Family-owned conglomerates in developing countries

This is a very good book by Avinash Dixit. I like a lot the discussion on institutions, auctions, insurance, and price discrimination. Do not miss the farther-reading section. 

This is one bit where Dixit explains family-owned conglomerates in developing countries from the perspective of transaction costs:

The transaction cost perspective also helps explain large conglomerates we find in many less-developed countries. There are often family owned, and span things with little in common: textiles, chemicals, cars, beverages, hotels, information technology services, and more. A rationale con be found in the effective legal system of these countries. Formal contract enforcement is unreliable; business dealings are governed by reputation and relationships. If your company has accumulated profits but the best new investments are in some other line of business, you cannot lend out the capital to an unconnected firm and hope for honest return on your investment. Instead you bring that activity under the umbrella of your own family firm, where relational aspects are stronger. The conglomerate need not create any synergies or conventional efficiencies in production. Instead it reduces governance costs.

Family Employee

Our estimates indicate that being a family employee instead of a regular employee in the private sector significantly reduces both the probability and duration of absence to a substantial degree.

The evidence is from the European Community and the paper is by Block et al. They explain:

Our results are also consistent with the view that family employees have a more pronounced interest in the profitability of the business they work in, relative to regular private sector workers, because the may eventually inherit the firm. 

A draft (2014) is here. 
But there is also the Fredo Factor. 

Management in Family and Non-Family Firms in Emerging Economies

Using a survey of 800 CEOs in 22 emerging economies we show that CEOs' management styles and philosophy vary with the control rights and involvement of the owning family and founder: CEOs of firms with greater family involvement have more hierarchical management, and feel more accountable to stakeholders such as employees and banks than they do to shareholders. They also see their role as maintaining the status quo rather than bringing about change. In contrast, professional CEOs of non-family firms display a more textbook approach of shareholder-value-maximization. Finally, we find a continuum of leadership arrangements in how intensively family members are involved in management.

That is from a paper by William Mullins & Antoinette Schoar. The paper is titled "How do CEOs see their Role? Management Philosophy and Styles in Family and Non-Family Firms."

Family Firms in Colombia

From the new paper "Family firms and financial performance: The cost of growing" by González et al (December 2012) in the Emerging Markets Review:

Econometric results show the positive effect of family involvement is robust when firms are small and young, especially when the founder is still active in management; but as firms grow, the results suggest family involvement must be avoided to increase efficiency and improve overall corporate governance practices (p. 3).

A draft is here.  

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.