Abstract

We propose that family firm involvement across industries is not random. Family firms are expected to be more involved in industries where their particular style of control and management provides advantages over their industry counterparts and/or where there is more potential for family owners to consume private benefits of control. We find that family firms tend to congregate in industries that require greater long-term investment, consistent with the long-term view of family owners, and where there is greater uncertainty and less external monitoring, making it potentially easier for family owners to consume private benefits of control. Family firm involvement is also greater when family firms are more willing to invest in fixed assets, undertake long-term investment, can access higher levels of debt, are riskier and are bigger than their industry counterparts. We then examine whether family firms perform better than their industry peers under these industry conditions. We find that family firms perform better than their peers in industries with higher tax rates, smaller companies and more government involvement. We also find some evidence of over-investment with family firms performing better over time when they reduce their fixed assets and debt relative to their industry peers. Overall, we find no evidence that family firm performance is negatively affected by family firm involvement in industries where they can potentially consume more private benefits of control.

Citations