The Effect of Family Control on Firm Value and Performance: Evidence from Continental Europe

We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. Although family‐controlled corporations exhibit larger separation between control and cash‐flow rights, our results do not support the hypothesis that family control hampers firm performance. Valuation and operating performance are significantly higher in founder‐controlled corporations and in corporations controlled by descendants who sit on the board as non‐executive directors. When a descendant takes the position of CEO, family‐controlled companies are not statistically distinguishable from non‐family firms in terms of valuation and performance.     

Cash holdings in family firms: CEO identity and implications for firm value

We investigate the cash holdings policy of family firms and examine potential value implications. Family firms hold more cash than other firms, with an average difference of 2.3% of total assets. This result is driven by firms managed by heir CEOs. While the cash holdings policy of first‐generation family firms is more sensitive to firm risk, consistent with founders’ increased risk aversion, that of later‐generation firms is more sensitive to information asymmetry and agency conflicts. Heir CEOs’ cash policies destroy value, as the marginal value of an additional Euro suffers from a 38.3‐cent discount, on average, relative to non‐family firms.     

Oil price shocks in a portfolio-balance model

In the 1970s oil price increases were often associated with downward pressure on the foreign exchange value of the dollar. In order to identify the factors generating this association, we examine an oil price shock in a portfolio-balance framework where a wealth transfer is generated by altered current account positions. We show that the exchange-rate impact of higher oil prices depends importantly on the asset prefernces of both oil importers and oil exporters, as well as exchange rate expectations, which are influenced by countries' abilities to adjust to higher oil prices.     

The Role of Long-Term Finance: Theory and Evidence

Improving the supply of long-term credit to industrial firmsis considered a priority for growth in developing countries.A World Bank multicountry study looks at whether a long-termcredit shortage exists and, if so, whether it has had an impacton investment, productivity, and growth. The study finds thateven after controlling for the characteristics of individualfirms,businesses in developing countries use significantly less long-termdebt than their counterparts in industrial countries. Researchersare able to explain the difference in debt composition betweenindustrial and developing countries by firm characteristics;by macroeconomic factors; and, most importantly, by financialdevelopment, government subsidies, and legal and institutionalfactors. The analysis concludes that long-term finance tends to be associatedwith higher productivity. An active stock market and an abilityto enter into long-term contracts also allow firms to grow atfaster rates than they could attain by relying on internal sourcesof funads and short-term credit alone. Importantly, althoughgovernment-subsidized credit markets have increased the long-termindebtedness of firms, there is no evidence that these subsidiesare associated with the ability of firms to grow faster. Indeed,in some cases subsidies are associated with lower productivity.      

Cardinal versus ordinal criteria in choice under risk with disconnected utility ranges

This paper provides a formal justification for the existence of subjective random components intrinsic to the outcome evaluation process of decision makers and explicitly assumed in the stochastic choice literature. We introduce the concepts of admissible error function and generalized certainty equivalent, which allow us to analyze two different criteria, a cardinal and an ordinal one, when defining suitable approximations to expected utility values. Contrary to the standard literature requirements for irrational preferences, adjustment errors arise in a natural way within our setting, their existence following directly from the disconnectedness of the range of the utility functions. Conditions for the existence of minimal errors are also studied. Our results imply that neither the cardinal nor the ordinal criterion do necessarily provide the same evaluation for two or more different prospects with the same expected utility value. As a consequence, a rational decision maker may define two different generalized certainty equivalents when presented with the same prospect in two different occasions.     

A Self-regulating Information Acquisition Algorithm for Preventing Choice Regret in Multi-perspective Decision Making

In a world filled with an increasing number of choices people must carefully select the information they acquire in order to make sound decisions that they will not regret in the future. This ranges from everyday life decisions to those made by experts in the business world. The authors introduce a novel information acquisition algorithm based on the value that information has when preventing a decision maker from regretting his or her current decision. The main features of the model include the capacity to account for different risk attitudes of the decision maker as well as his or her forward-looking behavior, the ability to assess choice objects (projects or products) defined by multiple characteristics and a self-regulation mechanism for the information acquisition process, even in the absence of information acquisition costs. The main properties of the algorithm are examined numerically.     

Ownership structure, family control, and acquisition decisions

We investigate how ownership and family control influence the decision to take part in M&As as an acquirer or as an acquired company in a sample of 777 large Continental European companies in the period 1998-2008. We find that ownership is negatively correlated with the probability of launching a takeover bid, and family firms are less likely to make acquisitions, especially when the stake held by the family is not large enough to assure the persistence of family control. On the passive side of M&A deals, the effect of the largest shareholders' ownership on the decision to accept an acquisition proposal depends non-linearly on the voting rights they hold, and family control reduces the probability of being acquired by an unrelated party. We do not find evidence that family-controlled firms destroy wealth when they acquire other companies. Finally, we document that ownership and family control, while being negatively correlated with M&A activity, are not negatively correlated with growth in firm size.     

Governance and bank valuation

This paper assesses the impact of the ownership structure of banks and shareholder protection laws on bank valuations while controlling for differences in bank regulations. Except in a few countries with very strong shareholder protection laws, banks are not widely held. Rather, families or the State control banks. Furthermore, (i) larger cash-flow rights by the controlling owner boost valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash-flow rights mitigate the adverse effects of weak shareholder protection laws on valuations. These results suggest that ownership structure is an important mechanism for governing banks.