Faculté des sciences économiques et sociales

Founding family ownership, stock market returns, and agency problems

Eugster, Nicolas ; Isakov, Dušan

(Working Papers SES ; 490)

This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different risk factors and firm characteristics. Family firms... Plus

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    Summary
    This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different risk factors and firm characteristics. Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns than other firms and markets participants are regularly positively surprised by the economic outcomes produced by these firms around earnings announcements. The evidence suggests that outside investors earn a premium for bearing the high expropriation risk of family firms.