Performance and Behavior of Family Firms : Evidence from the French Stock Market
We look at the corporate performance of family firms listed on the Frenchstock exchange between 1994 and 2000. On the French stock market, approximatelyone third of the firms are widely held, another third are founder controlledand the remaining third are heir controlled family firms. We find that family firmslargely outperform widely held corporations. This result holds for founder controlledfirms, but more surprisingly also for heir managed firms. To explain this,we provide evidence consistent with the fact that, because of their different timehorizons, heir managed corporations have a comparative advantage at enforcingimplicit insurance contracts with their labor force. More specifically, we find that:(1) employment in heir managed firms is less sensitive to industry shocks and (2)heirs pay lower wages. Finally, we discuss issues related to the endogeneity of performance/family regressions looking both at delisting and transitions from familyto non-family status. We conclude that these issues may lead us to overestimatethe performance of heirs compared to professionally managed firms, but to underestimatethe performance of heirs when compared to widely held firms.
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