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The outperformance of family firms: the role of variance in earnings per share and analyst forecast dispersion on the Swiss market

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  • Thomas Zellweger

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  • Roger Meister
  • Urs Fueglistaller
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    Abstract

    Recent studies provide empirical evidence that family firms are outperforming their non-family counterparts in terms of stock market performance. For the Swiss stock market we find that family firms indeed outperform their non-family counterparts after controlling for firm size and beta. In addition, our data shows that family firms display more stable earnings per share in contrast to their non-family counterparts. Furthermore we find that the variance of earnings per share positively affects analyst forecast dispersion. According to anomaly literature, lower analyst forecast dispersion has been found to induce higher excess return, which our data supports for the Swiss stock market. By linking variance of earnings per share, analyst forecast dispersion and stock performance we provide an insightful explanation for the excess stock market returns of family firms. In addition, our text extends the theory of dispersion effect with an additional empirical element, the variance of earnings per share. Copyright Swiss Society for Financial Market Research 2007

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    File URL: http://hdl.handle.net/10.1007/s11408-007-0045-7
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    Bibliographic Info

    Article provided by Springer in its journal Financial Markets and Portfolio Management.

    Volume (Year): 21 (2007)
    Issue (Month): 2 (June)
    Pages: 203-220

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    Handle: RePEc:kap:fmktpm:v:21:y:2007:i:2:p:203-220

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    Web page: http://www.springerlink.com/link.asp?id=119763

    Related research

    Keywords: Family firms; Analyst forecast; Dispersion; Earnings per share; G14 (information and market efficiency; event studies); G15 (international financial markets); G11 (portfolio choice; investment decisions);

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    1. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March.
    2. Chrisman, James J. & Chua, Jess H. & Litz, Reginald, 2003. "A unified systems perspective of family firm performance: an extension and integration," Journal of Business Venturing, Elsevier, vol. 18(4), pages 467-472, July.
    3. Andreas Dische, 2002. "Dispersion in Analyst Forecasts and the Profitability of Earnings Momentum Strategies," European Financial Management, European Financial Management Association, vol. 8(2), pages 211-228.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    5. Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
    6. Ackert, Lucy F & Athanassakos, George, 1997. "Prior Uncertainty, Analyst Bias, and Subsequent Abnormal Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 263-73, Summer.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    8. Bokhyeon Baik & Cheolbeom Park, 2003. "Dispersion of analysts' expectations and the cross-section of stock returns," Applied Financial Economics, Taylor & Francis Journals, vol. 13(11), pages 829-839.
    9. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May.
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    Cited by:
    1. Mazzi, Chiara, 2011. "Family business and financial performance: Current state of knowledge and future research challenges," Journal of Family Business Strategy, Elsevier, vol. 2(3), pages 166-181.
    2. Alexander Kerl & Oscar Stolper & Andreas Walter, 2012. "Tagging the triggers: an empirical analysis of information events prompting sell-side analyst reports," Financial Markets and Portfolio Management, Springer, vol. 26(2), pages 217-246, June.

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