Unlisted firms are often closely held and therefore usually considered as one form of family control (Faccio and Lang. Family _identified. Coverage of performance and control variables is found for 1672 non-financial firms (excluding SICs 6000–6900). Germany (259). called Family _all. or Vice Chairman position. named Family _unlisted. Unfortunately. is set equal to one if the largest controlling shareholder holding at least 10% of the voting rights is a family. the Faccio and Lang (2002) data set does not separate between family CEO ownership and family board ownership. and zero otherwise.

The return on assets (ROA) is defined as (net income before preferred dividends + (interest expense on debt . For 306 firms the data is from end of 1997 or 1998. To reduce the weight of extreme values. The variable is In 163 non-financial firms. percentage of share capital to call an extraordinary shareholder meeting less or equal to 10%) the country gets a 1 if the investor protection is in the law. shares are not blocked before shareholders’ meeting. The results using return on equity are presented in the robustness section. Control variables Several variables are used to control for industry and firm-specific characteristics..3 This variable is intended to capture the positive effect of cash-flow incentives on firm performance. and the variable is intended to measure the entrenchment effect of excess control rights. p.4. I estimate Tobin’s q as the market value of common equity plus the book value of total assets minus common equity and deferred taxes divided by the book value of total assets. 3 . ROA.3. and ROE at the 5th and the 95th percentiles. Performance variables Firm performance is measured by Tobin’s q and return on assets (ROA). 3.interest capitalized) * (1 À tax rate)) all divided by the last year’s total assets times 100. The antidirector rights index is the sum of these measures. I have capped Tobin’s q. I use the return on equity (ROE) defined as net income before preferred dividends minus preferred dividend requirement all divided by last year’s common equity times 100. legal mechanisms against oppression. proxy by mail allowed. The corresponding figure for financial firms is 16.4 The vast majority of the ownership data come from end of 1996 (1527 firms). preemptive rights to new issues. The fact that all ownership data do not come from the same year is not likely to be a significant problem because the ownership stakes of the largest shareholders are relatively stable over time (La Porta et al. 1130) and it varies between 0 (lowest) and 5 (highest) in my sample depending on the degree of legal minority shareholder protection in a country. For each of the antidirector measures (one share–one vote. and zero otherwise. The Multiple blockholders dummy is set equal to one if there is another owner with at least 10% of the votes in the firm. 3. Growth in net sales is used to proxy the value of growth opportunities. cumulative voting or proportional board representation. 4 Antidirector rights measure how strongly the country’s laws favor outside investors against managers and dominant shareholders. This definition of Tobin’s q is similar to the one used in La Porta et al. (1998. (2002). All performance variables are measured at the end of 1998. and is available for shareholders with at least 5% of the control rights. As an alternative profitability measure. The measure of antidirector rights comes from La Porta et al. The remaining 232 firms’ ownership data come from the end of 1999. or the fiscal year-end closest to end of 1998. The variable Control minus ownership is the difference between the control rights and the cash-flow rights held by the largest shareholder. 1999).B. the largest shareholder holds less than 5% of the votes. Maury / Journal of Corporate Finance 12 (2006) 321–341 325 The variable Ownership measures the proportion of cash-flow rights held by the largest shareholder.

48 1.D.00 0.51 S. 3. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise. capital expenditures / sales.21/0.32 7.326 B. Multiple blockholders dummy. The variables are: Tobin’s q.00 0.21 0. 0.41 0.31 3.16 4.10 0. Family_management.83 15. Sales growth (3 years).57 1. Ownership.5.00 12. the CEO.00 À39. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes.81 8. In about 33% (0. the fraction of cash-flow rights held by the largest shareholder.85 20. Honorary Chairman. Dummy variables for two-digit SIC codes are used to control for industry effects.93 1. and total debt / total capital at the 5th and the 95th percentiles to reduce the weight of extreme values.00 0.37 The table presents summary statistics for 1672 non-financial Western European firms.86 0.53 5. Both are expected to have a positive relation to firm valuation. and zero otherwise.26 5.00 0.00 1.35 5.36 3. the index of antidirector rights in a country. Return on assets.00 Max 3.63 0.67 79.00 22. I cap sales growth. .00 2.00 100. Capital expenditures / sales. equal to one if a member of the identified controlling family is the CEO.79 0.33 36.00 0.00 0.00 1.96 22. Family_identified. Firm size is measured by the logarithm of total assets and leverage is measured by total debt divided by total capital.59 0.71 0. The average sales growth is about 15%.00 0. Antidirector rights.79 20.13 29. Table 1 Summary statistics of variables Variable Tobin’s q Return on assets Family_all Family_management Family_identified (less management) Family_unlisted Widely held Ownership Control minus ownership Multiple blockholders dummy Firm size (log of sales in USD) Capital expenditures / sales Sales growth Total debt / total capital Antidirector rights STDa Mean 1. or the fiscal year-end closest to end of 1998. The average Tobin’s q for the sample firms is 1.57 À12.00 6. or Vice Chairman.86.89 0. Capital expenditures relative to sales measure the firm’s investment intensity.00 24.34 24. firm size (log of total assets in USD).00 0.74 À12.53 and the return on assets is on average 5. Control minus ownership.00 0.00 0.57 0. a dummy variable that equals one if the controlling shareholder is an unlisted firm.57 15.16 21.00 18. Chairman.00 1. and zero otherwise.61 0.47 0. and zero otherwise.76 0. Family_all.58 Median 1. Control variables are measured at the end of 1998. and zero otherwise. Descriptive statistics Table 1 presents summary statistics for the variables that are used in the analysis. Family firms represent 63% of the Western European sample firms.85 52.63) of the family-controlled firms. and STDa. Total debt / total capital. or available years.00 0. the difference between control and cash-flow rights held by the largest shareholder. Maury / Journal of Corporate Finance 12 (2006) 321–341 measured as the average growth over the 3-year period 1996–1998. Family_unlisted. equals one if there are other controlling shareholders with at least 10% of votes in the firm.00 1.36 12.83 8.59 1. Widely held.83 8.52 3.58 3.00 0. a dummy variable that equals one if the controlling shareholder is an identified family without managerial or board representation.48 0.50 0.25 1.00 60.49 3.30 0.32 0.09 Min 0.80 7. the standard deviation of 5-year net income / total assets (available for 1632 firms).

