Ownership and performance in the Italian stock exchange: the puzzle of family firms

Abstract

We present new evidence on the relationship between ownership, control and performance in family firms, by using a sample of Italian publicly listed companies from 2000 to 2017. We account for the potential self-selection bias of family firms with an endogenous treatment selection model. We do not find consistent evidence of a performance premium of Italian family firms or family CEOs as family firms achieve superior profitability, but lower market to book ratios. Interestingly, however, firm value is negatively impacted when the high controlling shares are disjointed from family ownership and when the family CEO is also Chair of the board. We also find that the equity stake is significantly lower when the CEO is a member of the controlling family, suggesting a trade-off between ownership and control within family firms.

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Fig. 1

Notes

  1. 1.

    We excluded firms with less than four continuous years of accounting data.

  2. 2.

    Balance sheet, dividends and stock exchange data are collected from three annual directories, Le Principali Società, Indici e Dati and Il Calepino dell’Azionista, all published by Mediobanca, a large Italian investment bank (https://www.mbres.it). Information about firms’ ultimate ownership, corporate governance, family ties of the CEO group affiliation, location, age, business activity and primary industry at 3-digit NACE classification was obtained from company annual reports and websites, CONSOB (the Italian authority supervising the equity markets), Borsa Italiana (the Italian stock exchange), DUN’s and Bradstreet and other directories.

  3. 3.

    Indeed, state-controlled firms and public utilities typically operate in regulated industries and pursue policy-related objectives which may affect their performance as well as the financial response by the financial market (see for example Cambini and Rondi 2017; Bremberger et al. 2016).

  4. 4.

    In the literature studying the relationship between firm ownership, performance and value, many studies rely on the ROA as a measure of accounting profitability and the market-to-book ratio to proxy for firm value. Among the most influential papers, see Himmelberg et al. (1999), Adams et al. (2005), Villalonga and Amit (2006), Miller et al. (2007) and Sraer and Thesmar (2007).

  5. 5.

    Note that the results do not change if we include the controlling share in either the treatment or the outcome equations.

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Acknowledgements

We thank Pierfrancesco Reverberi, Yuliya Ponomareva and seminar participants at the CGEUI Workshop “The European Corporation in the XXI Century: Changing Ownership and Governance Patterns” (20–22 May 2019, Barcelona, Spain) and at the XVIII Workshop of SIEPI-Italian Association of Industrial Economics (Venice, February 1st 2020) for comments and suggestions. We are grateful to Enrico Gallo for invaluable research assistance in data collection and construction of the database.

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Abrardi, L., Rondi, L. Ownership and performance in the Italian stock exchange: the puzzle of family firms. J. Ind. Bus. Econ. 47, 613–643 (2020). https://doi.org/10.1007/s40812-020-00160-z

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Keywords

  • Family firms
  • Corporate governance and control
  • Firm ownership

JEL Classification

  • L20
  • G32