Download Cross-country analysis of family firm performances during a global

TILBURG UNIVERSITY
Cross-country analysis of
family firm performances
during a global recession
Course: Bachelor Thesis Finance
Name: Tim van Rijn
ANR: s771639
Supervisor: Liping Lu
TABLE OF CONTENT
Table of content
p. 2
Abstract
p. 3
I. Introduction
p. 3
II Literature Review
p. 6
III. Theoretical Framework
p. 9
IV. Hypotheses
p. 10
V. Method Section
p. 12
VI. Data and Results
p. 13
A. Data and discussion of the data
p. 13
B. Discussion of hypotheses
p. 19
VII. Conclusions and recommendations
p. 22
References
p. 24
2
Abstract
For this study a cross-country analysis has been made to research if there are differences in
performance of family firms around the world during the latest global recession. Firms from
Germany and the United States as developed countries and from China and Brazil as
developing countries have been chosen to find if there is any difference in performance. Data
before and after the collapse at the end of 2007 in the global economy have been collected end
discussed to make the distinguish in the performance during a recession or not.
I. Introduction
When we review on for example the last decades of the worldwide economy, we see an
economy that fluctuates a lot. There are times of growth and welfare for example after World
War 2. However, we see also bad times with losses, bankruptcies and unemployment. When
the economic activity declines we speak of a recession. Like in the beginning of the 21st
century in de US with the subprime mortgage crisis. In times of a recession the future for
businesses and individuals is quite unsure. Individuals spend less money and save more. They
are afraid of losing their jobs. The sales for companies will therefore go down. The turnover
and the results will be lower and thence the companies will invest less. Afraid for
bankruptcies, the banks will ask higher a higher risk premium what results in higher interest
rates and it will be more difficult for companies to get loans. The economy somehow gets in a
kind of vicious circle that has to be broken.
Nowadays Europe is faced with a recession, due to the Euro crisis. Several Euro-countries,
especially the Southern European countries and Ireland are facing difficulties to meet their
obligations to pay the growing interest rates on their debt. There is high unemployment and a
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lot of firms go bankrupt. Especially the small firms with liquidity problems go bankrupt. The
problem is that the demand goes down, and the costs and the interest rates grow. The firms are
unable to pay the debt and go bankrupt. Small family owned firms are likely to be more risk
averse to avoid problems for their family. But in economic hard times it is difficult for these
firms to get out of the vicious circle and therefore they cannot avoid bankruptcy in some
situations. For larger companies it is easier to restructure the firm, fire people or change the
strategy. For firms like grocery stores, the baker’s and the butcher’s it is much more difficult
to change strategy, especially in economically bad times.
Family firms differ in many ways to nonfamily firms. The agent-principal relationship is often
used to show the difference in ownership and management structure. Whether this difference
is positive or negative is argued differently in several studies. There are also many ways to
define a family firm and the way how family firms are selected in this study will be discussed
later in the method section part. The fact is that most of the firms start as a family business
(Shanker and Astrachan, 1996). Most of the firms are small enterprises and moreover not
more than 30% of the family firms will be continued by the next generation. Cuculelli and
Micucci (2008) conclude that family firms after succession to a next generation indeed
perform worse. Profits after succession decrease by the reason that the talent of the owner,
that played a key role in the firm, disappears.
Firms in countries with poor shareholder protection tend to have shareholders that control the
firm. This can be either the government, or a family. In most cases it is the family that have
controlling power in excess of rights that cash flows should give them (López de Silanes, La
Porta, and Shleifer, 1999).
