The Influence of Family Blockholders on the Financial Behavior of Listed Family Firms
Summary
Excerpt
Table Of Contents
- Cover
- Title
- Copyright
- About the author
- About the book
- This eBook can be cited
- Contents
- List of Abbreviations
- Introduction
- General Introduction
- Economic Relevance
- Prevalence of Family Firms
- Ownership Concentration and Family Control in Germany
- Listed Family Firms in Germany
- Theoretical Framework
- Principle Agent Theory
- Socioemotional Wealth Theory
- Assessment of Family Influence
- Family Business Definition Dilemma
- Implications of the German Dual Board System
- Collection of Governance Data
- Research Objectives
- Research Objective 1 – Working Capital Management
- Research Objective 2 – Earnings Management
- Research Objective 3 – Stock Market Performance
- Research Objective 4 – Financial Crises Performance
- Dissertation Structure
- The Influence of Family Board Involvement on Working Capital Management
- Introduction
- Literature Review
- Working Capital Management
- Family Firms and Working Capital
- Corporate Governance and Working Capital
- Hypothesis
- Methodology
- Data
- Model Specification and Dependent Variables
- Independent Variables
- Results
- Descriptive Statistics
- Regression Results
- Discussion and Robustness
- Discussion
- Robustness
- Conclusion
- Appendix
- The Influence of Family Board Involvement on Earnings Management
- Introduction
- Literature Review and Hypothesis Development
- Large Shareholders, Corporate Governance, and Earnings Management
- Family Board Involvement
- Sample Selection and Research Design
- Sample
- Detecting Earnings Management
- Accrual-based Earnings Management
- Real Earnings Management
- Level of cash flow from operations
- Level of production cost
- Level of discretionary expenses
- Accessing Family Influence
- Research Design
- Basic Model on Family Ownership
- Advanced Model on Family Board Involvement
- Results
- Descriptive Statistics
- Multivariate Results
- Discussion
- Conclusion
- Appendix
- Family Affairs – Corporate Governance Involvement of Families and Stock Market Returns
- Introduction
- Literature Review
- Families as Blockholders
- Corporate Governance and Stock Market Returns
- Methodology
- Sample and Family Influence Index
- Model
- Results and Discussion
- Family Index and Portfolio Buy-and-hold Returns
- Stock return regression
- Discussion
- Conclusion
- Appendix
- Sunshine after the Rain? The Stock Market Performance of Family Firms in and after Financial Crises
- Introduction
- Literature Review and Hypothesis
- Family Firm Performance
- Family Control, Financial Preconditions and Corporate Crisis Behavior
- Methodology
- Sample and Period under Review
- Research Design
- Results
- Operative Performance and Buy-and-hold Returns
- Regression Results
- Discussion
- Explaining Performance Differences
- Robustness and Contribution
- Conclusion
- Appendix
- Concluding Remarks
- List of Figures
- List of Tables
- References
1 Introduction
1.1 General Introduction
Family firms are very common in Germany and contribute significantly to the German economy (Gottschalk et al., 2019). Though the German capital market is smaller compared to that of Anglo-Saxon countries such as the US or UK (La Porta et al., 1997), even among listed firms in Germany, individuals or families still on average represent the most common type of large shareholder (Faccio and Lang, 2002; Ampenberger et al., 2013). Prominent examples of listed firms with blocks of shares held by families are the consumer goods company Beiersdorf controlled by the Herz family or the automotive supplier Continental controlled by the Schaeffler family.
Anecdotal evidence suggests that these family blockholders substantially influence the financial behavior of the firms they are invested in. In 2020, BMW’s largest shareholder – the Quandt family – received a dividend of around 770 million Euros based on a majority vote at BMW’s Annual Shareholder Meeting. This led to significant media attention as the dividend was distributed despite the outbreak of the COVID-19 pandemic, short-time working and the onset of an economic crisis (e.g. Financial Times, 2020a). While this may be a debatable decision from a moral or even economic perspective, other public references by contrast suggest that family-controlled firms lay off fewer employees or wait longer with regards to cuts in workforce during times of crises (e.g. Financial Times, 2020b). Another example is the company Fielmann substantially controlled by the Fielmann family – while the company pursued a comparatively conservative dividend policy ranging below their peer group in the last five years before 2020, Fielmann was able to strongly benefit from the liquidity buffer it had built-up during the economic impact of the COVID-19 pandemic (Handelsblatt, 2020).
What however are the mechanisms determining the financial behavior of firms controlled by family blockholders? What drives the financial decisions in family firms in Germany and by which means do family blockholders influence these financial decisions? Is it mere size of their voting block? Or is it the influence of family blockholders in corporate boards to which they are often appointed?
