Family Businesses react better in times of financial crisis

FAMILY

We have built 4 portfolios (Global, European, North American and Emerging Markets, details next slide) based on the Global Family Business Index, compiled by the University of St. Gallen in 2017. The portfolios are based on the publicly listed companies in the index. The index comprises the largest (in revenue) 500 family firms (public and private) around the globe. We have taken the publicly listed companies of the index, approximately 240 companies. In this index, a company is considered to be a Family Business if the family holds at least 32% of the voting rights.

This 32% cut-off is motivated by the observation that in OECD countries on average 30% of the votes are sufficient to dominate the general assembly of a publicly listed company. This is because on average only roughly 60% of the votes are present in the general assembly. To be more conservative in the classification they decided to go for 32%, which is also more conservative than most academic studies that usually take a 20-25% cut-off. On average, for the study, we have a 56% of the shares/voting rights controlled by the family.

To study how these companies performed we have created 4 equally weighted portfolios:

Global portfolio with all of the publicly listed companies in the index (benchmark: MSCI World TR).

European portfolio with European countries (benchmark: Euro STOXX 600 TR).

North American portfolio (benchmark: MSCI North America TR)

Emerging markets portfolio (benchmark: MSCI EM TR).

We carried out a back test to see how the companies performed against the benchmark and additionally we looked at some important financial metrics (valuation and solvency metrics) of these portfolios at different years, before and after the index was published.

Link to Family Business 2019

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