4
The research objective is to investigate whether family firms around the world perform better
than nonfamily firms in a period of recession. As mentioned before, family firms are mostly
small firms and not many firms survive to the next generation, so family firms are also
younger firms and less mature. Therefore it is hard for these firms to survive during a
recession. But at the other hand it is argued by Beck, Demiguc-Kunt and Maksimovic (2005)
that it is easier to survive for the smaller enterprises because of governmental and regulatory
help. But the cause of a recession is not the performance of the smaller family firms. For the
average people, the customers of the family firms, it is likely that they are quite unhappy with
the bankruptcy of all kind of small firms, family firms, with their own characteristics. Also
because these firms are more involved with their customers (Ward, 1988). Moreover, the
bankruptcies will cause more unemployment.
Therefore this research want to show that family firms, especially in the long-run, in general
perform better than nonfamily firms. Secondly, the phenomenon recession will be discussed
and linked to the “family firms versus nonfamily firms” discussion. Finally, the economic
situation of the analyzed countries will be linked to the performance of the family firms. This
will be done by checking if there is any difference between the performance of family firms in
developed and developing countries.
The outline of the thesis is as follows: First there will be a literature review of what has
already been written about family firms and what influences their performance. After that the
theoretical framework and the hypotheses of the study will be discussed. This is followed by
the method of research and data selection. Then the data will be discussed and the thesis will
end with the conclusions and recommendations for further research.
5
II. Literature review
A lot of literature has been written about the question if family-owned businesses either create
or destroy value. Different studies show different answers to that question. The agency theory
is used a lot to argue if family businesses are more valuable than nonfamily firms or not.
There are two types of agency costs that can occur in firms in the ownership and management
environment.
Firstly, the relation between the owner and the manager will be discussed. In a family firm the
owner is the same person as the manager, or his or her family. So there is no such thing as an
agent-principal relationship between the manager and the owner. This relationship is needed
to have profit-maximizing decisions by current and potential shareholders (Villalonga and
Amit, 2006). Otherwise Berle and Means (1932) suggest that in a family firm there are no
conflicts between the owner and the principle, so it has a positive effect on the results of a
company.
Secondly, there is the relation between shareholders. When there are more family members
shareholder of the firm, the control will be different than in the case they were no family. Not
only the control may be imperfect, also the agency threat of altruism will arise. The family
members may have other interests and that could result in agency costs. Altruism leads also to
self-control-problems (Schulze, Lubatkin, Dino and Buchholtz, 2001). Family firms have the
incentive to hire family members as employee and this will create a situation of a firm that has
employees that are not the best available (Dunn, 1995).
Another positive effect is that family-controlled firms are ultimate long-term investors and
that they are more responsive to changes in the business environment (Dreux, 1990). It is not
the case that the managers are focused on short-term profits, but there is a focus on long-term
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returns with “patient-capital”. Nepotism therefore is an important phenomenon in these firms.
Not the best employers available are hired, but family. So the long-term view is a positive
effect, but the nepotism can influence the firm badly. The strength of these companies is the
family-relation in the firm. But how and in what manner family influences firms is hard to say
due to cultural differences in families (Bertrand and Schoar, 2006).
In a family firm the owner and the manager role are related and this creates a different
working environment. The environment is family orientated and the management is more
focused on a good working environment for the employees (Ward, 1988). Family firm
managers are also more all-rounders than pioneers and pay higher wages to employees than
the nonfamily firms (Donckels and Fröhlich, 1991).
For family firms it is difficult to get external financial capital, because they do not want to
share equity with nonfamily members. On the other hand family firms have an effective
financing structure, due to a longer time horizon. The shareholders of family firms do not
want to earn a lot of money now and for once, but they want good results for a longer period.
To perform well in the long-term they would not do risky investments. Another reason for
thinking in the long-term is that family firms have the incentive to let the firm be continued
by the next generation. It is quite obvious that parents do not want to give a bad performing
firm to their children. So to be a family firm can both be positive and negative when speaking
about financial capital (Sirmon and Hitt, 2003).
Another difficulty for family firms is to communicate the core values. High performance
companies normally have a clear mission statement that is clear for all the employees and
other stakeholders. In family-owned companies there exist an overlap between family,
ownership and management. This overlap is shown in figure 1. For the family it is more
important to think in a social way. In the management function the family members should
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think about the performance of the company. As a shareholder, both interests are important.
