Are Institutional Investors Beneficial to Family Firm Performance? Evidence from the French Stock Exchange

Abstract

In the context of listed family firms, prior research pointed out that agency problems between majority family owners and minority shareholders are the most prevalent in European countries where shareholders’ protection is weak. This study aims at analysing how the presence of different types of institutional investors alleviates or enhances this form of agency problem. Examining the French stock market (SBF120) over the period 2002-2011, our results indicate that having a family as the first shareholder hampers financial performance. Our findings also reveal that having an institutional investor as second blockholder can be beneficial or detrimental to firm performance. Considering the distinctive nature of institutional investors, this research shows that the combination of a family as the first shareholder and a pressure-insensitive institutional investor as second blockholder exerts a positive influence on firm performance while a negative effect is found when the institutional investor is pressure-sensitive. These results confirm that the nature and the distribution of ownership is particularly important when analysing agency problems in listed firms.