Investment Behavior and Performance of Family Firms
Author | : Jörg Berner |
Publisher | : |
Total Pages | : |
Release | : 2013 |
Genre | : |
ISBN | : |
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This study investigates how different categories of family firms perform and how their investment behavior relates to performance. Based on a sample of 366 publicly quoted companies in Switzerland and Germany, family-related businesses overall and in particular such ones led by family members, but not founders, are established to outperform for both market and book returns. Therefore, against theoretical expectations, founders do in this study not exhibit superior governance than their successors in family firms. Investment intensity is observed to differ among firm groups only for R&D, but not for capital expenditure. Higher as well as more procyclical R&D spending are suggested to negatively correlate with stock returns. As family businesses are characterized by lower and less procyclical R&D investing than nonfamily firms, the group's investment behavior is identified as potential determinant of its outperformance. Founder-led firms demonstrate to be comparably young, growth-oriented companies which are compensating their high business risk with very low financial leverage. The positive correlation of investment intensity and financial leverage for this group is interpreted as tendency to prioritize firm control over business prosperity, as suggested by Gómez-Mejía et al. (2007). Firms led by family successors, on the other hand, tend to be business risk-averse and highly stable over time.