Are family firms bad? : evidence from listed firms in Hong Kong

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Are family firms bad? : evidence from listed firms in Hong Kong

 

Author: Cheung, Wah Keung
Title: Are family firms bad? : evidence from listed firms in Hong Kong
Degree: D.B.A.
Year: 2013
Subject: Family-owned business enterprises -- China -- Hong Kong
Corporations -- Valuation -- China -- Hong Kong
Stocks -- Prices -- China -- Hong Kong.
Hong Kong Polytechnic University -- Dissertations
Department: Faculty of Business
Pages: v, 99 leaves ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2825626
URI: http://theses.lib.polyu.edu.hk/handle/200/7970
Abstract: Using panel data on 279 Hong Kong Stock Exchange-listed industrial companies, I examine the association between family ownership and performance with a comparative analysis of family versus non-family firms. My empirical evidence shows "decoupling' results between accounting and market performance. More specifically, family firms generate higher accounting performance but lower market valuation. In other words, the more profitable family firms' stocks are less preferred by market investors in Hong Kong. Interestingly, lower market valuation is somehow mitigated for those family firms with higher level of free cash flow and higher level of stock return volatility. Agency cost theory of free cash flow predicts that market investors would discount value of a firm holding high level of cash enabling firm managers to misuse of fund. Contrary to this prediction, my results suggest that market investors positively value family firms holding high level of free cash flow for good reasons. Furthermore, market investors become more comfortable for those family firms with higher stock return volatility during the period from 1999 till 2003 after the Asian Financial Crisis. Part of the reasons may be higher volatility offer greater opportunity for speculative gain in a shorter period of holding stocks, particularly relevant to the distinctive characteristics of stock market in Hong Kong with active participation of retail investors occupying 40% of cash market turnover during the period. Another reason may be due to lower bankruptcy risk for family firms which have much greater incentives to keep their own companies survive through generations.

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