Does family ownership create or destroy value? Evidence from Canada
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 22 February 2013
Abstract
Purpose
The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.
Design/methodology/approach
The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.
Findings
It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.
Research limitations/implications
The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.
Practical implications
The results suggest investors should invest in family ownership firms.
Originality/value
The paper shows whether firm ownership increases firm value and the determinant of family firm value.
Keywords
Acknowledgements
JEL classification – G32, G34, K22
Citation
Pukthuanthong, K., J. Walker, T., Nuttanontra Thiengtham, D. and Du, H. (2013), "Does family ownership create or destroy value? Evidence from Canada", International Journal of Managerial Finance, Vol. 9 No. 1, pp. 13-48. https://doi.org/10.1108/17439131311298511
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited