Abstract
We examine stock return performance of Chinese family-firms vs. Nonfamily-firms, and the impact on family-firm returns of firm size, having a founder as CEO, and levels of family ownership. We model returns with the Capital Asset Pricing Model (CAPM), the Fama-French 3-factor model, and a new 5-factor model we modified from Miralles-Marcelo, Miralles-Quirós, which adds factors for debt and illiquidity. In previous studies, though the prevalence is for family-firm outperformance, the results have been mixed. Using CAPM or the Fama-French 3-factor model, we find that family-firms outperform nonfamily-firms, but with the 5-factor model that outperformance vanishes, and this is robust to controlling for the GFC. For the founder CEO, firm size and family ownership considerations, again previous research has been mixed. With CAPM and Fama-French 3-factor models, we find that founder CEOs outperform nonfounder, large firms outperform small firms, and higher family ownership outperforms lower ownership. However, with the 5-factor model, only size remains as having significant impact. This study helps to reconcile conflicting results in previous research.
Highlights
Since 1978, China’s economy has undergone a huge transformation from being a planned economy to a market-oriented economy
Using Capital Asset Pricing Model (CAPM) or the Fama-French 3-factor model, we find that family-firms outperform nonfamily-firms, but with the 5-factor model that outperformance vanishes, and this is robust to controlling for the Global Financial Crisis (GFC)
For hypothesis 2, that family firms with a founder CEO outperform other family firms, we cannot reject that family firms outperform under CAPM or the 3-factor model, but again with the 5-factor model we find no significant evidence that firms with founder CEOs outperform
Summary
Since 1978, China’s economy has undergone a huge transformation from being a planned economy to a market-oriented economy. Isakov and Weisskopf [20] and Adams, Almeida [17] find that large family firms outperform small firms, but Anderson and Reeb [5] and Lipiec [12] find the opposite, with Miralles-Marcelo, Miralles-Quirós [2] finding that the family vs non-family outperformance is strong for small firms These and other studies have found a few other interesting effects with respect to social awareness and risk. What the current study does is use a time period which includes the GFC, controls for size, and compares the impact of 3 different return generation models—CAPM, the Fama-French 3-factor model [1], and borrowing from Miralles-Marcelo, Miralles-Quirós [2], develops a new 5-factor model
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