the controlling shareholder is a family or an unlisted firm. Maury / Journal of Corporate Finance 12 (2006) 321–341 Tobin’s q 1.51 5. the difference between control and cash-flow rights held by the largest shareholder.62*** 1.61 0. Multiple blockholders dummy.38*** 12. Control minus ownership. firm size (log of total assets in USD).81*** 14.53 2.34 3. Chairman.34 Firm size (log of sales in USD) 12.41 Antidirector rights 3.Table 2 Summary statistics by ownership Variable Family Mean Family Family Nonfamily Widely Family management Family vs.29 1.46** 1.55 39.47*** 8.62 224 t-stat 1.45 12. The ownership categories are: Family.77 3.44 12.26*** 3. the identified controlling family is the CEO.00 12.81*** 5. ***Significant at the 10%.46 16. STDa. Capital expenditures / sales.46 0.07*** 1.80 392 Mean 1.56*** 0.37 Total debt / total capital 22. Family management.33 0.04 0.84*** 1.48 15.28*** 0. the index of antidirector rights in a country.33 3.41 0. The variables are: Tobin’s q.49 3. 327 .88 0. 5%.55*** 13. Family nonmanagement. Total debt / total capital.27 8. the controlling shareholder is classified as family but does not have managerial ties.64 20.56 4.45*** 0.80 6.37*** 0. equals one if there are other controlling shareholders with at least 10% of votes in the firm.02 22.08 11. and 1% levels. the firm has no shareholder with at least 10% of the votes.44 5. **.70*** 0. and Antidirector rights. Nonfamily.93* 1.12*** 6. The table presents summary statistics for 1672 non-financial Western European firms by ownership.53** 0. the standard deviation of 5-year net income / total assets (available for 1632 firms). Honorary Chairman.20 0.71 B. family nonmanagement nonfamily widely held widely held Mean Mean 1.35*** 6.07*** 0.10 4.56 11.99 17.58 Return on assets 5.88 7.69 23.70 Capital expenditures / sales 7. or Vice Chairman. and zero otherwise.23 2. Return on assets.30 2.06*** 3.41 Sales growth 15. Widely held.22 2.05 3.52 Ownership 37.91 20. controlling shareholder is not classified as family and not widely held at the 10% cut-off level.29 10.93* 0.48 708 Mean 1.29*** 2.09 36.71* t-stat 3.03 21.74 t-stat 5.41 0.35 6.65 7.67* 5.44 6.56 6.61 3. management nonmanagement held vs. the fraction of cash-flow rights held by the largest shareholder.22 4.06 1.03 3.73 7.12*** 2.56 Control minus ownership 4.54 1. Ownership.29 1.09 t-stat 2.41*** 22.83 12.50 Observations 1056 348 *.41 5. Family vs. Sales growth (3 years).22 Multiple blockholders dummy 0. respectively.09 STDa 3.91 0. Nonfamily vs.

01 1.18 1.19 – 1. and sanitary services Wholesale trade—durable goods Wholesale trade—nondurable goods Building materials and garden supplies General merchandise stores Food stores Automotive dealers and service stations Apparel and accessory stores 3 1 2 1 1 1 24 5 24 11 5 73 – 24 23 11 11 26 22 49 3 17 5 45 20 30 69 55 29 28 18 1 4 10 31 8 3 16 14 64 37 7 9 13 11 9 1. Mean Freq. except buildings Special trade contractors Food and kindred products Tobacco products Textile mill products Apparel and other textile products Lumber and wood products Furniture and fixture Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber and misc.95 1.88 1.02 0.87 1.51 – – 2 – 3 – 3 2 14 6 4 17 1 10 4 4 3 10 5 16 2 9 4 13 15 12 30 14 11 5 4 1 – 2 9 6 4 10 27 14 15 2 6 4 8 7 – – 2. Q Q 01 02 08 09 10 12 13 14 15 16 17 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 44 45 47 48 49 50 51 52 53 54 55 56 Agricultural production—crops Agricultural production—livestock Forestry Fishing.10 1.08 0.328 B.30 – 3.44 2.95 1.02 1.27 – 1.32 2.51 1.02 2.65 1.42 1.40 1.54 1.00 1.11 1.14 2.23 1.13 0.36 1. gas.21 1.41 1. and glass products Primary metal industries Fabricated metal products Industrial machinery and equipment Electronic and other electronic equipment Transportation equipment Instruments and related products Miscellaneous manufacturing industries Railroad transportation Local and interurban passenger transit Trucking and warehousing Water transportation Transportation by air Transportation services Communications Electric.18 1.55 1.24 1. clay. hunting.11 1.28 1.84 1.73 1.49 1.62 1.12 1.27 1.32 1.12 1.36 1.16 0.60 1.21 1.19 1.22 1.01 0. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 3 Frequency and valuation of family and nonfamily firms by industry SIC Industry description Family Nonfamily Widely held Total % Family firms of total Freq.07 1.60 2.65 1.88 1.37 1.43 2.25 1.26 0.15 1.55 1.20 1.54 1.16 2.17 3 1 4 1 7 1 31 9 47 17 9 102 3 36 32 17 16 38 32 76 6 28 10 63 39 52 115 78 49 42 24 3 5 14 42 19 7 28 52 90 62 11 19 20 20 18 100 100 50 100 14 100 77 56 51 65 56 72 0 67 72 65 69 68 69 64 50 61 50 71 51 58 60 71 59 67 75 33 80 71 74 42 43 57 27 71 60 64 47 65 55 50 . Mean Freq.55 2.73 1.93 1.37 1. and trapping Metal mining Coal mining Oil and gas extraction Nonmetallic minerals.93 – 1.17 1.12 1.39 1.32 1.35 1.77 1.58 1.27 1.05 1.34 1. except fuels General building contractors Heavy construction.57 1.99 1.76 0.82 – 1.90 1.80 1.80 1.74 1.13 1.05 1.71 1.99 1.11 1.95 1.65 3. plastics products Leather and leather products Stone.32 1.37 0.17 1.61 0.05 1.25 1.05 1.42 1.83 1.01 1.79 1.66 2.33 0.11 1.11 – – 1.78 1.58 1.31 1.49 1.22 2.23 1.24 1.64 1.36 – 1.49 1.57 1.37 1.56 1.91 1.37 – – – – 3 – 4 2 9 – – 12 2 2 5 2 2 2 5 11 1 2 1 5 4 10 16 9 9 9 2 1 1 2 2 5 – 2 11 12 10 2 4 3 1 2 Mean Q – – – – 1.

