Founding family controlled firms: Efficiency and value

Abstract

Abstract We examine the efficiency and value of founding family controlled firms (FFCFs), firms whose CEOs are either the founder or a descendant of the founder. We find that FFCFs are more efficient and valuable than non‐FFCFs that are similar with respect to industry, size, and managerial ownership. We also observe that descendant‐controlled firms are more efficient than founder‐controlled firms. Finally, we show that younger founder‐controlled firms are more efficient than older ones. These results are robust after controlling for the age of the firm and a variety of investment opportunity measures. Our results are consistent with the notions that managerial ownership is endogenous to the firm and that family relationships improve monitoring while providing incentives that are associated with better firm performance.