Family-owned companies show preference for conservative growth

“Close to 30 per cent of the European companies are fifth generation family-owned or older.” The report’s findings also suggest that younger companies in their first or second generation delivered roughly 350 basis points more per year than those in their third generation or beyond.

“Family- owned companies included in the survey show a strong preference for conservative growth. The average family-owned company relies less on debt funding than the average non-family owned company, particularly in Japan.

“Historical data for our family- owned companies also show stronger growth in gross investments.

Given the younger age of familyowned companies in Non- Japan Asia, it is not surprising to us that their asset growth is also above the average for the other regions.

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

“This also allows for a smoother cash-flow profile, thereby lowering the need for external funding. In turn, all of this has supported the share price outperformance of family- owned companies since 2006. The CSRI’s analysis suggests that the best performing family or founder run companies on a three, five and 10-year basis are to be found in India and China.” When reviewing total shareholder returns of family- owned businesses with ordinary shares versus those with special voting rights, CSRI saw that the difference was negligible, indicating that investor concerns in this area are misplaced.

The report showed that first and second generation family- owned companies generated higher riskadjusted returns than older peers during the past 10 years.

The report does not see this to be due to succession related challenges but a reflection of business maturity.

The report illustrates that younger family-owned companies tend to be small cap growth stocks, which has been a strong performing style whereas older firms are less likely to be located in the “new” more disruptive sectors, which by their nature offer much stronger growth.