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.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
We excluded firms with less than four continuous years of accounting data.
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.
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).
Note that the results do not change if we include the controlling share in either the treatment or the outcome equations.
Abrardi, L., & Rondi, L. (2019). Incentivizing the owner: why family firms offer pay-for-performance contracts to their CEOs?. Turin: Politecnico di Torino. (unpublished).
Abrardi, L., & Rondi, L. (2020). Ownership and control after 25 years of corporate governance reforms: the case of Italy. Turin: Politecnico di Torino. (unpublished manuscript).
Adams, R. B., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. The Review of Financial Studies, 18(4), 1403–1432.
Anderson, R., & Reeb, D. M. (2003). Founding family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58, 1301–1329.
Bach, L., & Serrano-Velarde, N. (2009). The power of dynastic commitment. Working paper, Stockholm School of Economics.
Bebchuk, L., & Fried, J. (2004). Pay without performance: the unfulfilled promise of executive compensation, Harvard University Press, Cambridge, MA
Berrone, P., Cruz, C., & Gómez-Mejía, L. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25, 258–279.
Bertrand, M., & Schoar, A. (2006). The role of family in family firms. Journal of Economic Perspectives, 20, 73–96.
Bertrand, M., Johnson, S., Samphantharak, K., & Schoar, A. (2008). Mixing family with business: A study of Thai business groups and the families behind them. Journal of Financial Economics, 88(3), 466–498.
Berzins, J., Bohren, O., & Stacescu, B. (2018). The performance premium of family firms: Evidence from population data, mimeo. Oslo: BI Norwegian Business School.
Bianco, B. M., Bianco, B. M., & Enriques, M. L. (1999). Pyramidal groups and the separation between ownership and control in Italy, mimeo. Rome: Banca d’Italia.
Bianchi, M., & Bianco, M. (2006). Italian Corporate Governance in the Last 15 Years: From Pyramids to Coalitions? ECGI - Finance Working Paper No. 144/2006.
Bloom, N., Dorgan, S., Dowdy, J., Van Reenen, J., & Rippin, T. (2005). Management practices across firms and nations. Centre for Economic Performance special papers (CEPSP17). London: Centre for Economic Performance, London School of Economics and Political Science.
Bremberger, F., Cambini, C., Rondi, L., & Gugler, K. (2016). Dividend policy in regulated network industries: Evidence from the EU. Economic Inquiry, 54(1), 408–432.
Burkart, M., Panunzi, F., & Shleifer, A. (2003). Family firms. Journal of Finance, 58(5), 2167–2202.
Cambini, C., & Rondi, L. (2017). Independent agencies, political interference and firm investment: Evidence from the European Union. Economic Inquiry, 55(1), 281–304.
Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57, 2741–2772.
Claessens, S., Djankov, S., & Lang, L. H. P. (2000). Separation of ownership from control of East Asian firms. Journal of Financial Economics, 58, 81–112.
Croci, E., Gonenc, H., & Ozkan, N. (2012). CEO compensation, family control, and institutional investors in continental Europe. Journal of Banking and Finance, 36(12), 3318–3335.
Cronqvist, H., & Nilsson, M. (2003). Agency costs of controlling minority shareholders. Journal of Financial and Quantitative Analysis, 38, 695–719.
Cucculelli, M., Mannarino, L., Pupo, V., & Ricotta, F. (2014). Owner-management, firm age, and productivity in Italian family firms. Journal of Small Business Management, 52(2), 325–343.
Cucculelli, M., & Micucci, G. (2008). Family succession and firm performance: Evidence from Italian family firms. Journal of Corporate Finance, 14(1), 17–31.
Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: causes and consequences. Journal of Political Economy, 93(1155), 1177.
Elston, J. A. (2019). Corporate governance: What we know and what we don’t know. Journal of Industrial and Business Economics, 46(2), 147–156.
Faccio, M., Marchica, M.-T., & Mura, R. (2011). Large shareholder diversification and corporate risk taking. Review of Financial Studies, 24, 3601–3641.