50 1. Ownership is more concentrated in family than in nonfamily firms.32/0.39 0. 18% the State. Mean Q is the average Tobin’s q value.41 1. p.50 – – – 11 19 25 20 3 97 1 2 7 26 13 2 1 44 1 1 1 82 53 76 70 67 69 0 100 86 65 69 50 0 55 100 100 100 The ownership categories are: Family. Family-managed firms have higher returns on assets than family firms without managerial ties. nonfamily-controlled firms have the following types of controlling shareholders 50% financial institutions.45 1.19 1.89%.80 2.84 1.47 – – – – 5 1 1 – 18 – – 1 4 – – – 7 – – – Mean Q – 1.33 2.27 2. chairman.41 2.95 – 2. and Widely held. Faccio and Lang (2002. 4% widely held corporations. Mean Freq. Firms without any controlling shareholder represent only 13% of the sample firms. Family firms are also smaller in size than nonfamily and diffusely held firms.21 – – – 2.57 1. the controlling shareholder is an unlisted firm. The mean ownership fraction is 29.86 – 1.09 1.24 1.74 1.29 2 4 5 5 1 12 1 – – 5 4 1 1 13 – – – 1. Table 2 shows summary statistics for different ownership categories for Western Europe as a whole. the controlling shareholder is a nonfamily owner. Mean Freq.25 1.63) of the family firms.43 2. and parking Miscellaneous repair services Motion pictures Amusement and recreation services Health services Educational services Museums.B.21 1. Returns on assets are not significantly different between family and nonfamily firms. services.62 – – 1.35 1. public order. the firm has no controlling shareholder with at least 10% of the votes.39 – – 0.52% and the mean difference between control rights and cash-flow rights by the controlling shareholder is 3.74 1.41 1. whereas they are higher in diffusely owned firms. and safety Administration of environmental quality and housing programs Administration of economic programs 9 10 19 14 2 67 – 2 6 17 9 1 – 24 1 1 1 2. or vice chairman comes from the controlling family. the controlling shareholder is a family or an unlisted firm. Tobin’s qs are higher in family firms than in nonfamily firms but lower than in widely held firms. botanical. and 1% cross-holdings. but similar valuations.5 Although not reported in Table 1.22 1. 5 For comparison. 378) report (using the 10% cut-off level for control) that familycontrolled firms represent about 56%.76 2.37 1. Q Q 57 58 59 70 72 73 75 76 78 79 80 82 84 87 92 95 96 Furniture and home furnishings stores Eating and drinking places Miscellaneous retail Hotels and other lodging places Personal services Business services Auto repair.57 – 0. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 3 (continued) SIC Industry description Family Nonfamily Widely held 329 Total % Family firms of total Freq. zoological gardens Engineering and management services Justice. SIC codes are two-digit standard industry classification codes. In about 51% (0. Nonfamily.81 1.86 0. . whereas diffusely-owned firms represent about 14% of their sample comprising of 5232 firms. 26% miscellaneous types.

Thus. while no significant relation is found in majority firms (in which family firms represent 85% of the firms). wholesale trade—durable goods (SIC 50). Thus. plausibly due to lower agency costs. in column 1. The country fixed-effects specification is supported by the Breusch and Pagan (1980) Lagrange multiplier test. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 3 presents descriptive statistics on average Tobin’s qs in different owner categories for each two-digit SIC code. and business services (SIC 73). whereas valuations are not affected by the choice of active versus passive family involvement in the firm (column 2). the results provide evidence on benefits with family control compared to control by nonfamily owners.330 B.6 Table 5 also compares family ownership in separate samples consisting of nonmajority. Regression results In this section. in Western European firms. Family ownership is a common feature of most industries in Western Europe. In Table 4. Table 5 investigates the impact of nonlinearities in the effects of family control on firm performance. family firms also have about 16% higher firm profitability in relative terms (family coefficient / average ROA without diffusely owned firms). Family firms have higher performance in nonmajority-controlled firms. shows that firm valuation (Tobin’s q) under family control rises by about 7% compared to firms with nonfamily controlling shareholders (family coefficient / average Tobin’s q without diffusely owned firms). while active family owners deliver higher profits. When ROA is the performance metric (column 4).and majority-controlled firms. whereas family control starts to increase profit rates at higher control levels (above 30% of votes). the relationship between firm performance and family ownership is analyzed.0 (column 5). the findings on active family control support the hypothesis that family management can increase efficiency as discussed in Section 2. In Tables 4 through 6. an interesting difference between valuations profits rates arises: family control is associated with increased valuation at moderate control levels (10–20% and 30–40% of votes). The same pattern is found when active family control is analyzed on a sub sample of only family firms (columns 3 and 6). Taken together. it would be incorrect to argue that family-control always increases firm performance because the These family control dummies for different control ranges assume that the effect of the control group (nonfamily firms) stays constant. The Family_all variable. it is particularly common in large industries like food and kindred products (SIC 20). the coefficient rises from 0. regressions are performed using a country fixed-effects (within) specification. electronic and other electric equipment (SIC 36). Robustness tests are left for Section 5. 4. the effects of active versus passive family control on firm performance are also examined. The principal result in Table 4 is that family-controlled firms have higher firm performance than firms controlled by other types of owners. Again. 6 .9 to 2. Thus. Active family control defined as holding one of the top two officer seats (Family_management) improves the accounting profit dramatically. such tight family control does not materialize in increased valuation levels.

