Family ownership and firm performance: Romania versus Germany

  • Milena-Jana Schank
  • Aurora Murgea
  • Cosmin Enache
Keywords: Family ownership, Financial performance, Control

Abstract

This paper examines the impact of ownership’s type (more precise the impact of the family ownership) on the firm’s financial performance for a sample of 1,161 Romanian companies and 1,342 German companies, in a time frame that range from 2008 to 2015. The main findings show very different results for the two considered countries. Financial performance, expressed as return on assets (ROA) and return on equity (ROE) seems to be insensitive to family ownership in Romanian companies and statistically positively correlated with it for German ones. A potential explanation for these outputs consists in the different development circumstances in the two countries in the period that forego the Second War. Other variables considered do not show significant differences in outcome between the two countries: size, age, capital intensity and leverage negatively influence the financial performance of companies.

References

Adams, R. B., & Mehran, H. (2005). Corporate performance, board structure and its determinants in the banking industry.
Ali, A., Chen, T. Y., & Radhakrishnan, S. (2007). Corporate disclosures by family firms. Journal of Accounting and Economics, 44, 238-286.
Amato, L. H., & Burson, T. E. (2007). The effects of firm size on profit rates in the financial services. Journal of Economics and Economic Education Research, 8(1), 67.
Anderson, R. C., & Reeb, D. M. (2003). Founding‐family ownership and firm performance: evidence from the S&P 500. The journal of finance, 58(3), 1301-1328.
Andres, C. (2008). Large shareholders and firm performance - An empirical examination of founding-family ownership. Journal of Corporate Finance, 14(4), 431-445.
Astrachan, J. H., & Shanker, M. C. (2003). Family businesses’ contribution to the US economy: A closer look. Family business review, 16(3), 211-219.
Barontini, R., & Caprio, L. (2006). The effect of family control on firm value and performance: Evidence from continental Europe. European Financial Management, 12(5), 689-723.
Becker-Blease, J. R., Kaen, F., Etebari, A., & Baumann, H. (2010). Employees, firm size and profitability in US manufacturing industries. Investment Management and Financial Innovations, 7(2), 7-23.
Bennedsen, M., Nielsen, K., Pérez-González, F., & Wolfenzon, D. (2007). Inside the family firm: The role of families in succession decisions and performance. The Quarterly Journal of Economics, 122(2), 647-691.
Bertrand, M., Mehta, P., & Mullainathan, S. (2002). Ferreting out tunneling: An application to Indian business groups. Quarterly Journal of Economics, 117(1), 121–148.
Berle, A., & Means, G. (1932). The modern corporate and private property. New York, NY: McMillian.
Block, J. H. (2012). R&D investments in family and founder firms: An agency perspective. Journal of Business Venturing, 27, 248-265.
Bonilla, C. A., Sepulveda, J., & Carvajal, M. (2010). Family ownership and firm performance in Chile: A note on Martinez et al.’s evidence. Family Business Review, 23(2), 148-154.
Bureau van Dijk (2017). AMADEUS platform database of Bureau van Dijk, accessed in June 2017.
Choi, S. B., Park, B., & Hong, P. (2012). Does ownership structure matter for firm technological innovation performance? The case of Korean firms. Corporate Governance: An International Review, 20(3), 267-288.
Chrisman, J. J., Chua, J. H., & Litz, R. A. (2004). Comparing the agency costs of family and non‐family firms: Conceptual issues and exploratory evidence. Entrepreneurship Theory and practice, 28(4), 335-354.
Chu, W. (2009). The influence of family ownership on SME performance: evidence from public firms in Taiwan. Small Business Economics, 33(3), 353-373.
Coad, A., Segarra, A., & Teruel, M. (2007). Like milk or wine does performance improve with age. The Papers on Economic and Evolution Working Paper 1006.
Dang, C., & Li, F. (2015). Measuring firm size in empirical corporate finance. SSRN Electronic Journal.
Daskalakis, N., & Psillaki, M. (2008). Do country or firm factors explain capital structure? Evidence from SMEs in France and Greece. Applied financial economics, 18(2), 87-97.
Davis, J. H., Schoorman, F. D., & Donaldson, R. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47
De Massis, A., Kotlar, J., Campopiano, G., & Cassia, L. (2015). The impact of family involvement on SMEs’ performance: Theory and evidence. Journal of Small Business Management, 53(4), 924-948.
Demsetz, H. (1983). The Structure of Ownership and the Theory of the Firm. Journal of Law and Economics, 26(2), 375–390.