Fernando, G. D., Schneible, R. A., & Suh, S. (2014). Family Firms and Institutional Investors. Family Business Review, 27(4), 328–345.
Franks, J., Mayer, C., Volpin, P., & Wagner, H. F. (2012). The life cycle of family ownership: International Evidence. The Review of Financial Studies, 25(6), 1675–1712.
Fukyama, F. (1995). Trust: The social virtues and the creation of prosperity. New York: Free Press.
Gilson, R. J. (2005). Controlling share- holders and corporate governance: Complicating the comparative taxonomy. Stanford Law and Economics Olin Working Paper No. 309.
Heaney, R., & Holmen, M. (2008). Family ownership and the cost of under-diversification. Applied Financial Economics, 18(21), 1721–1737.
Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics, 53, 353–384.
Holderness, C. G., & Sheehan, D. P. (1988). The role of majority shareholders in publicly held corporations. Journal of Financial Economics, 20, 317–346.
Jensen, M. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.
Jensen, M., & Meckling, W. (1976). Theory of the Firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance., 55(2), 867–891.
Kole, S. (1996). Managerial ownership and firm performance: Incentives or rewards? Advances in Financial Economics, 2, 119–149.
Kumar, P., & Zattoni, A. (2013). How much do country-level or firm level variables matter in corporate governance studies? Corporate Governance: An International Review, 21, 199–200.
La Porta, R., López De Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54, 471–517.
Le Breton-Miller, I., & Miller, D. (2009). Agency vs. stewardship in public family firms: A social embeddedness reconciliation. Entrepreneurship: Theory and Practice, 33, 1169–1191.
Lins, K. V., Volpin, P., & Wagner, H. F. (2013). Does family control matter? International evidence from the 2008–2009 financial crisis. The Review of Financial Studies, 26(10), 2583–2619.
McConnell, J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27, 595–612.
Miller, D., Le Breton-Miller, I., & Lester, R. H. (2012). Family firm governance, strategic conformity, and performance: Institutional vs. strategic perspectives. Organization Science, 24, 189–209.
Miller, D., Le Breton-Miller, I., Lester, R. H., & Cannella, A. A., Jr. (2007). Are family firms really superior performers? Journal of Corporate Finance, 13(5), 829–858.
Miller, D., Le Breton-Miller, I., & Scholnick, B. (2008). Stewardship vs. stagnation. Journal of Management Studies, 45, 50–78.
Morck, R. K., Stangeland, D. A., & Yeung, B. (2000). Inherited wealth, corporate control, and economic growth. The Canadian disease? In R. K. Morck (Ed.), Concentrated corporate ownership (pp. 319–369). Chicago: University of Chigaco Press.
Morck, R., Wolfenzon, D., & Yeung, B. (2005). Corporate governance, economic entrenchment, and growth. Journal of Economic Literature, 43(3), 655–720.
Mueller, H., & Philippon, T. (2011). Family firms and labor relations. American Economic Journal: Macroeconomics, 3, 218–245.
Pérez-González, F. (2001). Does inherited control hurt firm performance?. Working paper, Columbia University.
Pérez-González, F. (2006). Inherited control and firm performance. American Economic Review, 96(5), 1559–1588.
Rondi, L., & Elston, J. A. (2009). Corporate governance and capital accumulation: firm-level evidence from Italy. Scottish Journal of Political Economy, 56, 634–661.
Smith, B. F., & Amoako-Adu, B. (1999). Management succession and financial performance of family controlled firms. Journal of Corporate Finance, 5, 341–368.
Sraer, D., & Thesmar, D. (2007). Performance and behavior of family firms: Evidence from the French stock market. Journal of the European Economic Association, 5, 709–751.
Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management. Journal, 21, 689–705.
Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385–417.
Volpin, P. (2002). Governance with poor investor protection: Evidence from top executive turnover in Italy. Journal of Financial Economics, 64, 61–90.
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.
Conflict of interest
On behalf of all authors, the corresponding author states that there is no conflict of interest.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
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
- Family firms
- Corporate governance and control
- Firm ownership