12) 0.007 (À0.164** (2.74) 0. and zero otherwise.05) Included 0.22) Full sample ROA (4) À18. Maury / Journal of Corporate Finance 12 (2006) 321–341 1. 331 .32) 0. Widely held.811*** (7.31 1056 Family firms Tobin’s q (3) 0.091*** (À3.595*** (3.98) À0.34) 0. and zero otherwise.005** (À2.35) B. firm size (log of total assets in USD). Ownership.002 (0.90) 0.332 (0.60) À 0.13) Included 0.08) 0. The dependent variable is Tobin’s q in columns 1–3. and ROA in columns 4–6.86) 0.006** (À 2.98) Full sample ROA (5) À 18.859*** (7.03) À 0.005** (À2.104 (1.001 (0. and dummy variables for two-digit sic codes.455 (À1.48) À0.639 (À1.13) À0. a dummy variable that equals one if the controlling shareholder is an unlisted firm.54) À0.057*** (5.002 (0.164** (2. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise.55) À0. t-values are in parentheses.124*** (À 10. Multiple blockholders dummy.162** (À2. the difference between control and cash-flow rights held by the largest shareholder.13) Included 0.24) 0.13) Included 0.96) 0.109*** (À3.19 1672 À0.13) 0.74) 0.010 (À0.99) À0.389 (0.007*** (6. Capital expenditures / sales.001 (0.22) À0.007*** (À6.12) À0.56) À0. equals 1 if there are other blockholders with at least 10% of votes and zero otherwise.48) 0.946 (1.32) 0.007*** (À6.99) À0.360 (À0.41) À0. ***Significant at the 10%.32) Included 0.11) 0.007*** (8.Table 4 Firm performance and family control Full sample Tobin’s q (1) Constant Family_all Family_management Family_identified (less management) Family_unlisted Widely held firms (no controlling shareholder) Ownership Control minus ownership Multiple blockholders dummy Firm size (log of assets in USD) Capital expenditures / sales Sales growth (3 years) Total debt / total capital Two-digit SIC codes R2 Number of observations 0.47) 2.961*** (6. a dummy variable that equals one if the controlling shareholder is an identified family without managerial or board representation. and zero otherwise.30 1672 À0.348** (À 2.66) 0.58) 0. the fraction of cash-flow rights held by the largest shareholder. **.14) 0.810 (1.005 (0. and zero otherwise.115** (2.95) À 0. Sales growth (3 years). Chairman.011 (À0.987 (À1.33) 0.466 (0.55) À0.91) 0. respectively.78) À0.001 (À 0.74) À 0.108** (2.018 (À0.47) À0.008 (À0.13) 0.005 (0.006* (1.918** (1. Family_unlisted.20) À0. Family_management.026 (À0.65) 0.001 (À0.18) 0.094*** (À 3.18 1672 *. equal to one if a member of the identified controlling family is the CEO.022 (À0. The independent variables are: Family_all.860 (1.109** (2.86) À0. Honorary Chairman.001 (À0.21) 0.61) À0.005 (À0.20 1056 Family firms ROA (6) À9. or Vice Chairman.66) 0. The table presents results of country fixed-effects (within) regressions for a sample of 1672 non-financial Western European firms.30 1672 0.52) 0. Family_identified. Control minus ownership.006*** (À3.10) À0. and 1% levels.379 (0.125*** (À10.82) Included 0.070*** (8.007*** (8.006 (À0.113*** (À7.48) À0. 5%.069*** (8.36) À0.48) Full sample Tobin’s q (2) 0.037*** (3.56) À 0. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes. Total debt / total capital.54) 0.

the fraction of cash-flow rights held by the largest shareholder.08) Majority firms ROA (6) 3.082 (1.83) À0. Capital expenditures / sales. **. 40] Family_votes (%) [40.93) À0.07) À0.001 (0.05) 0.025 (0. 100] Family_all Widely held firms (no controlling shareholder) Ownership Control minus ownership Multiple blockholders dummy Firm size (log of assets in USD) Capital expenditures / sales Sales growth (3 years) Total debt / total capital Two-digit SIC codes R2 Number of observations 1. Multiple blockholders dummy.74) 0.102*** (À 4.86) À0.38) 0.311 (0.008*** (4.005** (À 2.084** (À2. Sales growth (3 years).027 (À 0.29 475 À0.78) 0.006 (À 1.462* (À1. The independent variables are: Family_all. Maury / Journal of Corporate Finance 12 (2006) 321–341 0.306 (0.39) 0. t-values are in parentheses.02) 0.070*** (8. Ownership.008 (1. 20] Family_votes (%) [20. and 1% levels.090*** (5.87) 0.007*** (6. and ROA in columns 4–6. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes.097*** (À3.05) 0.20] equals one if the controlling shareholder is a family or unlisted firm with votes z10% but b20%.020 (À1.08) 0.125*** (À10.01) 0. and zero otherwise (and correspondingly dummies for other control levels up to 100%).07) À 0.29) 0.39) À0.08) À 0.33 1197 À0.862** (2.37) 0.50) Included 0.21) 1. ***Significant at the 10%.025 (1.063*** (6.148*** (2. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise. the difference between control and cash-flow rights held by the largest shareholder.12) À0.002 (0. The dependent variable is Tobin’s q in columns 1–3.57) 0.07) Included 0. firm size (log of total assets in USD).007*** (8.005*** (À2.33) À 0. equals 1 if there are other blockholders with at least 10% of votes and zero otherwise.225 (À0.19) 0.518 (0.004 (À1.04) À0.507 (À1.99) 0.093*** (À3.76) Included 0.439** (2.332 Table 5 Nonlinearities in the relationship between firm performance and family control Full sample Tobin’s q (1) Constant Family_votes (%) [10.30 1672 Nonmajority firms Tobin’s q (2) 0.02) À0.51) À 0.09) À0.07) 0.247 (1.172** (2.008*** (À5.71) 1.975 (1.25) 0.000 (0.195*** (2. Family_votes (%) [10.061 (À1.18 1672 Nonmajority firms ROA (5) À8. .214 (0.30) Included 0.94) 0. Control minus ownership.335 (À0.47) B.011 (0.33) À0.397** (2.033 (0. 50] Family_votes (%) [50.08) 0.22) 0.38) À 0. 5%.25 475 *.63) 0.46) 2.013 (0.23) 0.059** (À2.007*** (À6.24) À0. Total debt / total capital.45) 0.62) Full sample ROA (4) 8.146*** (2.054 (À0. The table presents results of country fixed-effects (within) regressions for a sample of 1672 non-financial Western European firms.036 (À 1.967*** (6. and zero otherwise.64) Included 0.46) 0.09) Included 0.81) À0.30) Majority firms Tobin’s q (3) 1.05) À 1.35) À0.20 1197 À 0.71) 0.31) À0.132*** (À8. respectively.867 (1.037 (À1.454* (1.47) 0.11) 0.002 (0.982* (1.069 (À 0. 30] Family_votes (%) [30.26) 0.015 (0. Widely held.198 (À1.815*** (7.138* (1.86) 0.191*** (3.005 (À1.60) 0.70) À 0.03) À 0.000 (0.000 (À0.86) À0. and dummy variables for two-digit sic codes.

