Married to the Firm? Family Ownership, Performance and Survival in Private Firms

Abstract

We show that family ownership is associated with more stable and liquid, but slower growing, young firms. Using a large sample of private firms across Europe, we find that family-owned firms have higher profit margins, returns on assets, and survival rates compared to non-family-owned firms. However, family-owned firms also hold greater reserves of cash, rely less on external debt, and invest and grow more slowly. These differences between family-owned and non-family-owned firms are largest early in the firm life cycle and when a married couple holds a majority of the firm's equity. Family ties, particularly marital ties, between owners facilitate conservation of cash and lower operating costs, which increases firm survival but which also dampens investment and growth. Our results indicate that families choose to start and manage very different types of firms relative to unrelated founders.