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Governance of Family Owned Businesses: International Evidence
Governance of Family Owned Businesses: International Evidence
Introduction
Introduction
Which one is better depends in part on the trade-off between agency
Which one is better depends in part on the trade-off between agency
How relative size of 4 large stock markets has changed over the decade
How relative size of 4 large stock markets has changed over the decade
What is the dominant ownership model
What is the dominant ownership model
Advantages & disadvantages of each
Advantages & disadvantages of each
Example of a pyramid
Example of a pyramid
Germany: A quote from Mr Piech (chair of supervisory board of VW and
Germany: A quote from Mr Piech (chair of supervisory board of VW and
But then the dual class structure explains Mr
But then the dual class structure explains Mr
Summary so far
Summary so far
An international study of family ownership (Franks, Mayer, Volpin and
An international study of family ownership (Franks, Mayer, Volpin and
Scope
Scope
Central hypothesis
Central hypothesis
1
1
Ownership in top 1000 private & public companies (2006)
Ownership in top 1000 private & public companies (2006)
Control of publicly traded companies in Asia
Control of publicly traded companies in Asia
Main results
Main results
Proposition 1
Proposition 1
Proposition 2
Proposition 2
How important are listed firms
How important are listed firms
Analysis of Listed Firms: Family Firms Much More Common in Continental
Analysis of Listed Firms: Family Firms Much More Common in Continental
Analysis of Private Firms: Family Firms Less Common in the UK
Analysis of Private Firms: Family Firms Less Common in the UK
Transition of control from family to non-family firms is more frequent
Transition of control from family to non-family firms is more frequent
Family firms in the U.K. die as they age, in Continental Europe they
Family firms in the U.K. die as they age, in Continental Europe they
Family firms are concentrated in a small number of industries in all
Family firms are concentrated in a small number of industries in all
…but industry-wide high external financing requirements and M&A
…but industry-wide high external financing requirements and M&A
Sample of 27 countries: in outsider countries, family firms follow
Sample of 27 countries: in outsider countries, family firms follow
Germany
Germany
France
France
Italy
Italy
UK
UK
Wider ownership within a family causes more control changes
Wider ownership within a family causes more control changes
Conclusions
Conclusions
Some issues
Some issues

Презентация на тему: «Governance of Family Owned Businesses: International Evidence». Автор: hw. Файл: «Governance of Family Owned Businesses: International Evidence.ppt». Размер zip-архива: 563 КБ.

Governance of Family Owned Businesses: International Evidence

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1 Governance of Family Owned Businesses: International Evidence

Governance of Family Owned Businesses: International Evidence

Professor Julian Franks London Business School

2 Introduction

Introduction

Why does ownership matter? Because it affects how companies are controlled and governed. An example: if you have a large shareholder, he (she) will probably choose the CEO. If the stakeholder is a family the CEO will often come from the family itself. If however, there is no large stakeholder the board of directors chooses the CEO. Why does this matter? In the event of poor performance the large shareholder will intervene possibly changing management, maybe even the strategy of the firm. In the firm with no large shareholder the board will make these decisions, possibly influenced by individual shareholders. Which is the better capital market? The one with dispersed ownership or the one with the large (family) shareholder?

2 / 31

3 Which one is better depends in part on the trade-off between agency

Which one is better depends in part on the trade-off between agency

costs and private benefits of control

There is a ‘law and finance view’ that private benefits are larger than agency costs. They predict that stock markets with concentrated ownership underperform compared with those with dispersed ownership. One explanation: stock markets with concentrated ownership often are accompanied by poor investor protection particularly for minority shareholders. Stock markets with more dispersed ownership tend to be associated with high levels of investor protection. Does it necessarily follow that concentrated ownership has to be accompanied by poor investor protection? In other words, is there a ‘natural law’ that private benefits of markets with blockholders are greater than the agency costs of dispersed markets? An important question for policy makers. How does ownership differ across countries and how do different forms influence how companies are controlled and ultimately how they perform?

3 / 31

4 How relative size of 4 large stock markets has changed over the decade

How relative size of 4 large stock markets has changed over the decade

what has produced this convergence?