For comparison. Norway. 2005) than in countries in Western Europe. whereas the family firm coefficient is positive but insignificant when shareholder protection is lower. 9 Although not reported in the tables. Becht. appear to have higher valuations (but not higher profit rates) than nonfamily firms. In Table 6.9 The other governance related variables in Tables 4 through 6 include the fraction of cash-flow ownership held by the controlling shareholder. Germany. column 6).B. One reason for the low significance of the ownership variable may be that cash-flow incentives matter more on continents and in economies that feature lower quality of minority shareholders protection (La Porta et al. Table 6 further shows that diffusely held firms only perform better than nonfamily-controlled firms when investor protection is of good quality. Durnev and Kim. the sample is split into firms operating in countries with above the median score of antidirector rights (Panel A) and those equal to or below the median score (Panel B). 1998.. Countries above the median antidirector rights score 3 include Ireland. Spain.8 The profitability gains from family management vary between 2. Finland. Portugal. One explanation for the valuation of diffusely owned firms arises from the liquidity and risk-diversification benefits obtained through such dispersed ownership structures. and the UK.7 Family firms have significantly higher valuations when shareholder protection is above the median level. 1999). Bolton and von Thadden. Maury / Journal of Corporate Finance 12 (2006) 321–341 333 results suggest that family opportunism may increase at high control levels. France. and Switzerland. and that this difference is driven by the agency problem between the controlling family and minority shareholders. 2002. Taken as a whole. family-controlled firms have higher profit rates than nonfamily firms especially in family managed firms in both the high and low shareholder protection samples within Western Europe. in which there is no controlling shareholder. Italy. Firms with active family control (Family_management) have higher profit rates than nonfamily firms in both samples.063 and 1. The results support a nonmonotonic relationship between family control and firm performance that was discussed in Section 2. The results in Tables 4 and 5 also show that widely held firms. the positive effect of diffusely held firms on valuations appears to be driven mainly by firms in which control-rights by the largest shareholder are below 5% rather than in the range 5–10%. The ownership variable measuring the incentive effect of cash-flow rights is insignificantly related to firm performance in the full sample and in family firms in Tables 4 and 6. column 2) and to ROA in majority firms (Table 5. 7 . Belgium. Sweden. 8 The reported pattern also arises when the split is based on the legal origin of a country such as common law (generally higher protection) and non-common law (generally lower protection). The ownership variable is significantly negatively related to valuation in nonmajority firms (Table 5. These results favor the idea outlined in Section 2 stating that the level of legal shareholder protection has a different impact on the valuation as compared to the profitability of family firms.721 depending on the level of investor protection. and those equal to or below the median score include Austria. minority shareholders in nonmajority-controlled firms enjoy approximately equally high Tobin’s q values in family-controlled and diffusely owned firms (column 2 of Table 5). Thus there is a trade-off between liquidity and control when shareholder protection is good (see.

49) Family_identified 0.11) 1.204***.001 (À0.35) 0. High investor protection countries (antidirector rights above the median score) Constant 0.007*** (À 3.89) À 0.530*** (3.35 0.17) 0.85) 0.015 (À1.001 (0.08) À0.38) À 0.72) Control minus 0.13) À 0.81) À 0.041 (0.192** (2.067*** (5.001 (0.001 (À0.30 0.100 (0.21) À 0.019 (1.726* (1.98) 0.82) Total debt / total capital À0.18) 2.001 (À0.034 (À1.020 (1.294 (1.22) 0.099 (0.002 (À0.26 Number of observations 808 808 808 À 0.065*** (5.72) À 0.011 (À0.39) 0.13) Family_all 0.60) À 0.80) À 0.031 (À0.01) 0.075*** (5.015 (À0.183** (2.01) Widely held firms (no controlling shareholder) Ownership À0.075*** (5.548*** (3.062 (À0.203 (1. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 6 Firm performance.007 (À0.75) À 0.50) dummy Firm size (log of 0.100*** (À6.99) À 1.289 (0.17) 0.04) 0.013 (À0.04) (less management) Family_unlisted À0. investor protection.64) À0.040 (À1.80) 10.309 (À0.08) 0.133*** (À3.009 (0.009*** (À 5.648 (0.88) À0.161*** (À7.16) 0.002 (À0.006*** (5.200* (1.60) Total debt / total capital À0.052 (1.60) Family_management 0.09) 0.69) À0.063** (2.18 Number of observations 864 864 864 864 .24) À 0.07) À 0.26) ownership Multiple blockholders À0.207 (1.002 (0.219*** (2.44) 0.32) assets in USD) Capital expenditures / 0.83) 2.384 (0.006*** (5.009*** (7.015 (À0.158*** (À7.191** (2.320 (À0.000 (0.43) À 0.30 0.658 (0.450*** (7.10) Family_identified 0.38) 1.35) 0.71) 0.721** (2.26 808 Panel B.009*** (6.86) 0.964 (À1.060 (À0.94) sales Sales growth (3 years) 0.105 (0.493*** (7.02) À 0.83) 0.65) 0.77) sales Sales growth (3 years) 0.65) Family_all 0.313** (2.35 0.28) À0.001 (0.002 (0.97) À0.17) À 0.76) À 0.05) 1.043 (0.84) assets in USD) Capital expenditures / 0.67) À 0.647 (1.17 0.860 (À1.15) Control minus ownership À0.13) 0.334 B.131*** (À3.006** (À2.10) À 0.06) 0.04) 0.013 (À0.366*** (2.59) Included 0.82) dummy Firm size (log of À0.009 (0.19) 0.012w (0.007*** (À3. Low investor protection countries (antidirector rights equal to or below the median score) Constant 2.85) À 9. and family control Tobin’s q (1) Tobin’s q (2) ROA (3) ROA (4) À 10.828 (1.33) Multiple blockholders 0.000 (0.055 (1.105*** (À7.58) 1.31) (no controlling shareholder) Ownership 0.94) 0.32) Panel A.84) (less management) Family_unlisted 0.36) À 0.73) 10.81) Widely held firms 0.11) Two-digit SIC codes Included Included Included Included R2 0.79) Two-digit SIC codes Included Included Included R2 0.009*** (À5.626 (0.257 (À1.016 (À0.005** (À 2.001 (0.62) 0.74) 0.w (3.13) Family_management 0.04) 1.48) 0.

