Bianco, Madga and Golinelli, Roberto and Parigi, Giuseppe (2009): Family firms and investments.
Download (484Kb) | Preview
Family firms are a widespread control structure in most countries, especially among smaller firms. A vast literature addresses the question of whether they are performing better or worse than comparable non family firms, with not entirely conclusive results. Here we take a different, indirect approach and test whether investment decisions in family firms are more sensitive to uncertainty than in other firms. By using a novel dataset that includess both a better definition of family firms than commonly used (through self evaluation) and a very good proxy of the uncertainty on future demand that firms face, we are able to verify that – as compared to other firms – family firms are significantly more sensitive to uncertainty: this might contribute to explain why in some situations they perform better, whereas in others they do worse. We find evidence that this greater sensitivity to uncertainty in family firms is basically due to the effects of risk aversion and capital irreversibility, where the latter appear to be associated to a greater opaqueness of family firms rather than to the degree of sunkness of fixed capital. Finally, we propose some evidence that the prevalence of family firms in Italy might be associated to long standing institutional factors, such as an inefficient law enforcement system and a low social capital.
|Item Type:||MPRA Paper|
|Original Title:||Family firms and investments|
|Keywords:||Family firms; investments; uncertainty; risk aversion; capital irreversibility|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C33 - Models with Panel Data; Longitudinal Data; Spatial Time Series
|Depositing User:||Unnamed user with email email@example.com|
|Date Deposited:||13. Dec 2009 13:03|
|Last Modified:||19. Feb 2013 00:01|
Abel, A. B. and J. C. Eberly (1994), “A Unified Model of Investment Under Uncertainty”, American Economic Review, 84, pp. 1369-1384.
Abel, A. B. and J. C. Eberly (1996), “Optimal Investment with Costly Reversibility”, The Review of Economic Studies, 63, pp. 581-593.
Abel, A. B. and J. C. Eberly (1997), “An Exact solution for the Investment and Value of a Firm Facing Uncertainty, Adjustment Costs and Irreversibility”, Journal of Economics Dynamics and Control, 21, pp. 831-852.
Adams, R., H. Almeida and D. Ferreira (2008), Understanding the relationship between founder-CEO and firm performance, mimeo.
Anderson, R. C. and D. Reeb (2003), Founding-family owner and firm performance; evidence form the S&P500, Journal of Finance, vol. 58, pp. 1302-28.
Andres, C. (2008), Family Ownership, Financing Constraints and Investment Decisions, www.ssrn.com.
Arellano, M. and S. Bond (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”, Review of Economics Studies, 58, No. 2, pp. 277-297.
Banca d’Italia (2008), “Indagine sulle imprese industriali e dei servizi, anno 2007”, Supplementi al Bollettino Statistico, XVIII, No. 42.
Bandiera O., L. Guiso, A. Prat e R. Sadun (2008), Italian Managers: Fidelity or Performance?, London School of Economics, mimeo.
Banfield E. C. (1958), Moral Basis of a Backward Society, The Free Press, New York.
Barba Navaretti G., R. Faini e A. Tucci (2008), Does Family Control Affect Trade Performance? Evidence for Italian Firms, Centro Studi Luca D’Agliano Working Paper, n. 260.
Barontini, R., L. Caprio (2006), The effect of family control on firm value and performance: evidence from continental Europe, European Financial Management, vol. 12, pp. 689-723.
Bennedsen, M., K. Nielsen, F. Perez-Gonzales, D. Wolfenzon (2007), Inside the family firm: the role of families in succession decisions and performance, Quarterly Journal of Economics, may, pp. 647-91.
Bertrand, M. and A. Schoar (2006), The role of family in family firms, Journal of Economic Perspective, vol. 20, pp. 73-96.
Bertrand, M., S. Johnson, R. Samphantharok, A. Schoar (2008), Mixing family with business: a study of Thai business groups and the families behind them, Journal of Financial Economics, vol. 88, pp. 466-98.
Bloom, N., S. R. Bond and J. van Reenen (2003), “Uncertainty and Company Investment Dynamics: Empirical Evidence for U.K. Firms”, CEPR Discussion Paper Series, No. 4025.
Bloom, N., S. R. Bond and J. van Reenen (2007), “Uncertainty and Investment Dynamics”, Review of Economic Studies, 74, No. 2, pp. 391-415.
Bloom N. e J. Van Reenen (2007), Measuring and Explaining Management Practices across Firms and Countries, The Quarterly Journal of Economics, vol. 122, n. 4, pp. 1351-1408.
Blundell, R.W. and S. Bond (1998), “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, Vol. 87, pp. 115-43.
Bond, S. (2002), “Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice”, Cemmap Working Paper, No. CWP09/02.
Bond, S. and C. Meghir (1994), “Dynamic Investment Models and Firm’s Financial Policy”, The Review of Economic Studies, 61, No. 2, pp. 197-222.