5 What is the dominant ownership model

What is the dominant ownership model

Family, state or dispersed ownership models?

Which would you prefer? Dispersed ownership markets of the UK or the family dominated markets of Italy or of Sweden? (I will not mention Israel yet) Is the answer obvious? Paul Myners (former Minister for the City): the UK Plc is characterised by ‘ownerless corporations’. Why? Small fragmented shareholders have little incentive to monitor & intervene in underperforming companies because of free riding and conflicts of interest.

6 Advantages & disadvantages of each

Advantages & disadvantages of each

UK: low private benefits curbed by regulation and independent boards. Enforcement against fraud, tunnelling etc. Agency costs are reduced by better boards of directors e.g. independent directors, separation of CEO and chairman. Prejudice against ‘kinship’ (who succeeded Mr Murdoch?) Nevertheless high costs remain, witness the high premiums paid by private equity for public companies, the uncertain gains from takeovers and the low level of shareholder activism. Italy: high private benefits: voting premiums in Italy are almost 30% Why? Wealth transfers from minority shareholders to the blockholder & pyramidal structures.

7 Example of a pyramid

Example of a pyramid

Source: Volpin and Enriques. (2003)

7

8 Germany: A quote from Mr Piech (chair of supervisory board of VW and

Germany: A quote from Mr Piech (chair of supervisory board of VW and

part of the family that owns Porsche)

‘Yes of course we have heard of shareholder value. But that does not change the fact that we put customers first, then workers, business partners, suppliers and dealers, and then shareholders’ (FT October 18 2005).

8

9 But then the dual class structure explains Mr

But then the dual class structure explains Mr

Piech’s views!

Porsche/Piech Family Voting Pool

100%

10%

Porsche AG Voting Stock

Porsche AG Non-Voting

50:50 capital

9

10 Summary so far

Summary so far

Which model of ownership is better? Can law and regulation curb the costs of private benefits of control of block holder capital markets so that they are less than the agency costs of dispersed ownership?

10

11 An international study of family ownership (Franks, Mayer, Volpin and

An international study of family ownership (Franks, Mayer, Volpin and

Wagner)

We know family ownership is common in many countries and much less so in others (at least among large companies). Why is this the case?

11

12 Scope

Scope

We study the landscape of ownership, particularly family firms, along three dimensions: Across countries – in 27 European countries, with detailed data for France, Germany, Italy and the UK. Independent of listed status - both private and listed companies Over time: trace family firms over decade 1996-2006

12

13 Central hypothesis

Central hypothesis

The life cycle view provides a central hypothesis to test across countries. We expect UK to follow such a cycle but not France, Germany and Italy. Why? The answer can be found in differences in their capital markets.

13

14 1

1

2

3

Our three samples

“The largest 4,000, both private and listed”

“All private and listed, 27,000 firms”

“All listed family firms”

14

“TOP 4000 SAMPLE” Hand-collected data for France, Germany, Italy, U.K.

1996 1000 largest firms in each country by sales, both private and listed firms

2006 Trace ownership changes and death events for all 1996 TOP 4,000 firms

TOP 1000 - France

SURVIVORS Firms existed in 1996, still exist in 2006

TOP 1000 - Germany

TOP 1000 - Italy

EXITS Firms existed in 1996 and did not survive until 2006

TOP 1000 - UK

“ALL FIRM SAMPLE” Algorithm-processed data for 25 countries

2006 All firms in AMADEUS, both private and listed, with basic data items available, and minimum EUR 25 million sales in last fiscal year.

“LISTED FAMILY FIRM SAMPLE” Hand-collected data for France, Germany, Italy, U.K.

1996 All listed family-controlled firms in each country (control at the 25% threshold

2006 Trace ownership changes and death events for all firms

SURVIVORS Firms existed in 1996, still exist in 2006

EXITS Firms existed in 1996 and did not survive until 2006

France

Germany

Italy

U.K.

Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia, Slovakia, Spain, Sweden, Switzerland, Ukraine, United Kingdom

15 Ownership in top 1000 private & public companies (2006)

Ownership in top 1000 private & public companies (2006)

2006

2006

2006

2006

Ownership Type

Germany

France

UK

Italy

Multiple Blocks

2.0

1.0

0.4

1.2

Family

33.3

38.2

20.4

46.8

State

9.7

8.2

3.8

13.3

Widely Held

13.0

13.1

24.2

12.2

Widely Held Parent

36.5

36.1

46.0

25.8

No. of Companies

856

975

996

960

Definition of major shareholder: stake larger than 25% of equity. Source: Franks, Mayer, Volpin and Wagner (2007).

15

16 Control of publicly traded companies in Asia

Control of publicly traded companies in Asia

Notes: Definition of major shareholder: stake larger than 10% of equity, 1996-1998. Source: Claessens et al. (2000), *Tian and Estrin (2008).

China

Hong Kong

Japan

South Korea

Number of Firms

851(1998) 1599(2004) 2063(2010

330

240

345

Widely Held

2.1 (1998) 17(2004)

.6

42

14.3

Family

0 (1998) 1.8(2004)

64.7

13.1

67.9

State

43.8(1998) 54(2004)

3.7

1.1

5.1

16

17 Main results

Main results

In the UK, 12% of firms are controlled by domestic families, 40-50% in Continental Europe. Pattern is similar among both listed and private firms. Family firms follow a life cycle in the UK, but not in the other three countries. High turnover of family control in the UK, high stability of control in Continental Europe. Need for external financing and the market for corporate control reduce survival probability of family firms in the UK, but much less so in Continental Europe. Use of dual class shares and pyramids does not explain survival of family firms.

17

18 Proposition 1

Proposition 1

The evolution from family firm to public corporation runs smoother when Private benefits of control are smaller; Opportunities for risk diversification are greater; Raising equity is less expensive; Market for corporate control is more active & efficient; … In short, in “outsider” rather than “insider” systems.

18

19 Proposition 2

Proposition 2

Survival of family firms: Family firms will survive less as family-controlled firms in outsider compared with insider systems. Age as a determinant of family control: family firms will be younger in outsider systems than in insider systems. Need for external financing: Family ownership will be concentrated in industries with less need for external capital in UK than in France, Germany and the UK. Differences in profitability: Family controlled firms likely to be more profitable in insider systems but less so in outsider systems. Family firms favoured in countries like Italy, France & Germany. Much less so in the UK.

19

20 How important are listed firms

How important are listed firms

Of the top 1,000 firms in the four countries, how many are listed?

Frequency of listed firms among largest 1,000

Frequency of listed firms among largest 1,000

Frequency of listed firms among largest 1,000

Frequency of listed firms among largest 1,000

Frequency of listed firms among largest 1,000

Germany

France

U.K.

Italy

Listed firms, % all firms

14.5

13.6

27.8

8.4

20

21 Analysis of Listed Firms: Family Firms Much More Common in Continental

Analysis of Listed Firms: Family Firms Much More Common in Continental

Europe, Widely Held Much Less Common

21

22 Analysis of Private Firms: Family Firms Less Common in the UK

Analysis of Private Firms: Family Firms Less Common in the UK

22

23 Transition of control from family to non-family firms is more frequent

Transition of control from family to non-family firms is more frequent

in the U.K.

23

Germany

Germany

Germany

Germany

Germany

Germany

Germany

Germany

Germany

Germany

Family in 2006

Family in 2006

Widely held in 2006

Widely held in 2006

State in 2006

State in 2006

Other in 2006

Other in 2006

No of firms

Family in 1996

124

(75%)

17

(10%)

0

(0%)

25

(15%)

166

Widely held in 1996

5

(9%)

29

(54%)

1

(2%)

19

(35%)

54

State in 1996

7

(9%)

7

(9%)

39

(51%)

23

(30%)

76

Other in 1996

29

(18%)

5

(3%)

5

(3%)

123

(76%)

162

France

France

France

France

France

France

France

France

France

France

Family in 2006

Family in 2006

Widely held in 2006

Widely held in 2006

State in 2006

State in 2006

Other in 2006

Other in 2006

No of firms

Family in 1996

187

(66%)

19

(7%)

5

(2%)

74

(26%)

285

Widely held in 1996

7

(10%)

51

(74%)

0

(0%)

11

(16%)

69

State in 1996

11

(14%)

4

(5%)

41

(53%)

22

(28%)

78

Other in 1996

48

(20%)

8

(3%)

7

(3%)

177

(74%)

240

U.K.

