hi everyone, based on last weeks “godfather” skit, we’d like to start a discussion on whether people think that founding-family ownership does effect firm performance, if yes, how and to what extent. we concluded from the paper by anderson and reeb, that performance is infact related to founding family ownership. we will upload the slides soon so you can get an idea about their views and opinions in the paper.
please find the slides on the following link:
http://www.slideshare.net/guestd26d34/presentation1-for-family-business
do you think there is an effect on firm performance of varying CEOs and family memeber participation at th eexecutive level of the business under various conditions?are there any more authors in the field who have conducted similar research and come up with different and contradicting arguments and theories?
it would also be interesting if you could provide us with examples of family business http://news.bbc.co.uk/1/hi/business/5255626.stm in your country or in the united kingdom with which have managed to fare well with founding-family ownership. reliance is an example to look at in india. amedei is another chocolate family business in italy that somebody can look into.
Hi guys, please go to this LINK, and you can view our MICA report on the Harillela Enterprise. I have chosen to paste it here because the Harillela’s were the founding-family, and remained owners. Although they had many hiccups, they performed well, owning several hotels and a net worth of $3.5 billion in 2000!
Argentina Family Business & Succession in Family Firms by Roberto Kertesz and Clara. I . Atalaya
The let’s look at an Argentinean family firm
Which was run by the Gomez for four terms,
This is a tale
About four generations of males
In which the last one fails.
And we can tell
The Tobacco empire began with Manuel.
Jose came next,
in an period where people would rather smoke than rest.
Osvaldo found the perfect expansion solution
By opening 300 more shops for distribution.
Alas the family business was nearing its end
But they brought Gonzalo as the CEO who tried his best to mend.
The last hopes of the company were Fernando and alberto,
But when it came to the business, they both lacked sufficient momento.
__________________________________________________________________________________________________
Based on what we talked about in class, there are clear advantages of the involvement of family members in their business. These include:
Low agency costs
Dynamic (as a result of commitment)
Lower levels of bureaucracy
Etc.
Anderson & Reeb in their article directly compare the firm’s performance as a result of founding family member ownership in public firms, using the basis of the S&P 500 firms to evaluate the results. The article in essence talks about the positive impact on accounting and market performance of these firms. An important factor mention was that regardless of the Family member CEO or hired CEO the firm outperformed non-family public firms.
When reading the abstract of Mauray’s paper I realised that most of these papers examine firms in the ‘western world,’ which got me thinking if this was the same case in the ELDC’s. Family firms are known to avoid equity financing which in a rapidly growing economy maybe necessary for the growth of the business. If the firms avoid this wouldn’t it cap them and thus affect performance?
Anderson & Reeb http://www.jstor.org/stable/3094581
Benjamin Mauray http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VFK-4GG2HYH-1&_user=10&_coverDate=01%2F31%2F2006&_rdoc=1&_fmt=high&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1227603398&_rerunOrigin=scholar.google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=bd03e2c47ddf61efa7288f91b34e70a2
While reading on the subject of founding family ownership and firm performance I found the following article, which is correlated to both our discussions in class and also Pawan’s article. In short, findings confirm that family firms tend to outperform non-family firms.
“We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries.
Our results confirm that families are the type of controlling shareholders that most recur to the control-enhancing devices which are associated with lower valuation and performance. However, even after taking into account that family-controlled corporations exhibit larger separation between control and cash-flow rights, our results do not support the hypothesis that family control hampers firm performance.
Valuation and operating performance are significantly higher in founder-controlled corporations, and are at least not worse than average in descendants-controlled corporations. Thus, our results lead to the conclusion that family control is positive for firm value and operating performance in Continental European firms. This is true not only when the founder is still alive, but also when the controlling stake is held by descendants that sit on the board as non-executive directors. When a descendant takes the position of CEO, family-controlled companies are not statistically distinguishable from non-family ones in terms of valuation and performance.”
Source: Roberto Barontini, Lorenzo Caprio June 2005
The Effect of Family Control on Firm Value and Performance. Evidence from Continental Europe
http://papers.ssrn.com/Sol3/papers.cfm?abstract_id=675983