We investigate the relation between founding-family ownership and firm performance. We find that family ownership is both prevalent and substantial; families are present in one-third of the S&P 500 and account for 18 percent of outstanding equity. Contrary to our conjecture, we find family firms perform better than nonfamily firms. Additional analysis reveals that the relation between family holdings and firm performance is nonlinear and that when family members serve as CEO, performance is better than with outside CEOs. Overall, our results are inconsistent with the hypothesis that minority shareholders are adversely affected by family ownership, suggesting that family ownership is an effective organizational structure. FOUNDING-FAMILYOWNERSHIPAND CONTROL in public U.S. firms is commonly perceived as a less efficient, or at the very least, a less profitable ownership structure than dispersed ownership. Fama and Jensen (1983) note that combining ownership and control allows concentrated shareholders to exchange profits for private rents. Demsetz (1983) argues that such owners may choose nonpecuniary consumption and thereby draw scarce resources away from profitable projects. Shleifer and Vishny (1997) observe that the large premiums associated with superiorvoting shares or control rights provide evidence that controlling shareholders seek to extract private benefits from the firm. More generally, firms with large, undiversified owners such as founding families may forgo maximum profits because they are unable to separate their financial preferences with those of outside owners.1 Families also often limit executive management positions to family

https://www.jstor.org/stable/pdfplus/3094581.pdf

Founding-Family Ownership and Firm Performance: Evidence from the S&P 500

Using proxy data on all Fortune 500 firms during 1994-2000, we establish that, in order to understand whether and when family firms are more or less valuable than nonfamily firms, one must distinguish among three fundamental elements in the definition of family firms: ownership, control, and management. Specifically, we find that family ownership creates value only when the founder serves as the CEO of the family firm or as its Chairman with a hired CEO. Control mechanisms including dual share classes, pyramids, and voting agreements reduce the founder's premium. When descendants serve as CEOs, firm value is destroyed. Our findings further suggest that the classic owner-manager conflict in nonfamily firms is more costly than the conflict between family and nonfamily shareholders in founder-CEO firms. However, the conflict between family and nonfamily shareholders in descendant-CEO firms is more costly than the owner-manager conflict in nonfamily firms.

/pdf/how-do-family-ownership-control-and-management-affect-firm-24a2230pan.pdf

How Do Family Ownership, Control, and Management Affect Firm Value?

https://finance.wharton.upenn.edu/department/Seminar/2004Fall/MicroFall2004/micro-VillalongaAmit-v2-092304.pdf

How do family ownership, control and management affect firm value?

Examination of firms in 47 countries shows a widespread overlap of controlling shareholders and top officers who are connected with national parliaments or governments, particularly in countries with higher levels of corruption, with barriers to foreign investment, and with more transparent systems. Connections are diminished when regulations set more limits on official behavior. Additionally, I show that the announcement of a new political connection results in a significant increase in value.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID564281_code179428.pdf?abstractid=444960&rulid=5288166&mirid=5

Politically Connected Firms

Earnings Management and Investor Protection: An International Comparison

The ultimate ownership of Western European corporations

Politically connected firms

We analyze the likelihood of government bailouts of 450 politically connected firms from 35 countries during 1997‐2002. Politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm’s home government. Further, among bailed-out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress.

/pdf/political-connections-and-corporate-bailouts-1aoftlgsfy.pdf

Political Connections and Corporate Bailouts

In Western Europe and East Asia, capital markets require higher dividends from corporations tightly affiliated (at the 20% level of control) to a group and, within a group, from corporations whose controlling shareholder has a lower ratio O/C of ownership to control rights. For loosely-affiliated corporations (whose controlling shareholder holds between 10% and 20% of control rights), dividends are positively related to O/C, reflecting expropriation not contained by capital markets. Such corporations comprise 2.94% of European corporations, but 15.44 % of Asian corporations. In our 9 Asian economies, the 11 largest groups at the 10% level comprise 53.75% of all corporations and 84.58% of loosely-affiliated corporations, so most expropriation occurs here. Dividend are higher in Europe than in Asia; having multiple large shareholders increases dividends in Europe but decreases them in Asia.

https://papers.ssrn.com/sol3/Delivery.cfm/000421556.pdf?abstractid=222428&mirid=1&type=2

Mara Faccio

Papers

The ultimate ownership of Western European corporations

Politically Connected Firms

Politically connected firms

Political Connections and Corporate Bailouts

Dividends and Expropriation