Technische Universität München
Center for Entrepreneurial and Financial Studies
Discussion of
The Life Cycle of Family Ownership: A comparative
study of France, Germany, Italy and the U.K.
Julian Franks, Colin Mayer, Paolo Volpin, Hannes Wagner
EFMA 2009 Symposium on Corporate Governance and Control
Cambridge: April 10th, 2009
Markus Ampenberger
Technische Universität München
Summary of the paper (1/2)
Main Question:
• How does family ownership evolve within different financial systems? (against the background of
U.K. (outsider system) and Italy, France and Germany (insider system)
Empirical study is divided in two parts:
• Part A:
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Analysis of the 1,000 largest firms in the four most important Western European countries (U.K.,
France, Italy and Germany), snapshot for 1996 and 2006 (major source: Bureau van Dijk
Database)
• Part B:
Analysis of the Faccio and Lang (2002, JFE) listed family firms because of stronger transparency
requirements (more detailed information about board characteristics, family generations, etc.)
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
2
Summary of the paper (2/2)
Main Findings:
• U.K. family firms have a lower chance of survival as family-controlled firms than their
counterparts from Italy, France and Germany
• The importance of listed firms is different across the countries (with 43% listed firms in U.K., 11%
in Italy, 17% in Germany and 19% in France); representation of family firms is considerably lower
among listed companies than in private companies;
• While family shareholders are predominant in the continental European countries (family
ownership in Continental European countries is at the high end on an International scale), widelyKlickenheld
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dominant
in U.K. (family
ownership in the U.K. is at the low end on an International
scale). Foreign blockholders are much more common in the U.K. than in Continental European
countries.
• A life cycle view of ownership suggests two mechanisms that may lead to a dilution of family
ownership: (i) the need to raise external capital to finance growth (ii) the activity of the market for
corporate control
• In contrast to the U.K., family firms in Continental Europe are also present in industries with high
capital requirements; (along their life cycle family firms in the U.K. need to go public in order to
raise new external capital while family firms in Continental Europe can use other institutions,
such as relationship lending or pyramidal business groups)
• There are no differences in terms of profitability between family and non-family firms in the U.K.
while there is a difference in Continental European countries (the market for corporate control is
vital in the U.K. and eliminates differences in profitability)
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
3
Contribution to the literature
Main Contribution to the literature:
• Analysis of private and listed firms
• The research question is interesting: There is little knowledge about the life cycle of family
ownership.
• The research design is interesting: It takes different institutional settings into account. (i) Thereby,
it considers the relative importance of stock markets (equity) and banks (debt) for the financial
systems. (ii) It allows an international comparison to earlier studies (LaPorta et al. (1999, JF)
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al. (2000,
JFE) Faccio
and Lang (2002, JFE) Villalonga and Amit (2006, JFE))
• Measurement of previous papers is improved: In contrast to Faccio and Lang (2002) the ultimate
ownership of private firms is tracked back to the “real owners” instead of considering them as
family-owned per se.
I like the paper because….
• It is well-written, technically well-done and covers an interesting topic that is still a puzzle in
corporate finance research, the evolution of ownership structures over time
• It uses a unique, hand-collected dataset and it improves in terms of methodology in comparison
to Faccio and Lang (2002, JFE)
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
4
Part A (the 1,000 largest firms): Comments and questions (1/2)
Some ideas for improving the paper (part A on the largest 1,000 firms in each country):
• Development of hypotheses: Hypotheses 1 and 2 are better described in the introduction than
in the section about hypotheses From my point of view there seems to be a “jump” from the
institutional environment to the testable hypotheses while the development of hypotheses 1 and
is less clear
• Descriptive statistics: There is no table with descriptive statistics other than firm size in the
paper (table 4). It would be interesting to know more descriptive statistics about other firm
characteristics (such as leverage, operating profits, total assets, employees, labor costs, firm
age, etc.).
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• Representativeness? Size Bias? Table 4 concludes that for the three Continental European
countries the size of the family and non-family firms is remarkably similar and only in the U.K. are
family firms much smaller than non-family firms. Those results (as other results for the first part of
the paper) might be biased towards larger firms (for example there are only 124 listed firms
covered in Germany among the 1,000 largest firms, while there are about 417 industrial firms in
the Faccio and Lang (2002, JFE) sample based on 1996 ownership data, cf. p. 25 of this paper).