Research on the financial behavior of family firms confirms that they differ from non-family firms in many aspects: In Germany family firms exhibit a higher equity ratio than non-family firms (Schmid, 2013). Their policies in cutting jobs in times of economic crises are indeed more restrained compared to non-family firms (Sraer and Thesmar, 2007; Mietzner and Tyrell, 2012) and among family firms in other European countries, they are also found to maintain higher cash holdings than their counterparts (Durán et al., 2016). Existing literature already suggests that such differences in financial behavior are partly connected to the presence of family members in the management of the firm – specifically in Germany (e.g. Andres, 2008; Ampenberger, 2013).
Stock listed corporations in Germany have a specific framework of corporate governance, that significantly differs from those of other countries (Becht and Boehmer, 2003). For example, shareholders cannot directly appoint or remove members of the management board and the number of supervisory board members appointed by shareholders is limited by the German co-determination system with a significant number of board seats reserved for employees. This dissertation posits that the question whether the assessment of family influence in research properly reflects the characteristics of this corporate governance system is highly important to understand the impact of family blockholders on the financial behavior of family firms.
The research motivation for this dissertation and its geographic focus on Germany is two-fold. First, due to a lower level of shareholder protection as well as the German two-tier board system, the incentives and abilities for large shareholders to closely monitor and actively engage in corporate governance bodies are increased (Gugler and Yurtoglu, 2003). Large family shareholders by contrast have an additional incentive to do so, as usually a high share of family wealth is invested in the firm (Anderson and Reeb, 2003a) and one of their central entrepreneurial goals is to bequeath the firm to the following generation (Berrone et al., 2012). The motives of these families and their desired financial behavior of the firm may substantially diverge from those of other investors (e.g. Achleitner et al., 2014). Controlling for the influence of family members on financial decisions is important but must account for the peculiarities local German corporate governance system.
Second, existing literature and empirical research on the financial behavior of family firms in Germany insufficiently accounts for family blockholders’ influence. This is presumably the case, as hardly any replicable, fine-graded governance data on family involvement is publicly available and individual data collection is highly time consuming and costly1. Yet, given the prevalence of family firms and the significance of their economic contribution to the German economy, gaining a better understanding of the influence of family governance involvement on the financial behavior of these firms is highly suggested.
The following subsections illustrate the significance of family firms around the world and demonstrate why family-controlled firms play a pronounced role in the German economy. After the introduction of the theoretical frameworks for this thesis, implications of the idiosyncratic corporate governance system in Germany on the assessment of family influence are discussed. Finally, the research objectives and structure of this publication-based dissertation are introduced.
1.2 Economic Relevance
The economic relevance of family firms was brought into mainstream research spotlight by a number of highly recognized publications around the millennial (i.e. La Porta et al., 1999; Claessens et al., 2000). Their contributions mainly built on prior work by Shleifer and Vishny (1986) and other scholars who investigated the significance of large shareholders on corporate ownership and control as a result of the legal origin and framework of shareholder protection in countries around the world (i.e. Shleifer and Vishny, 1997; La Porta et al., 1998). Following these publications, twenty years of research on family firms unfolded documenting manifold differences in the financial behavior between family controlled, and non-family firms (Amit and Villalonga, 2020) emerging as a leading area of research in management and financial economics (Villalonga et al., 2015).
The macroeconomic relevance of family firms specifically in Germany is well documented by studies on both listed and non-listed family-controlled firms (e.g. Faccio and Lang, 2002, Gottschalk et al., 2019; Achleitner et al., 2019; Aminadav and Papaioannou, 2020). Besides of existing contributions in research on the peculiarities of the financial behavior of family firms (e.g. Anderes, 2008; Kaserer and Moldenhauer, 2008; Schmid, 2013) the following subsections describe the institutional setting and prevalence of family controlled firms in Germany as well as selected financial aspects.
1.2.1 Prevalence of Family Firms
Most firms around the world are substantially owned by families (Burkhart et al., 2003; Villalonga and Amit, 2020). As La Porta et al. (1999) note, firms worldwide are usually not widely held, but controlled by large shareholders – often by the state, bust mostly by families. For example, even in the US, a country commonly associated with widely held firms, more than one third of the largest firms in the S&P500 and Fortune500 exhibit a significant level of family control (Anderson and Reeb, 2003a; Villalonga and Amit, 2006; 2009). In Eastern Asia by contrast, Claessens et al. (2000) find family control in more than half of the researched firms in nine different countries.
In Europe Laeven and Levine (2008) find that large shareholders are very common, and that nearly half of the firms exhibit one controlling owner2. Barontini and Caprio (2006) demonstrate, that according to their sample, families are the largest shareholder in 52.6 % of the firms in their specific sample. Franks et al. (2012) find that between 30 % (listed) and 41 % (private) of the firms in selected European countries are family controlled. Faccio and Lang (2002) thereby report that the average level of voting rights of identified families in listed firms amounts to 44.3 %.
Bridging twenty years of research from the first major publication on global ownership structures by La Porta et al. (1999), Aminadav and Papaioannou (2020) just recently published a study on corporate control in the Journal of Finance that introduces the largest sample of publicly traded firms so far applied in this research field: Analyzing 26,843 firms in 84 countries around the world (including industrial, emerging as well as developing countries) they find that about 45.7 % of all firms are controlled by families, the most common type of shareholder3 in the sample (20 % voting rights threshold). The fact that the firms in the sample cover a median market capitalization of 83.1 % across all countries underlines the significance of firms controlled by families around the world.
