Semester

Fall

Date of Graduation

2004

Document Type

Dissertation

Degree Type

PhD

College

Chambers College of Business and Economics

Department

Finance

Committee Chair

Stratford M. Douglas.

Abstract

The objective of this dissertation is to examine the family firms in term of profit, risk and the probability of their survival in developing countries. The first chapter gives an introduction to this study. The second chapter provides an analysis of family businesses in regard to their performance, since there have been claims in the popular press that family-centered "crony capitalism" significantly contributed to the Asian financial crisis of 1997. Small, tightly focused firms can, however, be well managed by family hierarchies. As firms grow and diversify, family management is often displaced by diffuse ownership and independent managers. Between these two extremes, a firm run by two or three families may find its assets subject to expropriation as a commons. The second chapter provides empirical support for this story of development, with an analysis of a data set from Thailand, where regulations facilitate accurate identification of family influence on boards of directors. Regression results show the single-family managed firms and "corporate"-style firms (in which directors are not related) have significantly higher Tobin's q than "family-partnership" managed firms (in which a small number of different families dominate the Board), and higher Tobin's q is associated in the data set with higher firm performance, by a variety of measures. Thus, family partnerships, not family firms, may create problems for emerging economies.;In chapter three, the study uses total return variance, the CAPM, and the Fama French three-factor model to identify whether the different styles of management are associated with different degrees of risk. According to the total return criterion, family firms are riskier than the other two styles of management. Results from the CAPM model regressing on Thai stock market returns suggest that Thai family firms are riskier than corporation firms. Using the CAPM model regressing on world market returns, Thai family firms, partnerships, and corporate-style firms appear to be equally risky. Abnormal returns are positive in all cases, but not significantly different from each other. The average abnormal returns from the Fama-French model are also lower (lower absolute pricing errors) than that from the CAPM. The Fama French model fits the data better than the CAPM, and provides different results when using Thai vs. US factors. Thai family firms are riskier in the Thai data but the corporate-style firms are riskier in US data. However the Fama-French model implies far smaller abnormal returns and thus appears to explain the risk and return relationship better than the CAPM. Results from the Fama-French model indicate that Thai family firms are riskier (and have higher returns) because they are smaller in size, and tend to be value firms since they have high loadings on the book-to-market-value factor.;In chapter four, empirical results suggest that family companies and partnership companies have a lower likelihood of filing for bankruptcy than corporate-style firms do. They also suggest that having a failed banker on the board of directors increases the chance of a firm being delisted, since having a failed banker on a firm's board decreases its chances of getting new loans. In chapter five, I summarize the main conclusions of the dissertation and discuss future research.

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