Performance of family firms during the crisis

An interesting paper by Haoyong Zhou argues:

This paper gives new evidence examining whether family firms are better performers during the global financial crisis. Using a dataset covering firms from S&P 500 (US), FTSE100 (UK), DAX 30 (Germany), CAC 40 (France) and FTSE MIB 40 (Italy) during the period 2006-2010, I find that broadly defined family firms do not outperform non-family firms in the crisis. However, family firms with founder presence (as CEO, a board member or a significant blockholder) outperform by 18 percent relative to non-family firms in Operating Return on Assets (OROA). Tobin’s Q of founder firms, by contrast, does not exhibit difference. I interpret the attenuation of founder firms’ market value premium as the result of high volatility of stock prices and investors’ overreaction during the crisis (Veronesi, 1999; Glode et al., 2010). Further testing shows that in the crisis, compared with non-family firms, founder firms have less administrative cost incurred, less investment and better access to credit market. I attribute the outperformance of founder firms to less incentive to over-invest in risky projects with high likelihood of failure under financial constraints to boost current earnings in the crisis. My results suggest that in the financial crisis, founder firms bear the least agency cost and Tobin’s Q is not a good measure of corporate performance.