Performance and Valuation of Swedish Family Firms

Sammanfattning: We analyse the effect of family control, management and ownership on family firm performance “ROA and ROIC” and value “Tobin’s q”. We test our hypotheses using 4042 firm observations from more than 600 listed companies in Sweden over the period 1985-2005. We find that family firms trade at a discount compared to other firms, but at the same time they perform better than other firms. We also find that the cash flow ownership is positive for family performance and for non-founder family firm valuation. Descendant management destroys value through lower performance compared to founder and professional management. The opposing effects in family firm valuation and performance have not been found elsewhere to our knowledge. Our results indicate that too low payout ratios compared to industry peers, possible ineffective investments, a high separation of control and ownership and a time effect are the main drivers of these opposing effects. The typical discrepancy family firm is either an older, smaller family firm with low growth and high leverage or a very large, mature and older family firm with low investment options and more financial slack, which in combination with a high separation of votes and cash flow ownership, gives room for possible diversion of company funds.