Family Ownership Stake: Does the Amount Matter?

Often we treat family firms as a monolithic group. In particular, we do not make any differences between firms in which a family holds the majority of shares versus a firm in which the family is a blockholder with as few as 5 or 10% ownership shares. But is this simplification correct?

To answer those questions my former student Nemo Rime, who now works as an investment banking analyst in London, and I sat together in 2013 to design a study that answers how pure family firms (ownership >25%; FF), family-influenced firms (ownership between 5 and 25%; FIF), and non-family firms (NFF) differ in terms of various performance measures and investment behavior.

That‘s the outcome, as summarized in Nemo‘s excellent thesis:

  • In Germany, the pure family firms clearly outperformed the other types of organizations with respect to profit margins. In Switzerland, however, the non-family firms outperformed. Overall, we observed an outperformance of family firms with respect to several performance indicators.
  • Family-influenced firms, however, play a more volatile role, sometimes being top performers and sometimes underperformers
  • The outperformance of family-firms was observed in most years between 2000 and 2014 but seems to be stronger in times of economic crises as compared to boosting economies.
  • Pure family firms spend most money on CAPEX investments and family-influenced firms spend least money on CAPEX.
  • Family-influenced companies had the highest R&D investment, whereas pure family firms had the lowest R&D investments.

More analyses are now required. For instance, some of the findigs above might be due to industry or size differences. But what do we learn so far? Clearly, it is not a good idea to treat all family firms the same, but our anaylses need to become much more advanced!

performance_Ebitda
Rime (2016): EBITDA margin of pure family firms (FF), family-influenced firms (FIF), and non-family firms (NFF)

The findings of this study are based on 365 publically listed German and Swiss firms that were observed from 2000 to 2014.

Patenting behavior of family firms

In his thesis, Dario Flückiger examined the patenting behavior of 69 automotive companies with European headquarters over the course of 3 years. Here is what he found:

  • There is no significant difference in the number of patents between family and non-family firms
  • However, patents of family firms are significantly less cited than that of non-family firms. This could be a sign of family firms innovating less radically with their innovations having less impact for the entire industry development
  • In terms of sales growth and profitability, family firms were outperforming non-family firms
  • Number of patents and patent citations both had a positive and significant effect on sales growth (measured with a 3-year time lag).
  • However, interestingly, number of patents and patent citations had a negative and significant effect on profitability (measured with a 3-year time lag)

If you are interested in the full results, please send an email to nadine.kammerlander [at] whu.edu