Because of different relations and the other interests in those roles, it is difficult to set a clear
mission statement and goals for the company (Dumas and Blodgett, 1999). On the other hand,
family firms could have competitive advantages because they have a typical system of
corporate governance. A family firm has incentives, structures and norms that influence the
firm and create competitive advantages that create value (Carney, 2005).
Figure 1: The overlap between family, ownership and management. When a firm is owned and managed by
a family, it is obvious that there is an overlap between these factors. Moreover, the interest of the family itself in
the firm is overlapping
In table 1 shows the summarization of the advantages and disadvantages that are discussed in
this chapter.
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Table I
Advantages and disadvantages of family firms.
Overview of the advantages and disadvantages of family firms that are discussed in the introduction and the
literature review.
Advantages
of
family
owned
and
controlled
firms
- Absence of conflicts between the owner and the manager.
- Long-term investments instead of risky short-term investments.
- More responsive to changes in the business environment.
- More careful about the employees (pay higher wages).
-Corporate governance that create competitive advantages.
Disadvantages of -The absence of the agent-principle relationship results in making not profit
family
owned maximizing decisions.
and
controlled - Nepotism (not hiring the best employees on the best positions).
firms
- Altruïsm (self control problems)
- Difficult to get external capital
- Difficult to communicate core values
III. Theoretical Framework
This research focuses on the profitability of family firms around the world. More specifically
it focuses on the profitability of family firms before and during the global recession.
Therefore the dependent variable that has been chosen is profitability. The variance in
profitability of family firms around the world can be affected by many reasons. To test the
variance around the world, a cross-country analysis will be done. The countries that has been
chosen to investigate will be explained later on, but the countries have a different economic
background. This to find if there exist differences in how family firms perform during a
recession and when not in a recession and to, if there are differences, find causes for that. The
global recession in this study is the second independent variable. Furthermore will be studied
if the country influences the profitability of family firms during a recession. Figure 2 shows
the theoretical framework graphically.
9
Global recession
Profitablility of a family firm
Country
(GDP growth)
Figure 2: Theoretical Framework. The profitability of family firms is the dependent variable. The global
recession and different countries are the independent variables, where the global recession influences the
countries' GDP too.
IV. Hypotheses
The study is about the performance of family firms during a recession. To do research in this
field the hypotheses are build up from a broad starting point to more specific hypotheses to
narrow down the topic more and to make in more detailed. The steps are illustrated in figure
3 below that is shown below. This will be studied for each of the countries. At the end, it will
be checked if there is any difference between the developing and developed countries.
Performance of firms
around the world
A: Family firms
C: In a recession
B: Non-family firms
D: Not in a recession
10
Figure 3: Hypotheses. In this figure is shown how the topic is narrowed down by making the hypotheses more
detailed. First the family firms are separated from the non-family firms, A versus B. After that the view is on
family firms in a recession and not in a recession, C versus D.
As mentioned in the literature review, a lot of research has been done to the performance of
family firms versus nonfamily firms. Many studies argue that in a firm the agency theory
maximizes profits. In a family firm the agent-principal relationship between the owner and the
manager is missing and that therefore many decisions are not made to maximize profits. Other
studies argue that family firms are more focused on the performance on the long-run and
therefore perform better. Moreover, the family firms selected in the database are small firms,
up to 500 employees. Beck, Demiguc-Kunt and Maksimovic (2005) argue that there is a
negative correlation between the growth rate and the size of the firm. So at the first hand the
performance of family firms compared to the performance of the domestic economy will be
studied to see if family firms perform better. In figure 3 this is the relation A versus B.
Hypothesis 1: Family firms perform relatively better than nonfamily firms.
Otherwise less risk will be taken by family firms and the focus is more on the long-run.