equal to one if a member of the identified controlling family is the CEO. Widely held. excess control looses significance in valuation models due to the correlation between family dummies for high control levels. The dummy variable for the presence of multiple controlling blocks is generally insignificantly related to firm performance in the full sample and in family firms. (2002) who find that excess control is associated with lower valuations in East Asian firms. but positive although generally insignificantly related to valuation. and leverage. or Vice Chairman. and 1% levels. Chairman. it is not significantly related to ROA in nonmajority firms (Table 5). and zero otherwise. the difference between control and cash-flow rights held by the largest shareholder. Ownership. wwwdenote that the family firm coefficient is statistically different in the high investor protection and the low investor protection samples at the 10%. and zero otherwise. Although the issue of who monitors the controlling family deserves a closer analysis. Capital expenditures / sales. One explanation for the overall insignificance of the presence of multiple blockholders is that the incentives to monitor or collude with the leading shareholder are affected by the relative size and type of the other blockholders (Maury and Pajuste. Maury / Journal of Corporate Finance 12 (2006) 321–341 335 The estimate of excess control is negative and significant in value models in Tables 4 and 6. and zero otherwise. The high investor protection sample (Panel A) includes firms from countries with an antidirector rights score 4 or above. Sales growth is positively whereas leverage is negatively related to valuation and ROA. 2005). but unrelated to valuation. respectively. It seems likely that control contestability becomes important from a valuation perspective when shareholder protection is of lower level. respectively. t-values are in parentheses. a dummy variable that equals one if the controlling shareholder is an unlisted firm. 5%. Family_unlisted. The variable capital expenditures to sales is mostly significantly negatively related to ROA. is beyond the scope of this paper. Total debt / total capital. the connection between family control and different types of monitors. The independent variables are: Family_all. whereas such excess control does not affect valuations when investor protection is of better quality (Panel A). The table presents results of country fixed-effects (within) regressions for a sample of 1672 non-financial Western European firms. . Notes to Table 6: *. ww. Control variables include size. Family_identified. Firm size is positively related to ROA. whereas the low investor protection sample (Panel B) includes firms from countries with an antidirector rights score 3 or below.B. the fraction of cash-flow rights held by the largest shareholder. and zero otherwise. ***Significant at the 10%. firm size (log of total assets in USD). a dummy variable that equals one if the controlling shareholder is an identified family without managerial or board representation. and dummy variables for two-digit sic codes. growth. but insignificantly related to ROA. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise. This result is consistent with Claessens et al. w. Sales growth (3 years). and 1% levels. In Table 5. Control minus ownership. including independent board members and financial institutions. but significantly negatively related to ROA in majority-controlled firms in Table 5. The dependent variable is Tobin’s q in columns 1–2 and ROA in columns 3–4. While excess control is significantly negatively related to ROA in majority-controlled firms. Honorary Chairman. Family_management. capital expenditures. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes. as expected due to the potential entrenchment effect with excess control. 5%. Further analysis in Table 6 shows that excess control lowers firm value when shareholder protection is of poorer quality (Panel B). Multiple blockholders dummy. **. equals 1 if there are other blockholders with at least 10% of votes and zero otherwise.

