Isakov, D. and J. Weisskopf (2014). Are founding families special blockholders? Flashcards
How do founding family firms perform in terms of accounting-based profitability (e.g., ROA)?
Founding family firms show significantly higher ROA than both widely held firms and those with non-family blockholders.
Do founding family firms have higher market valuations (Tobin’s Q) than other firms?
No, family firms do not have significantly higher Tobin’s Q than widely held firms, though they do outperform firms with non-family blockholders
What is the relationship between the level of family ownership and firm performance?
There is a concave (inverted U-shaped) relationship: moderate ownership (20–80%) improves performance, but very high ownership (>80%) lowers valuation
How does active family involvement (e.g., founder or descendant as CEO) affect firm performance?
Active family involvement — especially by the founder — is associated with significantly higher profitability (ROA).
Does the market value the identity of the founding family itself?
No, the market values actual profitability, not the mere presence of a founding family as a blockholder.
How does a wedge (difference between control and ownership rights) affect firm valuation?
A larger wedge is associated with a lower Tobin’s Q, reflecting investor concerns over potential entrenchment or rent extraction.
What is the dual agency cost effect of family-controlled firms on corporate governance?
Agency Cost Type I: Family ownership can reduce conflicts between managers and shareholders by improving monitoring and aligning incentives, leading to higher profitability.
Agency Cost Type II: However, concentrated control may create conflicts between controlling and minority shareholders, allowing families to extract private benefits, which can lower firm valuation.