Most of the studies on corporate control around the world apply certain ownership/voting right thresholds to account for the fact that a firm may be regarded as “controlled” by a certain shareholder (Villalong and Amit, 2020). These thresholds vary according to the regional focuses of the respective studies to account for the level of control required to substantially influence corporate policies as a shareholder in a specific region (Aminadav and Papaioannou, 2020). Hence, comparing the distribution of family-controlled firms across different studies must be done with caution. However, the frequency of large blockholders or certain regional levels of block-ownership for example by family shareholders are not coincidental, but in large parts the endogenous result of the history of law and governance rules in different parts of the world (La Porta et al., 1998, 1999).
1.2.2 Ownership Concentration and Family Control in Germany
Apart from political theories of corporate control, the degree of shareholder protection largely determines the level of ownership concentration in a country (Aminadav and Papaioannou, 2020). According to La Porta et al. (1998) shareholder protection is largely based on the legal origin of a specific continent or nation4: According to their publication, the level of ownership protection is much lower in civil-law countries, than in common-law countries. Accordingly, though Germany provides for a high level of law enforcement, investor rights are rather limited compared to countries such as the US or UK (La Porta et al., 1998). As a substitutional mechanism for a less protective environment for investors (La Porta et al., 1998), voting blocks are rather concentrated as for example Becht and Boehmer (2003) find that 82 % of all listed corporations in Germany have a minority blockholder5. In Germany, the controlling shareholder is most likely a family – the founder of the firm or his descendants (La Porta et al., 1999).
Quantifying the economic influence of family firms in Germany is not an easy task to do, as for example no comprehensive, federal statistics about the ownership structures of registered companies exist and the availability of respective official data is limited (Schraml, 2010). Nevertheless, different studies approach a quantitative assessment by building on representative samples, alternative sources and their own definitions of family-controlled firms. While these studies allow an insight on the economic significance or frequency of family firms at large, quantifications of individual studies have a limited comparability.
Table 1.1 provides an overview of the distribution of family-controlled firms among all firms in general as well as among listed firms in Germany. Haunschild and Wolter (2010) estimate that 95,3 % of the German companies belong to families or individuals. Accordingly, among all active companies in Germany, Gottschalk et al. (2019) extrapolate that about 90 % of all firms are controlled by families accounting for 54 % of all employees and 45 % of sales in 20176. Their study furthermore estimates, that 86 % of all companies in Germany are owner managed.
| Study (Authors) | Sample size | Family Firm Definition | Family-controlled (%) | Firm Status |
|---|---|---|---|---|
| Haunschild and Wolter (2010) | 14,679 | 50 % ownership / family managed | 95,3 % | Unlisted |
| Gottschalk et al. (2019) | 3,292k* | 50 % ownership / family managed | 90 % | Unlisted |
| Franks et al. (2012) | 923 | 25 % voting-rights | 38.6 % | Unlisted/ Listed |
| Faccio and Lang (2002) | 704 | 20 % voting-rights | 64.6 % | Listed |
| Aminadav and Papaioannou (2020) | 722 | 20 % voting-rights | 51.5 % | Listed |
| Barontini and Caprio (2006) | 119 | 10 % voting rights | 48.3 % | Listed |
| Ampenberger et al. (2013) | 660 | 25 % voting rights and/or family board presence | 47 % | Listed |
| Achleitner et al. (2019) | 475 | 25 % voting-rights and/or family board presence | 41 % | Listed |
1.2.3 Listed Family Firms in Germany
Following La Porta et al. (1997, 1998) a lower level of shareholder protection, is not only associated with higher ownership concentration but also with smaller capital markets. Accordingly, the German stock market is significantly smaller than for example in the US (La Porta et al., 1997). While ownership concentration among listed firms ranges at a higher level than in Anglo-Saxon countries (Faccio and Lang, 2002), large shareholders are also found to align their voting shares with relevant controlling thresholds (Becht and Boehmer, 2003; Ampenberger, 2010). For example, Stefan Quandt, member of the Quandt family owning substantial parts of BMW, holds about 25.6 % of the voting rights that equals a blocking minority with regards to the German Stock Corporation Act.
Details
- Pages
- 188
- Year
- 2023
- ISBN (PDF)
- 9783631902592
- ISBN (ePUB)
- 9783631902608
- ISBN (Hardcover)
- 9783631901274
- DOI
- 10.3726/b20854
- Language
- English
- Publication date
- 2023 (July)
- Keywords
- family firms family ownership blockholders corporate governance board composition Family management working capital financial reporting earnings management Shareholder activism stock market returns abnormal returns financial crisis Influence of family board involvement Stock market performance of family firms
- Published
- Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2023. 188 pp., 10 fig. b/w, 31 tables.
