U.S. Family‐Run Companies–They May Be Better Than You Think

Henry McVey and Jason Draho

Journal of Applied Corporate Finance, 2005, vol. 17, issue 4, 134-143

Abstract: Despite the common perception of public family‐run companies as poor investments, the evidence shows that they actually perform quite well. And there may be some good reasons for this: A family that both owns and controls a company avoids the classic agency problem—the natural tendency of professional managers to pursue some private interests at the expense of their shareholders—that confronts most publicly traded companies. The family's concentrated, long‐term investment in the company and knowledge of the business make them potentially effective and highly motivated monitors. Using a sample of “true” family firms from the S&P 500 (one that deliberately excludes “founder companies” like Microsoft and Dell), the authors show that these companies have in recent years produced considerably higher stock returns than their non‐family counterparts. At the same time, family companies with dual‐class share structures produced lower returns than those with a single class of shares, and the returns to dual‐class firms with insider‐dominated boards were still lower. Specific examples highlight the different ways that families maintain control, the consequences of the CEO choice (family member versus professional manager), and the potential benefits of the family's permanent presence, including a long‐term investment focus and reputation for fair dealing with corporate stakeholders.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.1111/j.1745-6622.2005.00067.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jacrfn:v:17:y:2005:i:4:p:134-143

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1078-1196

Access Statistics for this article

Journal of Applied Corporate Finance is currently edited by Donald H. Chew Jr.

More articles in Journal of Applied Corporate Finance from Morgan Stanley
Bibliographic data for series maintained by Wiley Content Delivery ().