Firms in which families are the biggest shareholders are more likely to outperform, according to research by Madrid’s IE Business School.
The study analysed the returns of 832 businesses from six countries from 2001 to 2010. All had a market capitalisation of more than €50m and 31 per cent were family-owned.
During this period, the family businesses returned 300 basis points more per year than their counterparts, according to researchers Cristina Cruz and Laura Núñez Letamedia.
They said: “Family businesses have lower insolvency, economic and market risks than non-family businesses.
“The only risk which is greater with family businesses is the liquidity risk (the average annual volume traded). However, our statistical analysis indicates this greater risk is not enough to justify the existence of the ‘family premium’.”
Family businesses in Germany did best, returning an extra 1,000 basis points a year. The difference was 600 in the UK.
The research report was sponsored by March Gestión de Fondos, the asset management arm of Spain’s largest private bank, Banca March – itself a family business.
José Luis Jiménez, chief executive of March Gestión de Fondos, said: “The publication of the IE Business School report does justice to all those family businesses around the world whose efforts and commitment generate jobs and wealth even in tough times.
“Our Family Businesses fund has shown a cumulative return of more than 40 per cent since the product was launched at the end of 2011 and, thanks in part to our research, we are convinced that it will become one of our most profitable long-term funds.”
Jean Keller, chief executive at Argos Investment Managers, said it had been running a European micro-cap fund and noticed that family businesses were outperforming. “This led us to decide to launch a second fund focusing only on companies with at least 20 per cent family ownership,” he said. He added that the IE Business School had done “an excellent job in opening the eyes of many investors to an opportunity that has been overlooked”.
“We have all seen the high-profile cases of individuals in a family having very public disagreements about their businesses, but that profile is a distortion of the reality, which is that family businesses – most of which are never in the public eye – do extremely well for their investors,” Mr Keller said.
Elsewhere, the research showed the difference in return between family businesses and non-family businesses is much greater in the small (sub-€350m) listed sector where the firms are usually niche businesses, leaders in their sector and have an extensive presence in international markets.
“These businesses tend to demonstrate a greater independence, a flexibility to adapt and a stronger sense of family values and culture,” the researchers said.
One of the key questions was “whether there was an optimum point in family ownership where the benefits associated with family control began to disappear”, they said.
“Analysis shows that there was a point – at around 40 per cent – after which the family premium tended to tail off.
“The research shows there should be a balance between family and market ownership in order to avoid the risks associated with expropriation of income of other minority shareholders.”
