Lorenzo Caprio

The Effect of Family Control on Firm Value and Performance. Evidence from Continental Europe

We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. Although family-controlled corporations exhibit larger separation between control and cash-flow rights, our results do not support the hypothesis that family control hampers firm performance. Valuation and operating performance are significantly higher in founder-controlled corporations and in corporations controlled by descendants who sit on the board as non-executive directors. When a descendant takes the position of CEO, family-controlled companies are not statistically distinguishable from non-family firms in terms of valuation and performance.

Sheltering Corporate Assets from Political Extraction

We hypothesize that firms structure their asset holdings so as to shelter assets from extraction by politicians and bureaucrats. In countries where the threat of political extraction is higher, we hypothesize that firms hold a lower fraction of their assets in liquid form. Consistent with this conjecture, using data representing over 30,000 firms across 109 countries, we find that corporate holdings of liquid assets are negatively correlated with measures of political corruption. Further, annual investment in property, plant, equipment, and inventory plus dividends is positively correlated with measures of political corruption suggesting that owners channel their cash into harder to extract assets. To the extent that the threat of political extraction moves firms away from their otherwise optimal levels of liquid assets, our findings suggest that the threat of political extraction may reduce economic development not only through the direct costs of political payoffs but also because the potential for asset extraction moves firms away from their otherwise optimal asset holdings. The Author 2011. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

The Determinants of the Voting Premium in Italy: The Evidence from 1974 to 2003

We examine the voting premium in Italy in the period 1974 to 2003, when it ranged from 1% to 100%. At firm level, the measure of the price differential between voting and non-voting stocks cannot be fully explained without taking into account the effect of the largest shareholders identity. Family-controlled firms have higher voting premiums, especially when the family owns a large stake in the companys voting equity and the founder is the firms CEO and/or Chairman. We explain this result by showing that families attach greater importance to control and are more prone than other types of controlling shareholders to expropriate the non-voting class of shareholders.