U.K.

U.K.

U.K.

U.K.

U.K.

U.K.

U.K.

U.K.

U.K.

Family in 2006

Family in 2006

Widely held in 2006

Widely held in 2006

State in 2006

State in 2006

Other in 2006

Other in 2006

No of firms

Family in 1996

68

(50%)

11

(8%)

2

(1%)

56

(41%)

137

Widely held in 1996

11

(6%)

106

(62%)

1

(1%)

53

(31%)

171

State in 1996

3

(21%)

0

(0%)

7

(50%)

4

(29%)

14

Other in 1996

53

(17%)

5

(2%)

6

(2%)

247

(79%)

311

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Family in 2006

Family in 2006

Widely held in 2006

Widely held in 2006

State in 2006

State in 2006

Other in 2006

Other in 2006

No of firms

Family in 1996

243

(77%)

18

(6%)

6

(2%)

49

(16%)

316

Widely held in 1996

5

(14%)

29

(81%)

0

(0%)

2

(6%)

36

State in 1996

18

(28%)

4

(6%)

41

(64%)

1

(2%)

64

Other in 1996

25

(17%)

2

(1%)

7

(5%)

117

(77%)

151

24 Family firms in the U.K. die as they age, in Continental Europe they

Family firms in the U.K. die as they age, in Continental Europe they

do not.

Dependent variable

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

Firm survives the decade (1) or not (0)

Firm survives the decade (1) or not (0)

Sample

All firms

All firms

Family firms

Family firms

(1)

(2)

(3)

(4)

Firm age

0.012

0.055

0.092***

0.107***

[0.047]

[0.046]

[0.020]

[0.021]

(U.K.) X (Firm age)

-0.254***

-0.158***

[0.040]

[0.018]

France

-0.012

-0.005

0.111***

0.113***

[0.013]

[0.010]

[0.006]

[0.004]

U.K.

-0.145***

-0.039

0.143***

0.202***

[0.021]

[0.027]

[0.016]

[0.012]

Italy

0.076***

0.087***

0.124***

0.128***

[0.027]

[0.024]

[0.017]

[0.018]

Listed firm

-0.104*

-0.106*

0.110

0.109

[0.056]

[0.059]

[0.075]

[0.076]

Foreign ultimate control

-0.184

-0.190

-0.019

-0.021

[0.126]

[0.122]

[0.022]

[0.022]

Log (Sales)

-0.040***

-0.039***

0.005

0.005

[0.010]

[0.010]

[0.011]

[0.011]

Industry fixed effects

YES

YES

YES

YES

Observations

3732

3732

1359

1359

Pseudo R2

0.138

0.142

0.0574

0.0583

24

25 Family firms are concentrated in a small number of industries in all

Family firms are concentrated in a small number of industries in all

countries…

Concentration of family firms in top 5 and top 20 industries:

Out of all 48 Fama French industries:

Germany

France

U.K.

Italy

Total

5 top industries with largest concentration of family firms

59%

63%

55%

36%

48%

20 top industries with largest concentration of family firms

95%

94%

87%

86%

88%

25

26 …but industry-wide high external financing requirements and M&A

…but industry-wide high external financing requirements and M&A

activity only matter in the UK.

26

Dependent variable

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

Firm survives the decade (1) or not (0)

Firm survives the decade (1) or not (0)

Firm survives the decade (1) or not (0)

Sample

All firms

All firms

All firms

Family firms

Family firms

Family firms

(1)

(2)

(3)

(4)

(5)

(6)

Firm age

0.016

0.012

0.014

0.109***

0.105***

0.108***

[0.046]

[0.047]

[0.045]

[0.011]

[0.014]

[0.011]

(U.K.) x (Ext Dep)

-0.064***

-0.078***

-0.168***

-0.178***

[0.021]

[0.023]

[0.007]

[0.005]

(U.K.) x (M&A Act)

-0.128***

-0.135***

-0.163***

-0.169***

[0.028]

[0.028]

[0.022]

[0.022]

U.K.