Managers that are no shareholder are less concerned with the performance of the company in
the future, but have more interests in achieving short-term goals to get their bonuses. Family
owned companies will have more incentives to be economically healthy and focus on the
long-term to let the firm in family hands for the next generation. For this reason it can be
assumed that family firms make more careful decisions. So it is interesting to find if family
firms perform better than nonfamily firms during an economic downturn. In figure 3 this is
the relation C versus D.
Hypothesis 2: Family firms perform relatively better in an economic downturn than
nonfamily firms.
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The economy of developing countries will grow over time a lot faster than the economy of
already developed countries. Developed countries are more focused to make the economy
more stable. Therefore developing countries will have a higher GDP growth, but also a higher
volatility in GDP growth. Due to the higher volatility the developing countries will be more
hurt during an economic downturn.
hypothesis 3: Profitability of family firms in developed countries will be more
correlated with the growth of the domestic economy than that of family firms in developing
countries.
Growth in developed countries is more stable and, more important, the economy is less
volatile than in developing countries. Because these companies face less volatility, they have
less fluctuations during a recession and get better through the bad times than the firms in
developing countries. In hypotheses 3 the relation between family firms in developed and non
developed countries will be studied. With hypotheses 4 also the effect of the recession will be
linked to this.
Hypothesis 4: Family firms in developed countries perform better during a recession
than family firms developing countries.
V. Method section
In this cross-country analysis, data is collected from the ORBIS database. The population for
the study is family firms around the world. The sample that has been taken to do the crosscountry analysis is as follows: First of all to cover the around the world part of the study,
countries from different continents are used as the unit of analysis. Secondly, the economic
background of the countries was important to find differences in performance. As developed
countries, family firms from the United States and Germany have been analyzed. As the
developing and growing countries, family firm information from China and Brazil has been
12
collected. This to measure if there is a difference in performance of family firms in already
developed and stable countries and the performance of developing and growing countries.
To find over-time results of family firms' profitability a longitudinal study has been done
over the period 2005-2010. In the period 2005-2007 there was no global recession and after
2007 the global economy was in a downturn.
With the available data it is impossible to select firms that are family firms or nonfamily
firms. So to make the distinction between family firms and nonfamily firms, some
assumptions had to be made. First of all the publicly owned companies were omitted from the
dataset. Secondly the larger companies were omitted by only keeping the firms with 0-500
employees. The last criterion was that the financial data from these years was available. With
these assumptions, data was collected from 735 German firms out of the 2.255.198 firms that
are known in the ORBIS database. 281 family firms from the United States for the total
amount of 23.299.249 firms, 402 firms in Brazil out of the total of 4.002.206 firms and 137
firms in China from the total of 564.231 firms. It looks like the amount of firms that are left
after the restrictions is small, but that is caused by the reason that over these whole period,
financial data as to be available and the criteria have to be valid for the entire period.
VI. Data and results
A. Data and discussion of the data
In this chapter the tables with the results from the different countries are presented. After that
the results that are found will be discussed and later on the hypotheses will be confirmed or
rejected.
13
Table II
Data collected from Germany
Overview of the returns of equity of 735 German family firms and the GDP growth of Germany in the period
2005-2010. The correlations are also calculated and shown.
Year
ROE
2005
2006
2007
2008
2009
2010
Delta
ROE
16.92
20.92
22.16
21.07
11.38
12.36
GDP
growth
9.72%
23.64%
5.93%
-4.92%
-45.99%
8.61%
Correlation
Correlation
ROE
and before
GDP growth global
recession
0.7%
3.7%
3.3%
1.1%
-5.1%
3.7%
Correlation
during
global
recession
0.9388
0.5552
0.3183
In table II the return on equity and the changes in return on equity of the selected German
family firms are shown. Also the growth in GDP and the correlations between the return on
equity and the change in GDP are presented graphically in figure 4.
