Performance of foundation-owned firms in Germany: The role of foundation purpose, stock market listing, and family involvement

Abstract

To address succession issues, the owners of family firms increasingly transfer their equity to family and charitable foundations, thereby creating so-called foundation-owned firms. This form of succession has become increasingly common in various European countries. A small yet insightful stream of research has emerged comparing the performance of foundation-owned firms against the performance of nonfoundation-owned firms. Our study goes one step further and accounts for the heterogeneous nature of foundation-owned firms. We investigate the role of foundation purpose (family versus charitable foundation), stock market listing, and family involvement. Our results show that firms owned by a family foundation have better accounting performance than firms owned by a charitable foundation. We further find a performance-enhancing effect of family involvement in the firm’s management or supervisory board. Contrary to our expectations, we did not observe significant performance differences between private and stock market-listed foundation-owned firms. Our study advances the emergent stream of the foundation-owned (family) firm literature by integrating research on foundation-owned firms with research on family firms. Furthermore, we contribute to the corporate governance literature on ownership effects and blockholder ownership.