Does the Type of Family Control Affect the Relationship Between Ownership Structure and Firm Value?

• Published date: 01 March 2017
• DOI: http://doi.org/10.1111/irfi.12093
• Author: Beatriz Martínez,Ignacio Requejo
• Date: 01 March 2017

Does the Type of Family Control

Affect the Relationship Between

Ownership Structure and Firm

Value?*

BEATRIZ MARTÍNEZ

†

AND IGNACIO REQUEJO

‡

†

Management School, University of Liverpool, Liverpool, UK and

‡

IME and Family Business Centre, University of Salamanca, Salamanca, Spain

ABSTRACT

Our objective is to disentangle which family business characteristics enable

family ownership to be an effective corporate governance mechanism. To this

aim, we investigate whether the relationship between ownership concentra-

tion and firm value is moderated by the type of family influence. This study

shows that family control positively affects performance, primarily when fam-

ily members serve on the board and when the founder is still influential. Our

findings hold when we control for the general blockholder effect and they are

robust to a battery of tests. We conclude that the impact of ownership concen-

tration on firm value differs across family firms.

JEL Codes: G32; G34

I. INTRODUCTION

La Porta et al. (1999) showed that companies are typically controlled by an

ultimate owner with a significant proportion of shares in the firm. Among all

ultimate owner types, family control is the most frequent form of organizational

structure (Morck et al. 2005). Despite the prevalence of family firms in many

countries and the influence of family owners throughout the world, the evidence

on the effect of family ownership on corporate performance is still inconclusive.

The identity of large shareholders matters in corporate governance (Sarkar and

Sarkar 2000). Therefore, we analyze whether the performance difference between

family and non-family firms is mainly due to particular family firm

* We would like to thank Julio Pindado, the managing editor, Ramazan Gençay, and an anonymous

referee for comments and suggestions on previous versions of this paper. We are also grateful to the

Research Agency of the Spanish Government, DGI (Grant ECO2013-45615-P), for financial support.

Requejo appreciates the financial support from the Spanish Ministry of Education and Science. All

errors are our own responsibility.

© 2016 International Review of Finance Ltd. 2016

International Review of Finance, 17:1, 2017: pp. 135–146

DOI:10.1111/irfi.12093