Performance, valuation and capital structure: a survey of family firms

• Author(s): Galvão, Jorge Manuel Mendes
• Date: 2009
• Persistent ID: http://hdl.handle.net/10400.6/2999
• Origin: uBibliorum
• Subject(s): Empresa familiar; Pequenas empresas -- Gestão
• Document Type: Master thesis
• Language: English
• Advisor(s): Gama, Ana Paula Bernardino Matias
• Contributor(s): uBibliorum

Description

Most countries often have public companies with large controlling owners, typically a family or a private person (La Porta et al. 1999, 2002). This empirical evidence contrasts with the classical view of the largest dispersed firm presented by Berle and Means (1932). This picture challenges the findings by Bhattacharya and Ravikumar (2001), who predict that the shares held by families will decrease if an efficient financial market is put in place. Therefore, family firms represent an important group in the stock market today and motivate a thorough investigation of the effect of the family as a controlling owner on the firms‘ performance, valuation and capital structure. The objective of this paper is three fold: first, we discuss whether family firms do really behave differently from non-family firms, and if so, how and why they are different; secondly, we review current literature related to how family (taking in account specific governance characteristics such as family ownership, family control and family management) affects the firms‘ performance and value; thirdly, we focus on how ownership/governance structure influences capital structure, as a proxy for risk aversion. The literature allows us to conclude that the founder‘s family control and professional (outside) management increase performance, whereas excess control via control enhancing mechanisms (such as dual class shares and pyramidal structures) and descendent management produce both lower valuation and performance. This evidence means that families have the incentives and the power to systematically expropriate the wealth from minority shareholders. Furthermore, the low debt level of family firms is considered as an external manifestation of a firm‘s control risk aversion.