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Family Ownership and Returns on Investment – Founders, Heirs, and External Managers

Author

Listed:
  • Eklund, Johan E.

    () (The Ratio Institute)

  • Palmberg, Johanna

    () (Jönköping International Business School (JIBS))

  • Wiberg, Daniel

    (Jönköping International Business School (JIBS))

Abstract

This paper investigates how family ownership, control, and management affect firms’ investment performance. We use the identity of Chief Executive Officer (CEO) and Chairman of the Board (COB) to establish under what management the firm is: founder, descendant, or external management. The results show that founder management has no effect on investment performance in family firms, whereas descendant management has a negative impact on returns on investment. Having an externally hired manager significantly improves investment performance. The results also indicate that the separation of voting right from cash flow right has a negative impact on investment performance in both family and non-family firms, but the negative effect is larger in family firms.

Suggested Citation

  • Eklund, Johan E. & Palmberg, Johanna & Wiberg, Daniel, 2010. "Family Ownership and Returns on Investment – Founders, Heirs, and External Managers," Ratio Working Papers 148, The Ratio Institute.
  • Handle: RePEc:hhs:ratioi:0148
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    File URL: http://ratio.se/app/uploads/2014/11/jee_jp_dw_family_148.pdf
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    References listed on IDEAS

    as
    1. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    2. Per-Olof Bjuggren & Johan Eklund & Daniel Wiberg, 2007. "Ownership structure, control and firm performance: the effects of vote-differentiated shares," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1323-1334.
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    13. Paul A. Gompers & Joy Ishii & Andrew Metrick, 2004. "Incentives vs. Control: An Analysis of U.S. Dual-Class Companies," NBER Working Papers 10240, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Pinheiro, Roberto & Yung, Chris, 2015. "CEOs in family firms: Does junior know what he's doing?," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 345-361.

    More about this item

    Keywords

    Ownership; Control; Management; Family Firms; Returns on Investments;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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