Demsetz, H., & Villalonga, B. (2001). Ownership structure and corporate performance. Journal of corporate finance, 7(3), 209-233.
De Vries, K. M. (1996). Family business: human dilemmas in the family firm: text and cases. Arden Shakespeare.
Dogan, M. (2013). Does firm size affect the firm profitability? Evidence from Turkey. Research Journal of Finance and Accounting, 4(4), 53-59.
Ehrhardt, O., Nowak, E., & Weber, F.-M. (2006). Running in the family - the evolution of ownership, control, and performance in German family-owned firms 1903-2003. Swiss Finance Institute Research Paper (06-13).
Fama, E. F, & Jensen, M. C. (1983). Separation of Ownership & Control. Journal of Law & Economics, 26(2), 301–326.
Górriz, C. G., & Fumás, V. S. (1996). Ownership structure and firm performance: Some empirical evidence from Spain. Managerial and Decision Economics, 17(6), 575-586.
Garcia, J. P., Puerto, I. R., & de la Torre Olvera, C. (2008). Does family ownership impact positively on firm value? Estableciendo puentes en una economía global. Escuela Superior de Gestión Comercial y Marketing, ESIC.
Ginsberg, A., & Venkatraman, N. (1985). Contingency perspectives of organizational strategy: a critical review of the empirical research. Academy of Management Review, 10(3), 421-434.
Gomez-Mejia, L. R., Haynes, K., Nunez-Nickel, M., Jacobson, K., & Moyano-Fuentes, J. (2007). Family owned firms: Risk loving or risk averse. Administrative Science Quarterly, 52(1), 106-137.
Gomez-Mejia, L. R., Larraza-Kintana, M., & Makri, M. (2003). The determinants of executive compensation in family-controlled public corporations. Academy of management journal, 46(2), 226-237.
González, M., Guzmán, A., Pombo, C., & Trujillo, M. A. (2012). Family firms and financial performance: The cost of growing. Emerging Markets Review, 13(4), 626-649.
Güner, A. B., Malmendier, U., & Tate, G. (2008). Financial expertise of directors. Journal of Financial Economics, 88(2), 323-354.
Gurbuz, A. O., & Aybars, A. (2010). The impact of foreign ownership on firm performance, evidence from an emerging market: Turkey. American Journal of Economics and Business Administration, 2(4), 350–359.
Hofer, C. W. (1975). Toward a contingency theory of business strategy. Academy of Management journal, 18(4), 784-810.
Holderness, C. G., & Sheehan, D. P. (1988). The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of financial economics, 20, 317-346.
IFERA. (2003). Family businesses dominate. Family Business Review, 16, 235–240
Isakov, D., & Weisskopf, J.-P. (2009). Family ownership, multiple blockholders and firm performance. Finance International Meeting. AFFI-EUROFIDAI.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jiang, Y., & Peng, M. W. (2011). Are family ownership and control in large firms good, bad, or irrelevant? Asia Pacific Journal of Management, 28(1), 15-39.
Kashmiri, S., & Mahajan, V. (2014). Beating the recession blues: Exploring the link between family ownership, strategic marketing behavior and firm performance during recessions. International Journal of Research in Marketing, 31(1), 78-93.
Konijn, S. J., Kräussl, R., & Lucas, A. (2011). Blockholder dispersion and firm value. Journal of Corporate Finance, 17(5), 1330-1339.
Kowalewski, O., Talavera, O., & Stetsyuk, I. (2010). Influence of family involvement in management and ownership on firm performance: Evidence from Poland. Family Business Review, 23(1), 45-59.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The quality of government. Journal of Law, Economics, and organization, 15(1), 222-279.
Lansberg, I. (1999). Succeeding generations: Realizing the dream of families in business. Harvard Business Press.
Le Breton-Miller, I., & Miller, D. (2008). To grow or to harvest? Governance, strategy and performance in family and lone founder firms. Journal of Strategy and Management(1), 41-56.
Lee, M.‐S., & Rogoff, E. G. (1996). Research note: Comparison of small businesses with family participation versus small businesses without family participation: An investigation of differences in goals, attitudes, and family/business conflict. Family Business Review, 9(4), 423-437.
Liu, W., Yang, H., & Zhang, G. (2012). Does family business excel in firm performance? An institution-based view. Asia Pacific Journal of Management, 29(4), 965-987.
Madison, K., Holt, D. T., Kellermanns, F. W., & Ranft, A. L. (2016). Viewing family firm behavior and governance through the lens of agency and stewardship theories. Family Business Review, 29(1), 65-93.
Maury, B. (2006). Family ownership and firm performance: Empirical evidence from Western European corporations. Journal of Corporate Finance, 12(2), 321-341.
