University of St.Gallen
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Risk, Return and Value in the Family Firm

abstract The present text investigates the singularities of family firms with respect to their control risk aversion, their financial performance and their valuation.
With regard to the control risk aversion the text probes a sample of 1215 privately held firms in Switzerland and finds lower leverage levels for family firms affected by undiversified investment, an insufficient separation of private and business wealth, ownership dispersion across siblings. In addition, the text refers to behavioral finance theory and shows that family managers display a strong aversion to control risk which is however influenced by reference points.
With regard to financial performance the analysis finds significantly lower returns on equity for family firms. The text reveals that family firms face peculiar agency problems which potentially hamper the evolvement of family firms through strategic and financial inertia, ineffective governance, misalignment of interests, and inefficient information processing. The study finds that family influence is not always a blessing or a curse. Whether family influence positively affects firm performance depends on the strength of family influence, the industry, the firm size and the active generation.
With regard to value and valuation the study probes a sample of 142 publicly traded family and nonfamily firms on the Swiss stock market. The outperformance of family firms can be partly explained by their transparent information setting measured by a lower variance in earnings per share which reduces analyst forecast dispersion which positively affects stock performance. In contrast to publicly quoted family firms an analysis of 958 privately owned family firms shows that entrepreneurs subjectively price not only monetary achievements, as cash flow, but also nonmonetary achievements as the age of the firm and their subjective happiness. These findings provide additional insight to entrepreneurial rationales if, as in most cases, a firm is not for sale but is rather intended to be handed over to a subsequent generation.
   
type thesis (English)
   
keywords family firm; risk; return; value; Wert; Familienunternehmen; Risiko; Rendite
   
project Value and Performance in Family Firms
university St. Gallen
evaluator Prof. Dr. Urs Fueglistaller und Prof. Dr. Klaus Spremann
publisher Difo-Druck GmbH (Bamberg)
date of appearance 2006
citation Zellweger, T. (2006). Risk, Return and Value in the Family Firm, St. Gallen, Thesis. Bamberg: Difo-Druck GmbH.