Redefining family ownership and how it affects firm performance

Abstract

Through this thesis, we want to challenge the established family firm definition of 50% family ownership. We do this by incorporating additional criteria such as active management from the controlling family and a requirement that the company has two or more owners from the same family. By implementing these criteria, we aim to capture more of the features one expect to see when a company is family owned. We will measure the effects by looking at firm performance and compare the results from our new definition with the established definition. This thesis uses panel data of Norwegian public and private companies over the years 2000-2015 gathered from The Center for Corporate Governance Research. Our sample consists of approximately 175.000 Norwegian companies. The models used in this paper will always consist of one base case where family ownership is measured by the variable “family ultimate ownership”, which indicates percentage ownership of the controlling family. The base case is compared against two different models where the first model uses the established 50% definition as a dummy variable and the second model uses our new definition of family ownership. All these three cases include control variables for firm age, firm size, leverage and industry risk. The dependent variables are return on assets (ROA), return on equity (ROE), growth in assets and growth in revenues. The results from our analysis indicates that even though we use our new, stricter definition of family ownership, family firms still outperform non-family firms with reference to ROA and ROE. However, we see a negative impact on both growth measures, which could be explained by higher risk aversion and long-term thinking in family firms. Our findings, regarding the control variables for the new family definition, also capture the effects and key features one would expect from a family owned company.