LEADERSHIP
Why Family Businesses Come
Roaring out of Recessions by Saim Kashmiri and Vijay Mahajan
APRIL 07, 2014
The family business is still widely regarded as an ineffective organizational form (read this, this,
or that paper), especially in the US, even though recent evidence challenges this perception. Some
studies (see here or here) have shown that during periods of economic growth, family-managed
companies in the US actually perform better than professionally managed businesses.
However, a rising tide lifts all boats; its the ebbing tide that reveals the truth. Just how do family
businesses perform during recessions, when only the strong survive?
To answer that question, we compared the performance of 148 publicly listed family-owned
companies between 2000 and 2009 with that of 127 non-family businesses using Standard & Poors
Compustat database. Of course, the National Bureau of Economic Research classified two (2001 and
2008) of those 10 years as recession years.
We found that family businesses handily outperformed non-family companies during both the 2001
and 2008 recessions in terms of a key metric, Tobins q. (Tobins q is the ratio between a companys
market capitalization and the replacement cost of its tangible assets, with a higher ratio indicating
that a company has more intangible assets such as patents, brands, leadership etc., and is likely to
grow more in the future than one with a lower Tobins q.)
For instance, in our sample, the average Tobins q of all the family businesses remained at 1.9
regardless of the economic cycle, but that of the non-family corporations dropped from 1.2 during
the growth years to 0.8 during recessions. Thus, the former coped better with the recessions than
the latter. The family companies edge remained after we controlled for a number of factors such as
company size, age, level of globalization, level of diversification, R&D intensity, and industry. It
held true for both founder-managed companies, such as Dell and Microsoft, as well as for multipleStudents will turn in no more then a one page summary paper for each HBR reading assignments (4-pages total). Please address how you think this article benefits (or not) the strategic planning process and why.
Recent Comments