The effect on firm performance when a dilution of family control occurs in family firms

Abstract

This paper investigates how Norwegian family firm’s performance is affected by a dilution of family ownership control. Family firms hold unique firm characteristics and we explore if these characteristics change together with ownership dilution, and can be possible reasons for a change in firm performance for the firms that go through a family ownership dilution. Lastly we study how family ownership affect the firm’s survival. We have used data from 2000-2013 gathered from the Centre of Corporate Governance Research. Our findings show that the family firms that go through a family ownership dilution have lower firm performance than the family firms that remain family control over the firm during the whole time period. The typical characteristics of having a family member CEO, small size of the firm, few owners and higher asset turnover (ATO) are found to have positive impact on firm performance. No support was found for that an increased debt-to-equity was associated with lower firm performance, and there is not enough evidence to say whether the difference in long-term debt ratio had an impact on return on assets (ROA). However, the firms that dilute family control are found to have higher probability to survive longer. Our results are considered overall robust to alternative definitions and measurements.