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Familial Control, Size and Performance in the Largest French Firms

Familial Control, Size and Performance in the Largest French Firms Family Firms Familial Control, Size and Performance in the Largest French Firms Alexis Jacquemin and Elisabeth de Ghellinck Contrasting with the traditional profit- important than control by financial tant in terms of market structure, and maximising economic theory of the firm institutions. However, bank control is prob­ the growth rate of market demand, where managerial discretion is unimpor­ ably underestimated because the banks are expressed by 13 dummies corres­ tant, there is a growing volume of U.S. the only stockbrokers in Germany and exert ponding to 13 industry groups among economic studies suggesting first, that the the voting rights of the shares they hold on which the firms in our sample have been large corporation is characterised by a wide deposit for their clients. The real share- distributed. dispersion of stock ownership implying a holding power of the banks is difficult to (3) The net cash flow as a percentage of separation of ownership and control; sec­ detect, because they do not publish all their equity is used as our measure of ondly, tha t the shift in control from owners to holdings. profitability. managers lead to firms' policies and perfor­ In Belgium, an analysis of 41 large non- (4) Percentage of shares owned by the mance conflicting with stockholders' financial corporations has established that largest holder or holders. interests. there is a dominant owner in each case. In (5) Case-by-case analysis to identify who In Europe and especially on the Conti­ the cases of family-owned corporations, the really exercises control over the firm and nent, there is, however, a great uncertainty family has a monopoly of executive posts, manages it. as to the usefulness of transferring this view while in the corporations whose main owner This empirical analysis has confirmed, for to the European industrial scene without is a Belgian holding company, the holding the largest French firms, the theory accord­ adaptation. The main difficulty stems from company selects the executives and controls ing to which only a combination of size and the scarcity of empirical studies, both at the the cash-flow. In as far as the holding divergent goals causes deviation from profit- descriptive level of the degree of separation companies are the main suppliers of funds to maximisation. Indeed, it has been established between ownership and control, and at the industry, they obtain in exchange various that when ownership and management are level of the behavioural implications as forms of control over the industrial sector. not essentially separate, large size has a expressed in the compared performance of Finally, in France, a study of the 200 systematically better impact upon profit­ the firms. largest corporations shows that half of them ability than when such a divorce exists. The purpose of this paper is to present, are family businesses existing for several Furthermore, two likely implications of this after a short look at the types of control generations. The next most important and theory, namely the superior positive effect of existing in European firms, the results of an more recent control type is by foreign cor­ initial size and/or initial profitability of the econometric study which for the first time porations, followed by technocratic control familial firms upon their rate of growth, are explores to what extent large French firms in where banks are dominant, and by public suggested. the hands of wealthy families have perfor­ enterprises. Furthermore, the most frequent Summing up, by using a correct med in a significantly different manner from situation (87 cases) is where one owner or specification of the variable expressing the non-familial firms. For this purpose we group of owners has absolute control. control type and of its indirect impact upon adopt specifications, both of the control at Managerial firms in the usual U.S. sense the firm's performance, the behaviour of work and of the link between the type of (firms managed by men who do not own large familial French firms appears to control and the observed performance, anywhere near a controlling interest in them) present several important specificities which which try to avoid possible confusions made are quite exceptional: in only 5 firms is there justify distinguishing between types of firms in many previous empirical studies. not one person or organised coalition of on the basis of the existing control. Such a persons owning more than 5% of the shares. Although European empirical research is distinction leads us t o conclude that the still One essential implication is that it is more still very scarce, the impression is that the very important control of large firms by important in Europe to build up an analysis U.S. concept of 'managerial capitalism' does wealthy families does not imply, as it is often of the eventual specificities of the familial not fit the European experience: corporate argued, a lack of efficiency and dynamism. firms' behaviour and performance as com­ control appears to be mainly in the hands of The authors are respectively Professor of pared with the whole group of non-familial holding companies and banks, and of large Economics and Research Assistant at the firms, than to focus upon the few existing families who have supplied generation after Université Catholique de Louvain. Full managerial firms. generation of managers for the European details of their econometric analysis can be business enterprise. In the United Kingdom, Our purpose is to determine the sig­ obtained by writing for Working Paper 77- various classifications of companies accord­ nificance of familial control on the perfor­ 25 to the European Institute for Advanced ing to control-type show that a strong mance of firms, and the basic question is Studies in Management, Place Stephanie 20, minority of British firms are still owner- how to specify this possible impact of B-1050 Brussels. controlled and that the other firms are not control. In order to test the possible impact automatically managerialiy controlled: the of the control-type upon the profitability of role of governmental or quasi-governmental the largest French firms, the following were agencies and the growing intervention of chosen as variables: financial institutions, as large corporations (1) Added-value, which was selected as the have increasingly relied on external funds to best all-round indicator of size, since it finance expansion, are also evident in Great takes into account the contribution of Britain. capital, labour, and the factors yielding In West Germany, the few existing data supra-normal profits, as well as the suggest that family and financial controls are degree of vertical integration. much more important than managerial con­ (2) The characteristics of the industry to trol, and that family control is itself more which the firm belongs which are impor- http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research News Emerald Publishing