Return on equity and GDP growth in Germany
6
GDP growth in %
4
2
0
0
5
10
15
20
25
-2
-4
-6
Return on equity
Figure 4: Return on equity and GDP growth in Germany. The ROE of family firms and the GDP growth in
Germany of the period 2005-2010 is shown with on the x-axis the return of equity of family firms and on the yaxis the GDP growth of the German economy.
14
With a correlation of 0.5552 we can see that the growth of family firms is not very strongly
correlated with the domestic growth of the economy in Germany. Remarkable is that the
returns on equity correlate obviously more before the global recession than during the
recession. A reason for that is that in 2010 there is a large recovery of the GDP in Germany,
but the family firms' returns in the dataset do not increase that much.
The data from the United States is shown in table III. In the United States there is a high
correlation between the change in GDP and the change in return on equity of family firms.
Not only before the global recession, but also during and after. Remarkable is that the return
on equity in 2009 is negative. In 2010 the family firms perform much better, like the growth
of the domestic economy.
Table III
Data collected from the United States
Overview of the returns of equity of 281 US family firms and the GDP growth of the United States in the period
2005-2010. The correlations are also calculated and shown.
Year
2005
2006
2007
2008
2009
2010
ROE
Delta
ROE
15.34
14.54
11.95
3.22
-5.04
2.19
6.60%
-5.22%
-17.81%
-73.05%
-256.52%
143.452%
GDP
growth
3.1%
2.7%
1.9%
0%
-3.5%
3%
Correlation
Correlation
ROE
and before
GDP growth global
recession
Correlation
during
global
recession
0.9944
0.7908
0.8287
In figure 5 the results are shown graphically and the linear relation is obvious to see. The
negative ROE in 2009 is an extreme outlier.
15
Return on equity and GDP growth in the United States
4
3
GDP Growth in %
2
-10
1
0
-5
-1
0
5
10
15
20
-2
-3
-4
Return on equity
Figure 5: Return on equity and GDP growth in the United States. The ROE of family firms and the GDP
growth in the United States of the period 2005-2010 is shown with on the x-axis the return of equity of family
firms and on the y-axis the GDP growth of the US economy.
In Brazil the returns on equity of the selected family firms and the GDP growth are stronly
correlated en the correlation is negative, which is shown in table IV. Before the global
recession there is a positive relation and during and after the recession there is a negative
correlation. The reason for this negative effect is that in 2009 the returns of the family firms
increase with a large amount and that the GDP declines. In 2010 the opposite occurs, the
returns decline and the GDP grows by a large amount. So in Brazil, the family firms react
different than the overall domestic economy.
16
Table IV
Data collected from Brazil
Overview of the returns of equity of 402 Brazilian family firms and the GDP growth of Brazil in the period
2005-2010. The correlations are also calculated and shown.
Year
ROE
2005
2006
2007
2008
2009
2010
Delta ROE
8.94
15.97
16.49
10.59
18.17
13.76
78.64%
3.26%
-35.78%
71.58%
-24.27*%
GDP
growth
Correlation
ROE and
GDP
growth
3.2%
4%
6.1%
5.2%
-0.6%
7.5%
Correlation
before
global
recession
Correlation
during
global
recession
0.7549
-0.2927
-0.7593
The results from the Brazilian family firms are shown graphically in figure 6. For the whole
period there is not really a linear relation, but the graph is more bell-shaped.
Return on equity and GDP growth
8
7
GDP growth in %
6
5
4
3
2
1
0
-1 0
-2
5
10
15
20
Return on equity
Figure 6: Return on equity and GDP growth in Brazil. The ROE of family firms and the GDP growth in
Brazil of the period 2005-2010 is shown with on the x-axis the return of equity of family firms and on the y-axis
the GDP growth of the Brazilian economy.
