Thesis proposal
Leroy de Groot 2084702
Topic list, topic 6: Family firms during the pandemic.
Part 1: Main research question
The main research question of this thesis is ‘How did family firms perform during the recent
pandemic?’. Furthermore, the following sub questions will also be answered in this thesis: ‘Did
they outperform non-family firms?’, ‘Did they cut investment and employment less?’ and ‘Which
industries are impacted the most?’. The research question is economically important because the
pandemic ended recently and it had, for the most part, a detrimental impact on the economy as a
whole. By studying the effects this had on firm performance of family firms, it will add to the
existing literature of family firms, by assessing whether a pandemic changes the expected results
of the study.
Part 2: Current state of literature
The most important research on family firms and firm performance comes from Anderson and
Reeb (2003). They collected data from the S&P 500 firms in the US from 1992 through 1999.
Contrary to their beliefs, they found that family firms performed significantly better than nonfamily firms. Family firms also had greater profitability when a family member served as CEO.
Furthermore, Tobin’s Q was 10 percent greater in family compared to non-family firms. They
concluded that founding-family ownership is not necessarily a less effective organizational
structure. Lee (2006) extended on their study by extending the data period to 2002 and to gather
data on operational performance. He found that family firms had a positive influence on the
business. They had a positive impact on employment, revenues and income, this effect was even
larger when a family member was on the board. Therefore, he concluded that family firms ensure
more continuity and stability over time, especially in case of employment. Next to this, he also
concluded that when markets are down, family firms are less likely to lay of employees. A study
by Ellul, Pagano and Schivardi (2018) came to the same conclusion with their research. They did
a worldwide study of 41 countries from 1988 to 2013. They found that family firms provide more
employment protection than non-family firms. However, it is less in countries where the social
security system is more developed. Miller et al. (2007) study the effect of family firms on firm
performance. They collected data from the Fortune 1000 companies in the US from 1996 to 2000.
How a family firm was defined seem to matter to answer to question whether family firms
outperform non-family firms. They found that lone-founder firms tended to outperform non-family
firms, however when this was excluded there did not seem to be a difference between family and
non-family firms. Therefore, it can be concluded that the definition a family firm ultimately
decided whether family firms outperform non-family firms. A study by Andres (2008) seems to
agree with these findings. He collected data from 275 listed German firms from 1998-2004. He
found that superior firm performance in family members, dependent on the role the family played
in the firm. The performance was strongest when the founder served as the CEO and performance
was better when the founding-family was still active on the board. He also found different results
based on the industry the firm was in, eg. Worse performance in capital-intensive industries.
Part 3: Research plan
I want to investigate the relation between family firms and firm performance. The current literature
states that family firms tend to outperform non-family firms. I want to study whether this
assumption also holds during a pandemic. To answer this I will be doing a multivariate analysis,
by using the following OLS regression:
𝐹𝑖𝑟𝑚 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖𝑡 = 𝛼𝑖 + 𝛽1 𝐹𝑎𝑚𝑖𝑙𝑦 𝐹𝑖𝑟𝑚𝑖 + 𝛽2 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖 + 𝛾𝑖𝑡 + 𝑢𝑖𝑡
Where 𝐹𝑖𝑟𝑚 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖𝑡 stands for an alternative measure of firm performance of firm i at
time t, 𝑓𝑎𝑚𝑖𝑙𝑦 𝑓𝑖𝑟𝑚 is a dummy variable which takes 1 if the firm is a family firm and 0
otherwise, 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 is a dummy variable which takes 1 for each of the industries and 0 otherwise
and 𝛾 stands for firm-fixed effects.
Firm performance will be measured by ROA (EBIT/ total assets), Tobin’s Q (market value/
replacement costs), investment (RD expenses) and employment rate. Due to the difficulty of
calculating the replacement costs of all companies, I will be using the simplified version of Tobin’s
Q, (market value/ book value).
A firm qualifies as a family firm when the founding family still has a fraction of the equity and/ or
when family members hold seats at the board of directors.
The following control variables will be used as firm-fixed effects: firm size (natural log of book
value total assets), growth opportunities (RD expense/ total sales), firm risk (standard deviation of
monthly stock returns), debt ratio (long-term debt/ total assets), firm age and board size.
In order to assess the difference between family and non-family firms, I will be using the
difference-in-difference method to determine whether the two are statistically different from one
another.
Part 4: Data resources
The data will consist of the Standard & Poors 500 firms as of January 1 2020. Public utilities and
banks will be excluded from this sample due to the difficulty of calculating Tobin’s Q and the
involvement of the government in this industries due to regulations.
The World Health Organization declared the outbreak of Covid-19 as a pandemic on March 11
2020. Therefore, the sample period will be from 2016-2023. This way I can also compare the four
years prior to and four years after the pandemic.
Firm specific data, eg. Board of directors and shareholders, will be manually collected from
company websites and proxy statements. This will be used in order to determine whether s firm is
a family firm or not.
Financial data for firm-specific control variables will be drawn from COMPUSTAT industrial files
and Orbis.
Part 5: References
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance:
evidence from the S&P 500. The journal of Finance, 58(3), 1301-1328.
Andres, C. (2008). Large shareholders and firm performance—An empirical examination of
founding-family ownership. Journal of corporate finance, 14(4), 431-445.
Ellul, A., Pagano, M., & Schivardi, F. (2018). Employment and wage insurance within firms:
Worldwide evidence. The review of Financial Studies, 31(4), 1298-1340.
Lee, J. (2006). Family firm performance: Further evidence. Family business review, 19(2), 103114.
Miller, D., Le Breton-Miller, I., Lester, R. H., & Cannella Jr, A. A. (2007). Are Family firms really
superior performers?. Journal of corporate finance, 13(5), 829-858.