Are family firms good employers?

Family firms employ about 60 percent of the global workforce. While it is widely assumed that they are good employers, data about their conduct is mixed. In this study, we extend stewardship and agency theories to test competing propositions about the impact of family on employment practices using data from 14,961 private Belgian firms over a 19-year period. Higher investments, lower dividend payout, and higher risk tolerance indicate that family firms are better financial stewards of their companies than nonfamily firms. However, family firms are worse organizational stewards than nonfamily firms: They offer lower compensation, invest less in employee training, and exhibit higher voluntary turnover and lower labor productivity. Further, and contrary to earlier research, we find that financial practices in private family firms do not change over time, and that the deleterious influence of family on employment practices rises with both firm age and with heightened family involvement. Together, our findings suggest that a more nuanced understanding of stewardship and agency theory is needed to understand the impact of family on the governance of private firms

Entrepreneurial Buyout Monitor. A clear view on investment results 2013 - outlook 2014

Welcome to the first edition of the Entrepreneurial Buyout Monitor – a snapshot of the trends and challenges involved in management buyouts and buy-ins of SMEs in Belgium from a practitioner’s perspective. We captured the opinion of 175 buyout experts in Belgium – including bankers, private equity players, lawyers, brokers and M&A advisers. There has been a general lack of understanding and transparency of the smaller segment of the buyout market. Here, we give insights and trends on the general investment climate for SME buyouts, including: 1) Deal flow 2) Deal-making 3) Financing Overall, the results indicate the investment climate has generally improved and this is expected to continue in 2014. The key insights from the survey are: 1) Deal flow is increasing – but with greater levels of competition and a lack of professionally run SMEs with the potential to be transferred, sourcing high-quality deals remains challenging 2) Lending conditions continue to be challenging – putting pressure on investment returns and urging investors to look for alternative deal structures 3) Investors have to be more proactive – focusing on targets with the potential to add value through cutting costs or pursuing growth opportunities 4) Potential vendors need to be realistic – and either adjust their price expectations or wait for improved operating results and an uplift in multiples when the economic climate improvesBD

Governance implications of attracting external equity investors in private family firms

While research has commonly assumed that business-owning families are concerned about the preservation of control, families are increasingly seeking cooperation with external investors to accomplish firm- or family-level goals. In this paper, we provide a conceptual configuration of the different governance scenarios that may arise when family owners attract outside capital. Combining two important family objectives-(a) to provide liquidity either to the family or to the firm, and (b) to cede or to retain long-term family control-we identify four scenarios with different governance implications and preferred types of external investors. Our analysis increases understanding of the evolving structures of ownership in private family firms, the effectiveness and efficiency of governance arrangements in family firm-external investor cooperation, and the increasingly heterogeneous private equity funding landscape

The effects of ownership heterogeneity on the governance of private firms : insights from family firms and private equity

Research Foundation Flanders (ICM-FWO Fellowship

The Palgrave Encyclopedia of Private Equity

This chapter delves into the intriguing relationship between family firms (FFs) and private equity (PE), shedding light on the opportunities and challenges inherent in this phenomenon. FFs, which are characterized by significant family ownership and control, have captured the attention of PE investors worldwide. On the one hand, PE investors represent an interesting partner for FFs as the former may help to resolve conflicts, address liquidity needs, facilitate succession, drive growth, and adapt to changing industries. PE becomes an essential option for FFs when other financing avenues are limited, and minority investments hold particular allure as they allow the family to maintain control while benefiting from external resources. On the other hand, PE investors recognize the growth potential and promising financial returns associated with FFs. However, negotiations can be intricate since FFs often also consider noneconomic factors. Information asymmetries and trust issues can hinder the process, underscoring the importance of building rapport and aligning strategic and financial objectives. Evidence shows that FFs are more inclined to grant control and voting rights to PE investors when trust is high and when the investor’s nonfinancial resources are required. Although research is relatively limited, positive effects of PE investments on FF performance have been observed, particularly when FFs were underperforming prior to the investment. Acquiring minority stakes in FFs has been found to stimulate growth and profitability, particularly when integrating the existing management team. In conclusion, the partnership between family firms (FFs) and private equity (PE) investors holds strong potential for value creation and mutual benefit. With the provision of financial resources and expertise from PE investors, FFs gain the means to overcome growth challenges and navigate generational transitions. Building trust, aligning strategic objectives, and integrating management teams, however, are crucial for success. When addressing these challenges, FFs and PE investors may unlock significant potential for value creation