and corporate takeovers suggest that firm performance may affect the ownership structure of firms. log of market value of equity is used as a size measure in the first-stage. Family firms are also positively related to Tobin’s q and ROA. I address the self-selection or reverse causality problem using the Heckman (1979) twostep treatment effects model. Demsetz and Lehn (1985) and Demsetz and Villalonga (2001) argue that the market succeeds in bringing forth ownership structures that are close to optimal. Maury / Journal of Corporate Finance 12 (2006) 321–341 5. regulation. but excludes those two-digit SIC dummies that perfectly predict family firms. Endogeneity There is reason to believe that family ownership is affected by firm performance to some extent.12 In Table 7. In addition. The second-stage regression shows that the family firm (treatment) coefficient is positive and significant at the 1% level using both Tobin’s q and ROA. insider trading possibilities. I model family control as an endogenous choice. The antidirector rights index is included in the models because ownership may vary across countries depending on their legal systems (Shleifer and Wolfenzon. The k is statistically significant. 11 The coefficients for the family firm dummy are qualitatively similar when the antidirector rights index is excluded from the models and country dummies are included in the second stage regression. To meet the exclusion restrictions necessary for identification. as suggested by Demsetz and Villalonga (2001). whereas log of assets enters the second-stage model. 5. Industry issues The analysis in this paper has focused on non-financial firms because valuation ratios and accounting profit rates are not comparable for financial firms to those of non-financial firms. and the stability of the environment in which they function. I present Heckman’s (1979) model in Table 7 because it is preferable since the endogenous regressor (family firm dummy) is dichotomous. The question is whether systematic performance differences will arise between family firms and nonfamily firms despite the potential endogeneity of family control.2. 2002). 10 . Thus families are more likely to control high Tobin’s q firms. 12 Using log of asset size in the first-stage yield similar results.1. the first-stage regression shows that family firms are negatively related to firm risk. However. They suggest that ownership structures are firms-specific because of differences in the circumstance facing firms such as economies of scale.10 In the treatment effects model. although the ROA coefficient is not statistically significant. Demsetz and Villalonga (2001) also note that compensation plans.336 B. the Heckman’s model shows that family firms perform better than nonfamily firms. because the controlling family may retain control only of firms with favorable prospects. I also estimated the family firm coefficient using an instrumental-variables 2SLS model and found similar results as with the treatment model. Robustness tests 5. antidirector rights and size (other control variables are not shown to conserve space). indicating that single-equation estimates are biased. Taken together.11 The probit model also includes all other control variables that enter the second-stage (outcome) regression. the firststage probit model includes the variability in the profit rate used in Demsetz and Lehn (1985) and a performance measure (either Tobin’s q or ROA). since firm performance may itself affect the ownership structure.

Control minus ownership.119*** (À4.64) À0.033*** (À2.210 (0.29) À0.07) 0.53) 1.51) 0. equals 1 if the there are other blockholders with at least 10% of votes and zero otherwise.25) Included À10.59) À0.34) 17.029** (À 2.751 (1. Multiple blockholders dummy. firm size (log of total assets in USD). The variables are: Family_all. First-stage regressions Constant Log of equity STDa STDa dummy Tobin’s q ROA Antidirector rights Control variables Two-digit SIC code dummies Panel B.13 The coefficient for family control is positive in both the Tobin’s q and ROA specifications. the standard deviation of the 5-year net income / total assets (or available years).276 (1. the relevant performance variable (Tobin’s q or ROA).06) 0.016*** 735. The results of the impact of family ownership on performance in 393 financial firms (SICs 6000 through 6999) are shown separately in Table 8.010*** (À5.182*** (3. Total debt / total capital. STDa dummy variable equal to 1 if data were missing to compute the risk measure.44) À0.063*** (5.067** (À 2.99) À0.87) 0. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes. and all other control variables that enter the second stage. and 1% levels.009 (1.107*** (À 4.123*** (À5.28) 0.48) 0.013*** (À5. Widely held.197*** (7. 13 Families or unlisted firms control 45% of the financial firms.053*** (3.16) Included Included Tobin’s q 0. although statistically insignificant. The table presents Heckman’s treatment regressions for 1672 non-financial Western European firms.00) – 0.37) À0.075*** 586. .89) 1. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise.17) 0.371*** (4. STDa. the difference between control and cash-flow rights held by the largest shareholder. Sales growth (3 years). **. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 7 Firm performance and family control controlling for endogeneity Family firm (1) Panel A.B.67) À0.057*** (2.43) À0. The instruments for the family firm dummy are: Log of equity.000 (À0.16*** ROA À13.68) À0. the logarithm of market value of equity (USD). and dummy variables for two-digit sic codes. 5%. excluding industry dummies that perfectly predict family firms.025*** (À3.14) 1.26) 0.63) À0. Treatment regressions Dependent variable: Constant Family_all Widely held firms (no controlling shareholder) Ownership Control minus ownership Multiple blockholders dummy Antidirector rights Capital expenditures / sales Firm size (log of assets) Sales growth (3 years) Total debt / total capital Two-digit SIC code dummies Heckman’s k Wald v 2 0.423** (2.130*** (5.143*** (À 8. Ownership. Capital expenditures / sales.196*** (À3.14) Included Included Family firm (2) 337 0.64) 1.61) 0. the fraction of cash-flow rights held by the largest shareholder.82) Included À1.248*** (3. and zero otherwise.117*** (À4.244 (0.798*** (6.19) – À0.006*** (5.707*** (6.003 (0.61*** *.51) 0. respectively. ***Significant at the 10%.777 (1.011*** (À3.025*** (13. t-values are in parentheses.54) À0.19) 0.78) À0.

