Performance and Behavior of Family Firms: Evidence from the French Stock Market

Abstract

This paper empirically documents the performance and behavior of family firms listed on the French stock exchange between 1994 and 2000. On the French stock market, approximately one third of the firms are widely held, whereas the remaining two thirds are family firms. We find that, in the cross‐section, family firms largely outperform widely held corporations. This result holds for founder‐controlled firms, professionally managed family firms, but more surprisingly also for firms run by descendants of the founder. We offer explanations for the good performance of family firms. First, we present evidence of a more efficient use of labor in heir‐managed firms. These firms pay lower wages, even allowing for skill and age structure. We also find that descendants smooth out industry shocks and manage to honor implicit labor contracts. Second, we present evidence consistent with outside CEOs in family firms making a more parsimonious use of capital. They employ more unskilled, cheap labor, use less capital, pay lower interest rates on debt and initiate more profitable acquisitions. (JEL: G32, L25, J31)

Are Founding Families Special Blockholders? - An Investigation of Controlling Shareholder Influence on Firm Performance

“…In a study on German listed firms, Andres (2008) finds that family firms are more profitable than both widely held companies and companies with other blockholder types. In line with evidence found in Sraer and Thesmar (2007), he finds that performance, in particular, increases with a founding family member actively managing the company and that founder-managed companies show the strongest effect on performance.…”

“…These initial negative findings on family firms were followed by studies on other countries that find a more positive link between family characteristics and firm value. Sraer and Thesmar (2007) research French-listed family firms and report that family firms outperform widely held companies, independent of a founder, descendant or outsider managing the firm. They additionally find that founders account for most of the outperformance, and propose different reasons linked to 8 labour force, wages and productivity to explain why the respective management type delivers superior performance.…”

“…Following extant literature on family firms and blockholders, a company is defined as being widely held if no shareholder holds more than 20% of ultimate voting rights (see among others Villalonga and Amit (2006), Sraer and Thesmar (2007)). Although a threshold of 20% may seem low, there exists a widely accepted view that due to generally low annual meeting attendance and active representation of blockholders either as chairman of the board or CEO in many companies, it is sufficient for having an influence on company policies and management.…”

Excess Control Rights and Corporate Acquisitions

“…Lacking sufficient skills, heirs CEOs may be less likely to engage in complex acquisitions. In line with this argument, Sraer and Thesmar (2007) show that descendant-managed family firms make significantly fewer acquisitions.…”

Family Firms and Investments

“…On the other hand, Khanna and Palepu (2000) for India, Sraer and Thesmar (2007) for France, Barontini and Caprio (2006) for continental Europe and Favero et al (2006) for Italy find a better performance for family firms. In particular, Barontini and Caprio show that (listed) family firms tend to use more than other firms control-enhancing mechanisms, but controlling for their adoption (which is found to be wealth reducing) show that family firms outperform the others.…”