Villalonga, B., Amit, R., (2020). Family ownership. Flashcards
What is the relationship between family ownership and firm performance according to Villalonga and Amit (2020)?
They find that family ownership per se on average creates value, while family
control in excess of ownership (achieved through mechanisms such as dual-class stock)
reduces it, although not enough to offset the positive effect of ownership
Which type of family firm performs better—founder-led or descendant-led?
Founder-led family firms tend to perform better than descendant-led firms because the founder is typically more aligned with the company’s long-term success.
*relative to non-family businesses, founder-led firms
outperform, while descendant-led firms underperform.
Positive impact of family management by founder-CEOs.
How does excessive family control (e.g., through dual-class shares) affect firm performance?
Excessive family control, where control rights (voting rights) exceed ownership rights, can negatively affect performance by increasing agency costs and leading to private benefits extraction, reducing firm value
What is the difference between control rights and cash-flow rights in the context of family ownership?
Control rights refer to voting rights (influence over decisions), while cash-flow rights refer to equity ownership (entitlement to profits). In family firms, control rights may exceed cash-flow rights (e.g., through dual-class shares).
Why does family firms outperform non-family firms?
Family firms outperform non-family firms in part because they are more interested in maintaining control and ensuring long-term stability, which leads to better alignment between ownership and management. This reduces agency costs and encourages decision-making that benefits the firm in the long run, rather than focusing on short-term financial returns.