006** (À 2.110* (1. respectively.141*** (À2.004 (À0.53) À 0. 36.46) À0.002* (À1.42) À 0. or Vice Chairman. **.41) 0.002** (À 2. Family_identified. Sales growth (3 years).000 (À0.36) 0. and zero otherwise.58) 0.37) ROA (4) 8.036*** (3.87) 0. a dummy variable that equals one if the controlling shareholder is an identified family without managerial or board representation.17) À 0. and 73).68) À0.439 (À0.77) Included 0.96) À 0.00) À 0.83) 0. The independent variables are: Family_all.58) 0.35) À0. a dummy variable that equals one if the controlling shareholder is an unlisted firm. Honorary Chairman.022 (À0. t-values are in parentheses.90) 0. and zero otherwise.04) À0. The table presents results of country fixed-effects (within) regressions for a sample of 1340 non-financial (without technology firms) and 393 financial Western European firms.000 (À0.001* (1.0003 (À0. Multiple blockholders dummy.092* (1. and zero otherwise.111 (1. 5%. Control minus ownership.042 (À0.013 (0.83) 0.005 (À0. Family_unlisted.49) 0.142** (2.97) À 0.28) Included 0.18) À0. Chairman.001 (0.128* (1. 38. The results are displayed in Table 8.17 393 *.006** (À2. firm size (log of total assets in USD). .103** (2.06) 0.006*** (7.77) À 0.79) Included 0. Maury / Journal of Corporate Finance 12 (2006) 321–341 Table 8 Regression results on the relationship between firm performance and family control using alternative specifications Without technology firms Tobin’s q (1) Constant Family_all Family_management Family_identified (less management) Family_unlisted Widely held firms (no controlling shareholder) Ownership Control minus ownership Multiple blockholders dummy Firm size (log of assets in USD) Capital expenditures / sales Sales growth (3 years) Total debt / total capital Two-digit SIC codes R2 Number of observations 1.26 1340 À0. Widely held.006*** (7.09) À0.019 (1. Total debt / total capital. Family_management. The dependent variable is Tobin’s q in columns 1–3.032*** (À2.68) 0.005 (À0.77) À 0.17) À 0.87) 0.724*** (2.001 (0.21) À0.30) 0.68) 0.27) 0.26 1340 À 0. and return on assets in column 4.277*** (10. To check whether the impact family ownership on firm performance is driven by the market performance of technology firms.113 (1. the fraction of cash-flow rights held by the largest shareholder.12) À0. I re-estimate the regression models in Table 4 excluding technology firms (SICs 35. and zero otherwise. and dummy variables for twodigit sic codes.021 (À0.06) Financial firms Financial firms Tobin’s q (3) 2.006** (2.16 393 À 0.007*** (À 5.007*** (À5.002** (À2.037*** (À2. a dummy variable that equals one if the firm has no shareholder with at least 10% of the votes. the impact of family ownership seems to be more pronounced in non-financial firms than in financial firms.006 (À0.28) Without technology firms Tobin’s q (2) 1.73) 0. a dummy variable that equals one if the controlling shareholder is a family or an unlisted firm and zero otherwise. ***Significant at the 10%.56) À0. equals 1 if there are other blockholders with at least 10% of votes and zero otherwise.064 (1.05) 0.143** (2. the difference between control and cash-flow rights held by the largest shareholder. equal to one if a member of the identified controlling family is the CEO.33) Included 0. and 1% levels. Overall.338 B. Ownership.174 (0. Capital expenditures / sales.

Active family ownership. Family control improves valuation at lower control levels. As another industry check. I calculate variance inflation factors (VIF) for all variables in the models. Finally. At high control levels the benefits of family control starts to taper off. as well as to dropping firms with Tobin’s qs above 6 and 10. namely return on equity (ROE). whereas active ownership does not change the value premium of family firms. At high control levels. The results are qualitatively similar when Tobin’s q and ROA are censored at the 1st and 99th percentiles. and especially valuations start to decline. although this improvement is not reflected in firm value and thus may not accrue to minority shareholders. The dramatically improved profitability that comes with active family control suggests that family management may significantly increase the efficiency of the firms. I discuss the impact of outliers on the effect on family control. The VIF values are insignificant and thus do not indicate concerns with multicollinearity among the independent variables in any model. there is rather high correlation between the variables dControl minus ownershipT and family votes above 50 (although VIF values are insignificant). while profitability ratios start to increase at higher control levels. in which the family holds at least one of the top two officer positions. Omitting the dummy variable for family votes above 50 makes the excess control variable significantly negatively related to value as in Tables 4 and 6. and control minus ownership variables in the same model does not lead to multicollinerity problems. However. I excluded industries with 100% family or nonfamily representation. the potential for family opportunism increases. Passive family ownership does not affect the profitability of family firms compared with nonfamily firms. The results on family control are robust to the exclusion of those 11 industries displayed in Table 3 that are fully represented by either family or nonfamily firms. Conclusions This paper shows that family control can increase performance in Western European firms. . The results are similar although less significant than those obtained by using return on assets.4. In particular. in columns 1 and 4 of Table 5. improves profitability. Tests of multicollinearity To make sure that multicollinearity is not a problem in the regression models. including the family firm dummy. The results also indicate that family ownership lowers the classical agency problem between owners and managers. the benefits of family control are most pronounced in nonmajority firms.B. Additional robustness tests I check the sensitivity of the results using ROA to the use of an alternative profitability measure. Maury / Journal of Corporate Finance 12 (2006) 321–341 339 and show that the results are robust to the exclusion the 332 technology firms in the sample. 6.3. ownership. 5. 5.

Anderson and Reeb. A. controlling families in Asia tend to participate with lower proportions of cash-flow rights than family owners in Western Europe and thus may have lower incentives (Faccio et al. Administrative Science Quarterly 49. Journal of Finance 58.. low transparency may also reduce the desirability of family control from the perspective of minority shareholders. 2003. Moreover. For comparison. Thus. and ¨ ¨ ¨ OKO Bank Research Foundation is gratefully acknowledged. Consistent with Faccio et al. The effects of family control in Western European firms as a whole resemble those found for US firms where the market is well-regulated (e. family control seem to affect firm performance differently depending on the level of transparency and regulation in a region. 2001). Methodology The regressions in Tables 4 through 6 and Table 8 are estimated using country-fixed (within) effects. Financial support from the Finnish Academy of Sciences.1. R. 209 – 237. D.2.. Maury / Journal of Corporate Finance 12 (2006) 321–341 The findings have implications for the debate on the performance of family-controlled firms in different legal and cultural settings. although families in Europe hold larger ownership stakes on average in their firms. (2001). Founding-family ownership and firm performance: evidence from the S&P 500. family ownership in well-regulated environments does not seem to harm minority shareholders but instead benefit them.M.. Reeb. Reeb. R. 1301 – 1328. References Anderson. Anderson. Bengt Holmstrom. 2004. Appendix A.C.340 B. Anders Loflund. The results suggest the following policy implication: by improving minority shareholder protection.M. the efficiency gains from active family control can be translated into higher firm valuation to the benefit of all shareholders in a firm. D. Stiftelsen for framjande av vardepappersmarknaden i Finland. Acknowledgements I am grateful to Tom Berglund. ¨ ¨ and an anonymous referee for helpful comments.. Data and methodology A.. Data The data set is obtained by linking Faccio and Lang’s (2002) ownership database to WorldScope financial data (2003 January edition). Matti Keloharju.C. . whereas regressions in Table 7 are estimated without country-fixed effects but they include a variable for antidirector rights measuring effects between countries. Board composition: balancing family influence in S&P 500 firms.g. 2003).. while powerful families may become notorious for putting their personal interest first when they cannot be challenged.

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