-0.151***

-0.077**

-0.075**

0.152***

0.265***

0.257***

[0.023]

[0.036]

[0.036]

[0.013]

[0.024]

[0.026]

France

-0.011

-0.013

-0.013

0.113***

0.111***

0.113***

[0.011]

[0.013]

[0.012]

[0.010]

[0.008]

[0.010]

Italy

0.056***

0.055**

0.056***

0.134***

0.132***

0.133***

[0.021]

[0.022]

[0.021]

[0.021]

[0.017]

[0.020]

Listed firm

-0.116**

-0.114**

-0.115**

0.107

0.097

0.106

[0.055]

[0.054]

[0.054]

[0.074]

[0.081]

[0.075]

Foreign control

-0.189

-0.191

-0.192

0.001

-0.005

-0.003

[0.126]

[0.125]

[0.125]

[0.026]

[0.028]

[0.026]

Log (Sales)

-0.038***

-0.038***

-0.037***

0.007

0.007

0.007

[0.007]

[0.007]

[0.007]

[0.012]

[0.010]

[0.012]

Industry fixed effects

YES

YES

YES

YES

YES

YES

Observations

3,371

3,384

3,371

1,280

1,289

1,280

Pseudo R2

0.135

0.138

0.138

0.0653

0.0649

0.0679

27 Sample of 27 countries: in outsider countries, family firms follow

Sample of 27 countries: in outsider countries, family firms follow

life cycle, esp. in industries w/high external financing and M&A.

Probit regressions

Probit regressions

Probit regressions

Probit regressions

Probit regressions

Dependent variable:

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

Firm is family controlled (1) or not (0)

(1)

(2)

(3)

(4)

Firm age

0.012

-0.012

-0.013

0.012

[0.012]

[0.018]

[0.019]

[0.014]

Listed firm

0.041

0.042

0.041

0.041

[0.039]

[0.038]

[0.039]

[0.039]

Size

-0.044***

-0.044***

-0.044***

-0.044***

[0.008]

[0.008]

[0.008]

[0.009]

(OUT) x (Firm age)

-0.063***

-0.069**

[0.024]

[0.027]

(OUT) x (Ext Dep)

-0.016***

-0.013***

[0.002]

[0.004]

(OUT) x (M&A Act)

-0.022*

-0.023**

[0.012]

[0.011]

Observations

27684

27684

27684

27684

Pseudo R2

0.102

0.102

0.102

0.104

Country and industry fixed effects

YES

YES

YES

YES

27

28 Germany

Germany

Evolution of Listed Family Firms 1

No change of control

Takeover

Widely held

235 firms

100%

53%

40%

7%

28

29 France

France

Evolution of Listed Family Firms 2

No change of control

Takeover

Widely held

251 firms

100%

59%

35%

10%

29

30 Italy

Italy

Evolution of Listed Family Firms 3

No change of control

Takeover

Widely held

106 firms

100%

71%

22%

6%

30

31 UK

UK

Evolution of Listed Family Firms 4

No change of control

Takeover

Widely held

217 firms

100%

30%

42%

28%

31

32 Wider ownership within a family causes more control changes

Wider ownership within a family causes more control changes

32

33 Conclusions

Conclusions

In the UK, family firms naturally evolve into widely-held firms as they grow bigger and older. This does not happen in Continental Europe (CE). Generally, high turnover of control in the UK. Low turnover in CE. Why these differences? Insider versus outsider systems Two mechanisms may lead to dilution of family ownership: The need to raise external capital to finance growth The activity of the market for corporate control.

33

34 Some issues

Some issues

How should family dominated capital markets evolve? What should governments do? Should we be worried in the UK about the low proportion of companies with family control? Is the level of family businesses in the UK a reflection of our culture, opportunities in our capital market and low levels of private benefits? Are our institutions such as banks, stock exchanges and takeover codes biased towards the public company with widely dispersed ownership? Is there a bias against companies with large stockholders, where [family] kinship and succession is valued. Can we do much about this? Are we stuck with the marriage of our capital markets and landscape of ownership? Will other countries follow us when their capital markets move to outsider system?

34

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