Business Irish

Monday 17 June 2019

Family firms 'beating markets' in long-term

Credit Suisse chief executive Tidjane Thiam
Credit Suisse chief executive Tidjane Thiam
Gavin McLoughlin

Gavin McLoughlin

Family-owned businesses outperform broader equity markets on a consistent basis and across regions, according to a report by Credit Suisse.

The report, based on a database of over 1,000 companies, found the businesses had stronger revenue growth and higher profitability, which meant their share prices were stronger in relative terms since 2006.

The researchers defined family-owned businesses as companies in which families, founders or their descendants had a direct shareholding of at least 20pc, or voting rights of at least 20pc. The businesses they looked at had a market cap of more than $250m (€215m)

Reasons suggested for the outperformance included a preference for conservative growth among the companies surveyed. "The average family-owned company relies less on debt funding than the average non-family owned company.

"Having a longer-term investment focus provides companies with the flexibility to move away from the quarter-to-quarter earnings calendar and instead focus on through-cycle growth, margins and returns," Credit Suisse said.

The survey found however that "periods of rapidly improving economic conditions tend to coincide more frequently with weaker relative returns for family-owned companies".

"This is due in our view to their more defensive or conservative characteristics, Credit Suisse said.

The survey found a "negligible" difference in total shareholder return for family-owned businesses with ordinary shares versus those with special voting rights.

Large family owned businesses here include Dunnes Stores or Musgrave - though neither is public.

Irish Independent

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