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The economic forces governing family firms [Elektronische Ressource] : empirical evidence from capital structure, payout policy and diversification decisions / Thomas Schmid

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TECHNISCHE UNIVERSITÄT MÜNCHENLehrstuhl für Betriebswirtschaftslehre - Finanzmanagement undKapitalmärkteThe economic forces governing family firms-Empirical evidence from capital structure, payout policyand diversification decisionsThomas SchmidVollständigerAbdruckdervonderFakultätfürWirtschaftswissenschaftenderTechnischenUniversitätMünchen zur Erlangung des akademischen Grades einesDoktors der Wirtschaftswissenschaften(Dr. rer. pol.)genehmigten Dissertation.Vorsitzender: Univ.-Prof. Dr. Joachim HenkelPrüfer der Dissertation:1. Univ.-Prof. Dr. Christoph Kaserer2. Dr. Dr. Ann-Kristin AchleitnerDie Dissertation wurde am 19.08.2010 bei der Technischen Universität München eingereicht unddurch die Fakultät für Wirtschaftswissenschaften am 20.10.2010 angenommen.SummaryFamily firms are the predominant organizational structure around the world. However,little is known if and why families influence the corporate policy decisions of “their” firms.This dissertations aims to shed light on the question if and why listed German familyfirms differ from their non-family counterparts in terms of capital structure, payout policyand diversification decisions. Therefore a dataset covering 660 listed German firms in the1995 to 2006 period is used.In the empirical analysis, significant differences between these two groups of firms arefound. Family firms are characterized by lower leverage, higher payout propensity andless unrelated business segment diversification.

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Published 01 January 2010
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TECHNISCHE UNIVERSITÄT MÜNCHEN
Lehrstuhl für Betriebswirtschaftslehre - Finanzmanagement und
Kapitalmärkte
The economic forces governing family firms
-
Empirical evidence from capital structure, payout policy
and diversification decisions
Thomas Schmid
VollständigerAbdruckdervonderFakultätfürWirtschaftswissenschaftenderTechnischenUniversität
München zur Erlangung des akademischen Grades eines
Doktors der Wirtschaftswissenschaften
(Dr. rer. pol.)
genehmigten Dissertation.
Vorsitzender: Univ.-Prof. Dr. Joachim Henkel
Prüfer der Dissertation:
1. Univ.-Prof. Dr. Christoph Kaserer
2. Dr. Dr. Ann-Kristin Achleitner
Die Dissertation wurde am 19.08.2010 bei der Technischen Universität München eingereicht und
durch die Fakultät für Wirtschaftswissenschaften am 20.10.2010 angenommen.Summary
Family firms are the predominant organizational structure around the world. However,
little is known if and why families influence the corporate policy decisions of “their” firms.
This dissertations aims to shed light on the question if and why listed German family
firms differ from their non-family counterparts in terms of capital structure, payout policy
and diversification decisions. Therefore a dataset covering 660 listed German firms in the
1995 to 2006 period is used.
In the empirical analysis, significant differences between these two groups of firms are
found. Family firms are characterized by lower leverage, higher payout propensity and
less unrelated business segment diversification. Especially the family’s presence in the
firm’s top-management has a huge impact on corporate policy.
The desire of the family to retain the control over the firm is identified as the main “force”
behind corporate policy decisions in family firms. Beneath control, risk aversion plays a
role in family firms with high family ownership, but low family representation in the top-
management. These results are of importance both for practitioners, e.g. capital market
regulators or equity investors, and academics.
