Weathering the Storm: Family Ownership, Governance, and Performance Through the Financial and Economic Crisis

Abstract

Manuscript Type: Empirical. Research Question/Issue: Considering the recent financial and economic crisis as a unique exogenous shock, our study investigates the financial performance of family-controlled firms in “steady-state” conditions as opposed to situations of severe economic distress. In addition, we focus our attention within family firms in order to tease out the leadership (family or non-family CEO) and family ownership (family ownership concentration or dispersion) conditions that allow some governance arrangements to perform better than others during an economic downturn. Research Findings/Insights: Examining the entire population of Italian industrial family and non-family publicly listed companies over the period 2002–2012, we observe a significantly and consistently better performance of family-controlled firms during the financial and economic crisis, a finding that proves to be robust to several analytical specifications, as well as to different performance measures (ROA, ROE). Then, focusing on family firms only, we find that mixed configurations (family CEOs with relatively lower family ownership concentration) produce better performance in the face of an external hazard. Theoretical/Academic Implications: Our study confirms the pivotal assumption of the socioemotional wealth perspective that the advantages of family firms show up exactly when ownership is at stake. Our results also add to the growing literature on the resilience of family firms, showing that they are more able than others to absorb exogenous shocks. Practitioner/Policy Implications: Our findings suggest the importance of crafting governance structures well in advance of a crisis. Our research speaks to policymakers, indicating the importance of family firms for national economies, and the political opportunity to sustain their growth and managerial development.