Are Family Firms Better Performers during Financial Crisis?

Despite extensive researches on efficiency of family firms in normal or good economic times, we know rather little about whether family firms are superior performers in recession times. Using a dataset covering firms from S&P 500 (US), FTE100 (UK), DAX 30 (Germany), CAC 40 (France) and FTSE MIB 40 (Italy) during the period 2006-2010, I give empirical evidences examining the performance of family firms vis-à-vis non-family firms during the current financial crisis. I find that broadly defined family firms, comprising 35 percent of the sample, do not outperform non-family firms during the crisis whether I use market performance measure (Tobin’s Q) or accounting performance measure (Operating Return on Assets (OROA)). However, family firms with founder presence (as CEO, a board member or a significant blockholder) outperform by 18 percent relative to non-family firms in OROA. Tobin’s Q of founder firms, by contrast, does not exhibit difference significantly. I interpret the attenuation of founder firms’ market value premium as the result of high volatility of stock prices and investors’ overreaction during the crisis (Veronesi, 1999; Glode et al., 2010). Further testing shows that in the crisis, compared with non-family firms, founder firms have less administrative costs incurred. Moreover, they invest significantly less and have better access to credit market. All these findings contribute to superior accounting performance of founder firms during the crisis. My results suggest that in the financial crisis, founder firms bear the least agency cost and Tobin’s Q is not a good measure of corporate performance.