IIContents
Summary II
Contents III
Nomenclature VII
List of figures IX
List of tables X
1 Introduction 1
1.1 Research questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Theoretical framework 8
2.1 Family firm definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Definitions in the literature . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.2 Applied definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Agency theory and family firms . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2.1 Agency theory in general . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2.2 Agency conflict I in family firms . . . . . . . . . . . . . . . . . . . . 26
2.2.3 Agency conflict II in family firms . . . . . . . . . . . . . . . . . . . . 27
2.2.4 Agency conflict III in family firms . . . . . . . . . . . . . . . . . . . 31
2.2.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.3 The institutional environment . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.3.1 The German financial system . . . . . . . . . . . . . . . . . . . . . . 34
2.3.2 The three “organs” of a firm . . . . . . . . . . . . . . . . . . . . . . 39
III2.3.3 Accounting requirements . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.3.4 Payout regulation and taxation . . . . . . . . . . . . . . . . . . . . . 43
3 Literature review 47
3.1 Berle-Means and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2 Family firms and performance . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.2.1 Theoretical considerations . . . . . . . . . . . . . . . . . . . . . . . . 53
3.2.2 Empirical results for family firms and firm performance . . . . . . . 55
3.2.3 The role of succession decisions . . . . . . . . . . . . . . . . . . . . . 61
3.2.4 Discrepancies between family ownership and control . . . . . . . . . 62
3.2.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.3 Family firms and firm behavior . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.3.1 Capital structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.3.2 Payout policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.3.3 Firm diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3.4 Discussion and conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4 Dataset, hypotheses and methodology 79
4.1 Dataset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.1.1 Data and data sources . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.1.2 Corporate governance variables . . . . . . . . . . . . . . . . . . . . . 80
4.1.3 Sample selection criteria . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.1.4 Sample composition . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
4.2 Theoretical predictions and hypotheses . . . . . . . . . . . . . . . . . . . . . 92
4.2.1 Capital structure decisions . . . . . . . . . . . . . . . . . . . . . . . 92
4.2.2 Payout policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4.2.3 Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.3 Research design and variables . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.3.1 Capital structure decisions . . . . . . . . . . . . . . . . . . . . . . . 101
4.3.2 Payout policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
4.3.3 Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
4.4 Estimation methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.4.1 Panel regressions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
IV4.4.2 The problem of endogeneity . . . . . . . . . . . . . . . . . . . . . . . 119
5 Empirical results 123
5.1 Descriptive results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5.1.1 Ownership and board structures . . . . . . . . . . . . . . . . . . . . 123
5.1.2 Capital structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.1.3 Payout policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
5.1.4 Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.1.5 Firm characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
5.2 Capital structure decisions in family firms . . . . . . . . . . . . . . . . . . . 141
5.2.1 Family firms versus non-family firms . . . . . . . . . . . . . . . . . . 141
5.2.2 Family ownership and management 1/2 . . . . . . . . . . . . . . . . 144
5.2.3 Family o andt 2/2 . . . . . . . . . . . . . . . . 146
5.2.4 Robustness tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
5.2.5 The “force” behind capital structure decisions in family firms . . . . 157
5.2.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
5.3 Payout policy decisions in family firms . . . . . . . . . . . . . . . . . . . . . 165
5.3.1 Family firms versus non-family firms . . . . . . . . . . . . . . . . . . 165
5.3.2 Family ownership and management . . . . . . . . . . . . . . . . . . . 168
5.3.3 Robustness tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
5.3.4 The “force” behind payout policy decisions in family firms . . . . . . 178
5.3.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
5.4 Diversification decisions in family firms . . . . . . . . . . . . . . . . . . . . . 180
5.4.1 Family firms versus non-family firms . . . . . . . . . . . . . . . . . . 181
5.4.2 Family ownership and management . . . . . . . . . . . . . . . . . . . 183
5.4.3 Family owned versus family managed firms . . . . . . . . . . . . . . 186
5.4.4 Geographical diversification . . . . . . . . . . . . . . . . . . . . . . . 188
