Family affairs – Corporate governance involvement of families and stock market returns


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This study explores the association between family influence in firms and stock market returns in Germany, a country with a less investor-friendly corporate governance system where shareholders cannot directly influence top managers. The study forms portfolios of firms with and without the influence of families as shareholders or members of the firm’s legal bodies. The models estimate portfolio returns from 2003-2013 using a four-factor model. Results suggest that corporate governance is highly correlated with stock returns in Germany. Specifically, they document a significant relationship between family influence and firm valuation. Firms with stronger family influence via voting rights and board-participation are found to have a higher firm value (annualized excess return: 0.48%-6.00%). The study interprets this to mean that families may improve a firm’s internal corporate governance, as their strong motivation and ability to become actively engaged in a firm’s daily operations or to assume a monitoring role distinguishes them from other corporate blockholders. The results add to those of an increasing number of publications finding a positive association between strong family governance and performance. They contribute to a year-long scholarly exploration of performance differences among family and non-family businesses, mainly by defining the former by mere ownership. The study combines a large set of governance provisions into a novel, transparent, and replicable index of family involvement and then estimates the empirical relation with market performance. The index captures influence via shareholder voting rights, considers direct influence of owners on day-to-day operations, and controls for indirect influence via supervisory board.

The authors acknowledge support by the Open Access Publication Funds of the HTWK Leipzig.

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    • Figure 1. Equally weighted portfolios (buy-and-hold returns)
    • Figure 2. Value weighted portfolios (buy-and-hold returns)
    • Figure A1. Market capitalization (in mEUR)
    • Table 1. Family influence index
    • Table 2. Family and non-family portfolios
    • Table 3. Family influence index statistics
    • Table 4. Four-factor model
    • Table B1. Comparison of operating performance per year
    • Conceptualization
      Fabio Franzoi, Mark Mietzner
    • Data curation
      Fabio Franzoi, Mark Mietzner
    • Formal Analysis
      Fabio Franzoi, Mark Mietzner
    • Methodology
      Fabio Franzoi
    • Writing – original draft
      Fabio Franzoi
    • Writing – review & editing
      Fabio Franzoi, Mark Mietzner
    • Supervision
      Mark Mietzner