Why do family firms congregate in certain industries?

1. Why do family firms congregate in certain industries? En-Te Chen, QUT, Australia John Nowland, CityU, Hong Kong

2. Prior Studies - Family Firms

3. Research Questions • Is family firm participation across industries random? • Are family firms better suited to certain industry conditions? • Do these conditions provide advantages or disadvantages to shareholders in family firms?

4. Family Firms - advantages • Investment in fixed assets • Family firms better suited to industries with more fixed assets? • Advantage – more willing to undertake long-term investment or overinvestment? • Access to debt • Family firms better suited to industries with more debt? • Advantage – can access debt when it is scarce? • Tax • Advantage – can make better use of political connections to gain tax concessions?

5. Family Firms - disadvantage • Private benefits of control • If family owners want to consume private benefits then which industry conditions facilitate this? • Greater uncertainty • Entrenched ownership • Less external monitoring • Disadvantage – if consumption has a measurable effect on performance.

6. Data • Taiwan Stock Exchange 1997 – 2007 • All firms categorized as family controlled or not by TEJ • 27 domestic industry groups • Participation = proportion family firms • Market Share = proportion family firm sales • Relative Performance = TQfamily / TQother

7. Table 2 – Descriptive Statistics

8. Table 3 - Industries

9. Tables 4 and 5 - extract

10. Table 6 - extract

11. Conclusions • Family firm participation is not random. Higher in industries with more fixed assets and lower board independence. • Family firms performing better than non-family firms in high tax and low board independence industries. Performing worse when have more debt and higher control wedge.