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Family ownership and firm performance: evidence from the French stock market (RV of 2004/37/IIFE)

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The objective of this research is to compare the relative economic performance of French publicly quoted family-owned and non-family-owned firms during the period 1993-2002. This time period can be viewed economically as particularly turbulent, and therefore also quite challenging for family firms, which are often regarded as excessively conservative. Most of the firm performance results have been obtained for the US. The literature provides growing evidence that US family firms have, over the last decade, outperformed their non-family counterparts, both on accounting (ROA) and stock market (Tobin's Q) measures. The literature also points out that, among the world's economic and legal regimes, the US takes a distinct place: investor and creditor protection are high, and it is a country where common law prevails. Recent studies have singled out the French stock market as differing substantially from the US market: a civil law regime, low investor and creditor protection, judicial and accounting systems seen as less efficient than those prevailing in the US, and (pre-Enron) as relatively more corrupt. French family firms are also more prevalent among the largest quoted firms. Using state-of-the-art financial methodology, the authors find strong statistical evidence that family-owned firms outperformed non-family firms on the French stock market in terms of total shareholder return over the time period 1993-2002. They find that French family-owned firms have a significantly higher return on assets (and a higher return on equity) than non-family firms. In particular, the differential is higher than that found in the US. Furthermore, this differential is not systematic over the years. The persistence of this effect over the period studied does suggest, however, that investors in this stock market appear to have an unwarranted and continued bias against family firms relative to non-family firms. Higher ROA performance should, indeed, not necessarily lead to higher market performance, as the market could anticipate this systematic differential in firm performance through pricing. Contrary to the US data, they do not find a significant difference in Tobin's Q between French family and non-family firms. Their results indicate that these differences in performance are not due to the firms' industrial classification, financial policies or other business characteristics. Differences in ownership characteristics appear as one remaining explanation. Their concluding hypothesis, then, is that families, eager to maintain their control over their firms (and not to diffuse it), actually govern their firms with a higher effective cost of capital than their non-family counterparts. Higher ROA performance would then be the corollary of such governance. Whether the stock market performance differential exhibited in the paper will subsist over the coming decade, or be arbitraged away, remains an open question. If investors consider family firms to be more risky, and continue to do so, then the differential should be expected to persist.

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