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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 3 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 6 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 7 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. 8 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. 11 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 References Beck, T., Demirguc-Kunt, A. and Maksimovic, V. (2005), Financial and Legal Constraints to Growth: Does Firm Size Matter?. 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