Bontempi, M. E., A. Del Boca, A. Franzosi, M. Galeotti and P. Rota, (2004), “Capital Heterogeneity: Does It Matter? Fundamental q and Investment on a Panel of Italian Firms”, The RAND Journal of Economics, 35, No. 4, pp. 674-690.
Bontempi, M. E., R. Golinelli and G. Parigi (2009), Why Demand Uncertainty Curbs Investments: Evidence From a Panel of Italian Firms, Journal of Macroeconomics, forthcoming
Burkart, M., F. Panunzi and A. Shleifer (2003), “Family Firms”, Journal of Finance, Vol. 58, pp. 2173-2207.
Cingano, F. and P. Pinotti (2009). “Politicians at work. The private returns and social costs of political connections”, Temi di discussione, No. 709, Bank of Italy
Claessens, S., S. Djankov, J. P. H. Fan, L. H. P. Lang (2002), Disentangling the incentive and entrenchment effects of large shareholdings, Journal of Finance, Vol. 57, pp. 2741-71.
Cronqvist, H. and M. Nilsson (2003), Agency costs of controlling minority shareholders, Journal of Fianncial and Quantitative Analysis, vol. 38, pp. 695-719.
Cucculelli, M. (2008), Owner identity and firm performance: evidence from European companies, Rivista di Politica Economica, March-April.
Cucculelli, M. and G. Micucci (2008), Family succession and firm performance: evidence from Italian family firms, Journal of Corporate Finance, vol. 14, pp. 17-31.
Domowitz, I., R. G. Hubbard and B. C. Petersen (1986), Business Cycles and the Relationship between Concentration and Price-Cost Margins, The RAND Journal of Economics, 17, No. 1, pp. 1-17.
Eisner, R. (1978), Factors in Business Investments, NBER General Series No. 102, Ballinger, Cambridge, MA.
Eberly, J C. and J. A. Van Mieghem (1997), “Multifactor Dynamic Investment Under Uncertainty”, Journal of Economic Theory, 75, pp. 345-387.
Ellul A., M. Pagano e F. Panunzi (2009), Inheritance Law and Investment in Family Firms, FEEM WP n. 6.
Favero, C., S. Giglio, M. Honorati, F: Panunzi (2006), The performance of Italian family firms, ECGI WP n. 127.
Franks, J., C. Mayer, P. Volpin, H. F. Wagner (2009), The life cycle of family ownership: a comparative study of France, Germany, Italy and the UK, www.ssrn.com.
Fukuyama, F. (1995), Trust: Social Virtues and the Creation of Prosperity, The Free Press, New York.
Guiso, L. and G. Parigi (1996), “Investment and Demand Uncertainty”, CEPR Discussion Paper Series, No. 1497.
Guiso, L. and G. Parigi (1999), “Investment and Demand Uncertainty”, Quarterly Journal of Economics, 114, No. 1, pp. 185-227.
Hansen, L. (1982), “Large Sample Properties of Generalized Method of Moments Estimators”, Econometrica, 50, No 3, pp. 1029-1054.
Hartman, R. (1972), “The Effects of Price and Cost Uncertainty on Investment”, Journal of Economic Theory, 5, pp. 258-266.
ISTAT (2005), Archivio statistico delle imprese attive, ISTAT, Roma.
Khanna, T., Palepu, K. (2000), "Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups", Journal of Finance, Vol. 55, pp.867-91.
Miller, D., I. Le Breton-Miller, R.H. Lester, A.A. Cannella Jr (2007), Are family firms really superior performers?, Journal of Corporate Finance, vol. 13, pp. 829-58.
Michelacci C. e F. Schivardi (2008), Does Idiosyncratic Business Risk Matter?, mimeo.
Morck, R., D. Strangeland and B. Yeung (2000), Inherited wealth, corporate control and economic growth, in Morck, R. (ed), Concentrated Corporate Ownership, University of Chicago Press.
Morck, R., B. Yeung (2009), Never waste a good crisis: an historical perspective on comparative corporate governance, NBER WP n. 15042.
Perez-Gonzales, F. (2006), Inherited control and firm performance, America Economic Review, vol. 96, pp. 1559-88.
Roodman, D. (2009), “How to Do xtabond2; An Introduction to Difference and System GMM in Stata”, The Stata Journal, Vol. 9, No. 1, pp. 86-136.
Schmid, T., M. Ampenberger, C. Kaserer, A. Achleitner (2008), Family firms, agency costs and risk aversion. Empirical evidence from diversification and hedging decisions, CEFS WP 2008-13
Sraer, D. and D. Thesmar (2007), Performance and behavior of family firms: evidence from the French stock market, vol. 5, pp. 709-51.
Villalonga, B. and R. Amit (2006), How do family ownership, control and management affect firm value?, Journal of Financial Economics, vol. 80, pp. 385-417.
Ziliak, J. P. (1997), “Efficient Estimation With Panel Data When Instruments Are Predetermined: An Empirical Comparison of Moment-Condition Estimators”, Journal of Business and Economic Statistics, Vol. 15, No. 4, pp. 419-431.