Mazzi, C. (2011). Family business and financial performance: Current state of knowledge and future research challenges. Journal of Family Business Strategy, 2(3), 166-181.
McConaughy, D. L., & Phillips, M. G. (1999). Founders versus descendants: The profitability, efficiency, growth characteristics and financing in large, public, founding-family-controlled firms. Family Business Review, 12(2), 123-131.
Miller, D., Le Breton-Miller, I., Lester, R., & Cannella, A. (2007). Are family firms really superior performers? Journal of Corporate Finance, 13(5), 829-858.
Minichilli, A., Brogi, M., & Calabrò, A. (2016). Weathering the storm: Family ownership, governance, and performance through the financial and economic crisis. Corporate Governance: An International Review, 24(6), 552-568.
Molly, V., Laveren, E., & Deloof, M. (2010). Family business succession and its impact on financial structure and performance. Family Business Review, 23(2), 131-147.
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of financial economics, 20, 293-315.
Morck, R., Strangeland, D., & Yeung, B. (2000). Inherited wealth, corporate control, and economic growth: the Canadian disease. In Randall Morck (Ed), Concentrated Corporate Ownership, 319–369, Chicago: University of Chicago Press.
O'Boyle, E. H., Pollack, J. M., & Rutherford, M. W. (2012). Exploring the relation between family involvement and firms' financial performance: A meta-analysis of main and moderator effects. Journal of Business Venturing, 27(1), 1-18.
Pérez-González, F. (2006). Inherited control and firm performance. The American economic review, 96(5), 1559-1588.
Pindado, J., Requejo, I., & de la Torre, C. (2008). Does family ownership impact positively on firm value? Empirical evidence from Western Europe. Documento de Trabajo 2, 08.
Ramos, H. M., Buck, W. P., & Ong, S. L. (2016). The influence of family ownership and involvement on Chinese family firm performance: a systematic literature review. International Journal of Management Practice, 9(4), 365-393.
Ross, Stephen A. (1973). The economic theory of agency: The principal's problem. American Economic Review 62(2): 134-139.
Ross, Stephen A. (1974). On the economic theory of agency and the principle of similarity. In M. Balch, D. McFadden and S. Wu, eds., Essays on economic behavior under uncertainty. North-Holland, ch. 8.
Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. (2001). Agency relationships in family firms: Theory and evidence. Organization science, 12(2), 99-116.
Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. (2003). Exploring the agency consequences of ownership dispersion among the directors of private family firms. Academy of Management Journal, 46(2), 179-194.
Sciascia, S., & Mazzola, P. (2008). Family involvement in ownership and management: Exploring nonlinear effects on performance. Family Business Review, 21(4), 331-345.
Shanker, M. C., & Astrachan, J. H. (1996). Myths and realities: Family businesses' contribution to the US economy - A framework for assessing family business statistics. Family Business Review, 9(2), 107-123.
Shleifer, Andrei and Robert W. Vishny (1997), A Survey of Corporate Governance, The Journal of Finance, 52(2), pp. 737-783.
Shyu, J. (2011). Family ownership and firm performance: evidence from Taiwanese firms. International Journal of Managerial Finance, 7(4), 397-411.
Sraer, D., & Thesmar, D. (2007). Performance and behavior of family firms: Evidence from the French stock market. Journal of the European Economic Association, 5(4), 709-751.
Tanewski, G. A., Prajogo, D., & Sohal, A. (2003). Strategic orientation and innovation performance between family and non-family firms. International Council for Small Business.
Vasiliou, D., Eriotis, N., & Daskalakis, N. (2009). Testing the pecking order theory: the importance of methodology. Qualitative Research in Financial Markets, 1(2), 85-96.
Villalonga, B., & Amit, R. (2006). How Do Family Ownership, Management, and Control Affect Firm Value? Journal of Financial Economics, 80, 385–417.
Westhead, P., & Howorth, C. (2006). Ownership and management issues associated with family firm performance and company objectives. Family Business Review, 19(4), 301-316.
Zahra, S. A., & Sharma, P. (2004). Family business research: A strategic reflection. Family Business Review, 17(4), 331-346.
Published
2018-08-01
How to Cite
Schank, M.-J., Murgea, A., & Enache, C. (2018). Family ownership and firm performance: Romania versus Germany. Timisoara Journal of Economics and Business, 10(2), 169-186. Retrieved from http://tjeb.ro/index.php/tjeb/article/view/304
Section
Articles