Family ownership and firm performance during COVID-19

Abstract

In 2020, the COVID-19 pandemic made disruptions all over the globe, affecting all industries and businesses. Most firms experienced it as a difficult period with lockdowns, restrictions, and a drastic drop in business activities. The effects on businesses have yet to be discovered. This thesis investigates the financial performance of Norwegian publicly traded companies through COVID-19, emphasizing the impact of family ownership. Having designed a model, we perform a panel regression, including seven regressors, to explain what drives the cumulative abnormal returns during the pandemic. Our model shows that family firms outperform non-family firms during COVID-19, exhibiting up to 45% better cumulative abnormal returns. The abnormal returns are calculated as the difference between CAPM-expected and actual returns. We also conclude that this outperformance is specific to family firms, as there is no evidence for other large shareholder types to achieve similar results. Further, we find that firms carrying more debt performed worse, with short-term debt being the most important factor for worse performance. There is a positive correlation between financial performance and the M/B ratio, suggesting that companies with a higher M/B performed better than those with a lower ratio during the pandemic. Results from our tests suggest that Norwegian family-owned companies are influenced by socioemotional wealth. A theory introduced in 2007 by Gomez-Meija states that business decisions might not be financially optimal but in the family's best interest.