In table V the relationship between the ROE of the family firms and the GDP growth of China
is shown. The effects in both periods, before en during the global recession are strongly
17
correlated, but due to the drop, there is no correlation for the entire period. In both periods a
positive relation is shown, but the drop in GDP growth in 2008 is higher that the drop of the
returns of the family firms.
Table V
Data collected from China
Overview of the returns of equity of 137 Chinese family firms and the GDP growth of China in the period 20052010. The correlations are also calculated and shown.
Year
ROE
2005
2006
2007
2008
2009
2010
Delta ROE
6.87
10.69
12.17
11.48
10.5
14.47
GDP
growth
Correlation
Correlation
ROE
and before
GDP growth global
recession
11.3%
12.7%
14.2%
9.6%
9.2%
10.4%
55.60%
13.84%
-5.67%
-8.54%
37.810%
Correlation
during
global
recession
0.9639
0.0034
0.9956
The correlation before and during the global recession is clear to see in figure 7. There are
two linear relations, but it is obvious that for the entire period, the relations between ROE and
GDP growth are not correlated.
GDP growth in %
Return on equity and GDP growth
16
14
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
16
Return on equity
18
Figure 7: Return on equity and GDP growth in China. The ROE of family firms and the GDP growth in
China of the period 2005-2010 is shown with on the x-axis the return of equity of family firms and on the y-axis
the GDP growth of the Chinese economy.
B. Discussion of hypotheses
Hypothesis 1: Family firms perform relatively better than nonfamily firms.
The graphs show only once a negative return on equity, in 2009 in the United States. But in
the dataset there are no firms that went bankrupt in this period. So with this data it is difficult
to argue that family firms in general perform better than nonfamily firms. When we look at
the different countries, it is remarkable that the correlation between the ROE and the GDP in
Brazil is negative. This makes it even harder to conclude that family firms performed better,
because when the economy did well, the family firms performed badly.
In general the changes of the returns of the family firms follow the changes in GDP, instead
of Brazil after 2007. Therefore it is hard to say that family firms indeed perform better than
nonfamily firms from this results.
Hypothesis 2: Family firms perform relatively better in an economic downturn than
nonfamily firms.
In Germany we see that before the recession, the ROE of family firms and the GDP of
Germany was highly correlated and after 2007 this was not the case. So family firms react
different to the global recession. When we then look at the numbers, we see a large drop in
2009 in the returns when the GDP turns negative. In 2010 the GDP increases a lot, but the
returns of family firms increase relatively a lot less. It seems that family firms are less volatile
and therefore perform better during a recession in Germany.
19
In the United States the correlations between the returns on equity of family firms and the
GDP high before and during and after the global recession are high. When the American
economy was in a downturn, the US family firms performed badly too. Here we cannot really
see that the family firms perform better than the nonfamily firms, they fluctuate in the same
direction as the domestic economy.
The third country, Brazil, shows different results. For the period 2005-2010 there is not really
correlation between GDP growth and the return on equity of family firms. But when we look
back at the two different stages, the results are more interesting. From 2005 until 2007 there
is, although not really high, a positive correlation. In the period between 2008 and 2010, so in
the global recession, there is a negative correlation. The family firms react in the opposite
direction than the domestic economy. In 2009 the GDP declines and the returns of the family
firms still increase and in 2010 the opposite occurs. It is difficult to say whether this could be
explained as better or worse performance, but it is interesting. The returns stay at a relatively
high number, especially in the period that there was a huge decline in GDP as can be seen in
table 3 . From this we can better conclude that family firms perform well during a downturn.
The last country is China. For the whole period there is no correlation between the ROE of
family firms in China, and when looking at figure 8 and table 4 we see that this is caused by
the drop in GDP from 2007 to 2008. But in the separate periods there is a correlation, so the
performance of family firms moves in the same direction as the growth of GDP. What the
table either shows is that the GDP decreases harder than the return on equity of the family
hold firms. Here it can be concluded that the family firms indeed perform better.