5.4.5 Robustness tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
5.4.6 The “force” behind diversification decisions in family firms . . . . . 197
5.4.7 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
5.5 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
V6 Conclusion 207
6.1 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
6.1.1 Main results for corporate policy decisions . . . . . . . . . . . . . . . 207
6.1.2 The “forces” governing family firms . . . . . . . . . . . . . . . . . . 208
6.2 Avenues for future research . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
6.3 Contribution and implications . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Appendix 212
Bibliography 230
VINomenclature
AktG Aktiengesetz, Stock Corporations Act
Bafin Bundesanstalt für Finanzdienstleistungsaufsicht
BE Between effects
BilMoG Bilanzrechtsmodernisierungsgesetz
BSD Business segment diversification
CDAX Composite DAX
CS Capital structure
DAX Deutscher Aktienindex
DIV Diversification
EBITDA Earnings before interest, taxes, depreciation and amortization
EStG Einkommensteuergesetz
FBL Financial book leverage
FE Fixed effects
FML Financial market leverage
GAAP Generally Accepted Accounting Principles
HGB Handelsgesetzbuch
IAS International Accounting Standards
IFRS In Financial Reporting Standards
IPO Initial public offering
IV Instrumental variable
KapAEG Kapitalaufnahmeerleichterungsgesetz
KontraG Gesetz zur Kontrolle und Transparenz im Unternehmensbereich
VIINIBL Non-interest bearing liabilities
OLS Ordinary least squares
PA Payout
para. paragraph
RE Random effects
S&P Standard & Poor’s
SEO Seasoned equity offering
SIC Standard industrial classification
TE Treatment effects
TL Total liabilities
U.K. United Kingdom
U.S. United States
V(E) Book value of equitybook
V(E) Market value of equitymarket
WpÜG Wertpapiererwerbs- und Übernahmegesetz
WpHG Wertpapierhandelsgesetz
ZDP Zero distribution profits
VIIIList of Figures
2.1 Family, Insider and Individual Ownership . . . . . . . . . . . . . . . . . . . . . 19
2.2 Agency Conflicts in a Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Book and Market Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
5.2 Long-term Book and Market Leverage . . . . . . . . . . . . . . . . . . . . . . . 127
5.3 Book Leverage (Family Firms) . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
5.4 Market Leverage (Family Firms) . . . . . . . . . . . . . . . . . . . . . . . . . . 128
5.5 Dividend, Share Repurchase and Payout Propensity . . . . . . . . . . . . . . . 130
5.6 Mean Dividend and Share Repurchase Payout Ratio . . . . . . . . . . . . . . . 130
5.7 Mean Payout Ratio (only Dividend Paying Firms) . . . . . . . . . . . 131
5.8 Mean Dividend Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
5.9 Share Repurchase Volume as Fraction of Total Payout . . . . . . . . . . . . . . 133
5.10 Payout Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
5.11 Dividends by Largest / Most Profitable Firms . . . . . . . . . . . . . . . . . . . 134
5.12 Business Segment Diversification (All Firms) . . . . . . . . . . . . . . . . . . . 136
5.13 Business Segment Div (Only Diversified Firms) . . . . . . . . . . . . 137
5.14 Business Segment Diversification (Balanced) . . . . . . . . . . . . . . . . . . . . 138
5.15 Geographical Diversification (All Firms) . . . . . . . . . . . . . . . . . . . . . . 138
5.16 Business Segment Diversification (Family Firms) . . . . . . . . . . . . . . . . . 139
5.17 Geographical Diversification (Family Firms) . . . . . . . . . . . . . . . . . . . . 140
IXList of Tables
2.1 Overview on Family Firm Definitions . . . . . . . . . . . . . . . . . . . 9
3.1 Overview of Empirical Results for Firm Performance . . . . . . . . . . 64
3.2 Overview of Results for Firm Behavior . . . . . . . . . . . . 77
4.1 Development of the CDAX 1995 to 2006 . . . . . . . . . . . . . . . . . 84
4.2 CDAX Admissions 1996 to 2006 . . . . . . . . . . . . . . . . . . . . . . 85
4.3 CDAX Leavings 1996 to 2006 . . . . . . . . . . . . . . . . . . . . . . . 86
4.4 Sample Composition: Family Firms by Year . . . . . . . . . . . . . . . 88
4.5 Sample Composition: Family Firms by Industries . . . . . . . . . . . . 89
4.6 Sample Composition: Founder-controlled and Real Family Firms by
Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
5.1 Descriptive Statistics for Ownership and Board Strucutures . . . . . . 124
5.2 Descriptive for Capital Structure . . . . . . . . . . . . . . . . 125
5.3 Descriptive Statistics for Payout Policy . . . . . . . . . . . . . . . . . . 129
5.4 Descriptive for Diversification . . . . . . . . . . . . . . . . . 135
5.5 Descriptive Statistics for Firm Characteristics . . . . . . . . . . . . . . 141
5.6 Capital Structure: Family Firms . . . . . . . . . . . . . . . . . . . . . 143
5.7 Capital Family Ownership and Management 1/2 . . . . . . 145
5.8 Capital Structure: Family andt 2/2 . . . . . . 148
5.9 Capital Robustness Tests 1 . . . . . . . . . . . . . . . . . . 151
5.10 Capital Structure: Tests 2 . . . . . . . . . . . . . . . . . . 153
5.11 Capital Robustness Tests 3 . . . . . . . . . . . . . . . . . . 157
5.12 Capital Structure: Agency Conflict I vs. II . . . . . . . . . . . . . . . 159
5.13 Capital International Evidence . . . . . . . . . . . . . . . . 163
X