While the paper certainly improves in terms of representativeness in comparison to studies
focusing on only listed firms, it might be biased towards larger firms. Hence, true family influence
and differences in firm characteristics (such as sales) might be underestimated
• Dependence on External Financing Needs (table 8): Why do the probit regressions only
contain the interaction term (U.K.) x (External dependence)? To show that the Continent differs
from the U.K., do we not need to see the coefficient on (External dependence) in general in the
same regression model?
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
5
Part A (the 1,000 largest firms): Comments and questions (2/2)
Some ideas for improving the paper (part A on the largest 1,000 firms in each country):
• Comparison of Performance (table 9):
(i) Leverage and labor costs are not commonly applied measures of firm performance, rather they
describe examples for firm policies (however, they are labeled as performance measures in this
paper)
(ii) Do the regressions contain all relevant explaining factors or is there omitted variable bias?
For example, Anderson and Reeb (2003, JF) or Villalonga and Amit (2006, JFE) control among
other factors for outside block ownership (monitoring as an alternative corporate governance
device), R&D/total assets, capex/total assets, leverage, sales growth, firm age, market risk and
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higher
R2
(iii) What about endogeneity issues (see Himmelberg et al. (1999, JFE) for a discussion in the
context of insider ownership)? At least some discussion of endogeneity/causality issues would be
appropriate from my point of view.
Does not the change in ownership structure offer a better possibility to test for performance
differences without endogeneity problems? (see for example Fahlenbrach and Stulz 2008,
forthcoming JF in the context of managerial ownership)
• What is the role of the market for corporate control? There are no differences between family
and non-family firms in terms of operating performance in the U.K.  the authors argues that the
“market for corporate control” arbitrages away performance differences in the U.K. (p. 3), but: Is
the market for corporate control not a mechanism device to replace “bad corporate governance”?
If family firms perform better than non-family firms (and this is a sign of better corporate
governance or lower agency costs) why should the market for corporate control arbitrage away
those performance differences?
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
6
Part B (Listed family firms): Comments and questions (1/2)
Some ideas for improving the paper (part B on the development of listed family firms in each
country): Part B uses the listed family controlled firms in Faccio and Lang (1996) as a starting
point for the analysis
• Whether the “founding family” is invested in the firm seems to be by far the strongest determinant
for the question whether a family business remains a family businesses (both from its economic
and statistical significance, cf. table 11);
• In the literature there are two accepted definitions of a family business
(i) one is related to the identity of the ultimate controlling shareholder (LaPorta et al. (1999, JF),
Faccio and Lang 2002, JFE), this paper, etc.)
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(ii) one is related to founding family ownership/management (Anderson and Reeb (2003, JF),
Villalonga and Amit (2006, JFE), Sraer and Thesmar (2006, JEEA) etc.).
Does that result tell us that the founder family aspect is important for empirical studies on family
firms? Do some characteristics commonly associated with family firms (such as long-term
orientation, undiversified owners, family culture etc. see Betrandt and Schoar (2006, JEP) better
apply to founders and their descendents than to other non-founding family blockholders (such as
for example the Quandt Family in Germany)?
Shouldn’t thus the paper at least include a discussion of the two different concepts (since it is
citing papers from both strands of literature) in the literature review section?
Isn’t it an interesting question for further research how the two concepts are related to each
other? (maybe an idea for further research with this dataset)
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
7
Part B (Listed family firms): Comments and questions (2/2)
Some ideas for improving the paper (part B on the development of listed family firms in each
country): Part B uses the listed family controlled firms in Faccio and Lang (1996, JFE) as a
starting point for the analysis.
• Are there differences in inheritage taxes between the three countries? In particular between U.K.
and the Continental European countires? How does that affect the results? (see Ellul, Pagano
and Panuzzi (2008, WP) for a discussion of this aspect).
• In Europe stock markets have experienced an unusual wave of IPOs during the period of
analysis? How did that development affect the results from 1996 to 2006?
• There
onedas
related
paper to this
study which is not cited: S.Klasa (2007, JFQA) that
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analysis the question “what makes family owners sell their stake?” for a sample of U.S. industrial
firms
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
8
Contact Details
Thank you for your attention!
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Markus Ampenberger
Technische Universität München
Center for Entrepreneurial and Financial Studies (CEFS)
Arcisstr. 21
80333 München
Email: [email protected]
Website: www.cefs.de
Markus Ampenberger,
EFMA 2009 Symposium on Corporate Governance and Control
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