Overall it is hard to say that family firm perform better in the global recession. What can be
concluded is that in most countries the family firms react differently. Differently than the
20
domestic economy and differently between the four chosen countries. Except in the United
States the ROE's do not become negative.
hypothesis 3: Profitability of family firms in developed countries will be more
correlated with the growth of the domestic economy than that of family firms in developing
countries.
For the whole period 2005-2010 indeed the correlations of the return on equity of family firms
and the GDP's are higher for the developed countries, the United States and Germany, than
for the developing countries, Brazil and China. So for the whole period family firms behave in
these countries more similar as the domestic economy.
Only in the United States there exists correlation for the whole period. Because of the global
economic downturn after 2007 it is interesting to look at the correlations before and after this
event. In Germany there is before high correlation, but in the downturn very low correlation.
In the United States there is in both periods relatively high correlation. In Brazil we see first a
positive correlation and later a negative correlation. And in China the ROE of family firms
and the GDP are in both periods highly correlated. The hypothesis cannot be accepted,
because there is no clear difference between the developed countries, the US and Germany,
and the developing countries, China and Brazil.
It can be concluded that family firms in the developed countries in the long run perform more
like the domestic economy. A reason for that could be that in the developing countries the
volatilities are higher.
Hypothesis 4: Family firms in developed countries perform better during a recession
than family firms in developing countries.
21
In the developed countries we see after 2007 a higher drop in returns than in de developing
countries. In the United States, the returns are even negative at some time. This hypotheses
has to be rejected, because from the tables it is shown that the opposite is true. Especially in
China the drop in ROE for family firms is less than the drop in GDP in China. Here we see
indeed that the family firms perform better during the economic downturn. The behavior of
the Brazilian family firms is also not in line with the domestic economy and we see that they
are not affected by a global recession. The returns of the family firms in the developed
countries, the US and Germany, move more like the domestic economy and with the global
recession.
VII. Conclusions and recommendations
Conclusions
The results do not really show evidence that family firms perform better than nonfamily firms.
The firms in the database only show in one year in the United States that they have negative
returns, but that gives not enough evidence to argue that family firms perform better than
nonfamily firms in general. Although the hypothesis was formulated in the positive way, the
results do not give evidence that family firms perform worse too.
Moreover, it can neither be concluded that family firms perform better in an economic
downturn. The results give a view in which way the family firms behaved in an economic
downturn, but there is no clear evidence that shows that family firms in general perform better
during a global recession.
However, the results show that family firms in developed countries behave more like the
domestic economy. In the developing countries, the drop in returns on equity is smaller during
the global recession. A reason for that could be that the GDP of these countries fall due to less
22
exports on the global market and that the family firms, which are small firms in the database,
are more dependent on the domestic economy instead of international trade. The domestic
economy in these countries is still growing, so that the family firms perform better. The global
recession in this study finds his origin in the United States with the subprime mortgage crisis.
In Europe banks were affected by this crisis and Europe is now facing the Euro crisis. The
United States and Germany in this study are faced with the recession not only on international
trade, but also in the domestic economy. So the smaller enterprises, the family firms are more
hurt by the recession in the developed countries.
In the literature review part the advantages and disadvantages of family firms are
summarized. It is hard to link these advantages or disadvantages to the results and
conclusions. The fact that family firms in developing countries perform better than nonfamily
firms during a recession is probably more influenced by the economic situation in those
countries than by the absence of the agency theory between managers and owners of these
companies.
Recommendations for further research
This study measures the performance of companies that with available information in the
period 2005-2010 with 0-500 employees. So companies that went bankrupt are not in the
dataset. Moreover companies that grew to more than 500 employees in this period are also not
in the dataset. So companies who performed really bad or extremely well are ignored in this
study. With studying the profitability of family firms, these results on bankruptcies and on
family firms that have grown to over 500 employees could be very useful and interesting.
23
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