Familial Control, Size and Performance in the Largest French Firms

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0140-9174
DOI
10.1108/eb027691
Publisher site
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Abstract

Family Firms Familial Control, Size and Performance in the Largest French Firms Alexis Jacquemin and Elisabeth de Ghellinck Contrasting with the traditional profit- important than control by financial tant in terms of market structure, and maximising economic theory of the firm institutions. However, bank control is prob­ the growth rate of market demand, where managerial discretion is unimpor­ ably underestimated because the banks are expressed by 13 dummies corres­ tant, there is a growing volume of U.S. the only stockbrokers in Germany and exert ponding to 13 industry groups among economic studies suggesting first, that the the voting rights of the shares they hold on which the firms in our sample have been large corporation is characterised by a wide deposit for their clients. The real share- distributed. dispersion of stock ownership implying a holding power of the banks is difficult to (3) The net cash flow as a percentage of separation of ownership and control; sec­ detect, because they do not publish all their equity is used as our measure of ondly, tha t the shift in control from owners to holdings. profitability. managers lead to firms' policies and perfor­ In Belgium, an analysis of 41 large non- (4) Percentage of shares owned by the mance conflicting with stockholders' financial corporations has established that largest holder or holders. interests. there is a dominant owner in each case. In (5) Case-by-case analysis to identify who In Europe and especially on the Conti­ the cases of family-owned corporations, the really exercises control over the firm and nent, there is, however, a great uncertainty family has a monopoly of executive posts, manages it. as to the usefulness of transferring this view while in the corporations whose main owner This empirical analysis has confirmed, for to the European industrial scene without is a Belgian holding company, the holding the largest French firms, the theory accord­ adaptation. The main difficulty stems from company selects the executives and controls ing to which only a combination of size and the scarcity of empirical studies, both at the the cash-flow. In as far as the holding divergent goals causes deviation from profit- descriptive level of the degree of separation companies are the main suppliers of funds to maximisation. Indeed, it has been established between ownership and control, and at the industry, they obtain in exchange various that when ownership and management are level of the behavioural implications as forms of control over the industrial sector. not essentially separate, large size has a expressed in the compared performance of Finally, in France, a study of the 200 systematically better impact upon profit­ the firms. largest corporations shows that half of them ability than when such a divorce exists. The purpose of this paper is to present, are family businesses existing for several Furthermore, two likely implications of this after a short look at the types of control generations. The next most important and theory, namely the superior positive effect of existing in European firms, the results of an more recent control type is by foreign cor­ initial size and/or initial profitability of the econometric study which for the first time porations, followed by technocratic control familial firms upon their rate of growth, are explores to what extent large French firms in where banks are dominant, and by public suggested. the hands of wealthy families have perfor­ enterprises. Furthermore, the most frequent Summing up, by using a correct med in a significantly different manner from situation (87 cases) is where one owner or specification of the variable expressing the non-familial firms. For this purpose we group of owners has absolute control. control type and of its indirect impact upon adopt specifications, both of the control at Managerial firms in the usual U.S. sense the firm's performance, the behaviour of work and of the link between the type of (firms managed by men who do not own large familial French firms appears to control and the observed performance, anywhere near a controlling interest in them) present several important specificities which which try to avoid possible confusions made are quite exceptional: in only 5 firms is there justify distinguishing between types of firms in many previous empirical studies. not one person or organised coalition of on the basis of the existing control. Such a persons owning more than 5% of the shares. Although European empirical research is distinction leads us t o conclude that the still One essential implication is that it is more still very scarce, the impression is that the very important control of large firms by important in Europe to build up an analysis U.S. concept of 'managerial capitalism' does wealthy families does not imply, as it is often of the eventual specificities of the familial not fit the European experience: corporate argued, a lack of efficiency and dynamism. firms' behaviour and performance as com­ control appears to be mainly in the hands of The authors are respectively Professor of pared with the whole group of non-familial holding companies and banks, and of large Economics and Research Assistant at the firms, than to focus upon the few existing families who have supplied generation after Université Catholique de Louvain. Full managerial firms. generation of managers for the European details of their econometric analysis can be business enterprise. In the United Kingdom, Our purpose is to determine the sig­ obtained by writing for Working Paper 77- various classifications of companies accord­ nificance of familial control on the perfor­ 25 to the European Institute for Advanced ing to control-type show that a strong mance of firms, and the basic question is Studies in Management, Place Stephanie 20, minority of British firms are still owner- how to specify this possible impact of B-1050 Brussels. controlled and that the other firms are not control. In order to test the possible impact automatically managerialiy controlled: the of the control-type upon the profitability of role of governmental or quasi-governmental the largest French firms, the following were agencies and the growing intervention of chosen as variables: financial institutions, as large corporations (1) Added-value, which was selected as the have increasingly relied on external funds to best all-round indicator of size, since it finance expansion, are also evident in Great takes into account the contribution of Britain. capital, labour, and the factors yielding In West Germany, the few existing data supra-normal profits, as well as the suggest that family and financial controls are degree of vertical integration. much more important than managerial con­ (2) The characteristics of the industry to trol, and that family control is itself more which the firm belongs which are impor-

Journal

Management Research News – Emerald Publishing

Published: Feb 1, 1978

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