The family that stays in business together prospers together--and takes its investors along for the ride, or so says a recent study.
"Over the last 20- and 10-year periods, we have found family-controlled firms that are publicly traded are an excellent [investment] value," says Robert Kleiman, associate professor of finance at Oakland University in Rochester, Michigan. Kleiman conducted the study with NetMarquee Online Services, an Internet marketing firm.
Over a 20-year period, the value of stocks of the largest publicly held family firms outpaced returns on the Standard & Poor 500 Index and the Nasdaq Composite by 16.4 percent to 14 percent, Kleiman found. This has good implications for the economy, Kleiman says, because 60 percent to 75 percent of American businesses are family-owned, and they are responsible for about half the nation's gross national product.
"Families want to preserve their legacy and status in a social and community setting. And [family companies] tend to be more agile and less bureaucratic in decision-making," says Kleiman, explaining the edge family firms seem to have. "Also, ownership and management are one and the same [in family firms], compared to many publicly held companies where management may not be as interested in increasing investor value as they are in increasing their own salaries and perks."
Other factors benefiting family firms, Kleiman says: They tend to be less diversified and more focused on an area where they have a competitive advantage. They also tend to take a longer-term view toward growth.