Working Paper: CEPR ID: DP4520
Authors: David Sraer; David Thesmar
Abstract: We look at the corporate performance of family firms listed on the French stock exchange between 1994 and 2000. On the French stock market, approximately one third of the firms are widely held, another third are founder controlled and the remaining third are heir-controlled family firms. We find that, in cross section, family firms largely outperform widely held corporations. This result holds for founder-controlled firms, but more surprisingly also for heir-managed firms. To explain this, we provide evidence consistent with the fact that, because of their different time horizons, heir-managed corporations have a comparative advantage when enforcing implicit insurance contracts with their labour force. More specifically, we find that: (1) employment in heir-managed firms is less sensitive to industry shocks; and (2) heirs pay lower wages. Finally, we discuss issues related to the endogeneity of performance/family regressions looking both at delisting and transitions from family to non-family status. We conclude that these issues may lead us to overestimate the performance of heirs compared to professionally-managed firms, but to underestimate the performance of heirs when compared to widely held firms.
Keywords: Corporate performance; Family firms; Management style
JEL Codes: D21; G32; L21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| implicit insurance contracts (G22) | employment stability during industry shocks (J63) |
| family firms (J54) | profitability (L21) |
| founder-controlled firms (L22) | profitability (L21) |
| heir-managed firms (L22) | profitability (L21) |
| heir-managed firms (L22) | employment stability during industry shocks (J63) |
| heir-managed firms (L22) | labor contracts honoring (J52) |
| heirs (D14) | wages (J31) |
| wages (J31) | labor productivity (J24) |