Mixing Family with Business: A Study of Thai Business Groups and the Families Behind Them

Transcription

1 Mixing Family with Business: A Study of Thai Business Groups and the Families Behind Them Marianne Bertrand (Chicago GSB) Simon Johnson (MIT Sloan) Krislert Samphantharak (UCSD) Antoinette Schoar (MIT Sloan) Introduction (I) Business groups are a prevalent organizational form around the world Especially in emerging markets Ultimate ownership and control of business groups often lies with a family La Porta et al. (1999); Claessens et al. (2000 and 2002); European Corporate Governance Network (2001) Some papers have shown that family ownership is related to lower performance Claessens et al. (2000, 2002), Morck et al. Especially if the family has excess control Through dual class shares, pyramidal ownership etc. Claessens et al. (2000, 2002); Villalonga and Amit (2004) 1

2 Introduction (II) In most of the literature so far, families have been kept as black boxes : Little attempt at separating the role of different family members One important exception: founder succession In US data, absence of founder associated with lower performance (Perez-Gonzales 2002, Villalonga and Amit 2004) Objective of this paper: opening the family black box: (How) does the structure of families affect the business groups these families run? Analyze involvement of different family members in the family business Study possible relationship between family structure and several business outcomes: Governance and organizational structure of the group Performance Responsiveness to external shocks Introduction (III) Such an exercise requires detailed information on family structure Focus on Thailand: Data available to construct family trees with reasonable accuracy Data available for both public and private firms Thailand representative of other countries with Chinese family business groups Most family groups in Thailand founded by Chinese immigrants [Follow-up work: Response to financial crisis] Exogenous and largely unexpected shock 2

3 Preview of Main Results Groups are patrilinear: Sons of founders hold the largest stake in ownership and board positions Not strict primogeniture: Inheritance divided across several sons More sons means larger share of ownership and control with sons Performance: More sons are associated with lower firm performance (esp. private firms) Performance negatively responsive to excess control by sons (but not by other family members) Governance and Group Structure: More sons associated with greater discrepancy between ownership and control Sons increase their excess control when founder is gone (Relatedly) larger families imply larger, more pyramidal groups when the founder is gone Responsiveness to the crisis: More sons associated with slower group restructuring after the financial crisis Data (I): Firms/Groups Start with all publicly traded and largest private firms in Thailand in 1996 and 2001 (N=2153) Cumulative exit rate is 7.4 percent Focus on 1996 data here (pre-crisis) Financial data, board composition and ownership composition for all firms Private and public firms Isolate firms belonging to the same family: All firms: family as a whole is the largest shareholder and Non-financial firms: family as a whole has more than 10 percent ultimate ownership 3

4 Data (II): Family Trees Based on several sources: Funeral Books; Business articles, interviews, etc. Secondary sources: Brooker Book (150 leading families), Sappaibul (55 large families) Focus on 97 families for which we can check family tree information across several sources Start with founder (generation 1); track all direct descendants of founder Name, gender, age (when available) Match specific family members to their board positions and ownership stake in family firms Data (III) Data Limitations: Family tree data: Imperfect coverage of female family members About 40 percent females across all family trees Static perspective Family trees as of late 1990s Data coverage limited to the largest groups in Thailand: 43 percent of total assets in full sample of firms (1996) Descriptive statistics: Table 1: Business groups Table 2: Families 4

5 Family Involvement (I) Describe family involvement in the group: Which family members are involved? Is family involvement responsive to family size? (How) does this change once the founder is gone? Two types of involvement: Board seats (executive and non-executive positions) Ownership Table 3: Descriptive statistics Table 4: Regress family involvement on family size and presence/absence of founder. Family Involvement (II) Family involvement is responsive to the supply of family members: The larger the family, the larger the number of family members with ownership and board positions in the group Sons of founders hold the largest stake in ownership and board positions: On average: more than a third of family ownership and board membership with sons Note: most of the families in our data have at most 3 generations Absence of founder is associated with a much larger concentration of ownership with the founder s sons. Daughters lose relative to sons 5

6 Family Structure and Performance (I) Analyze relationship between family structure and firm performance: Do groups run by larger families (especially families with more sons given our findings above) have lower performance? Investigate possible explanations for such performance effects: Analyze changes in ownership and control structures when the number of sons increases. Family Structure and Performance (II) Table 5: Regress firm-level (residual) ROA on family structure Residual nets out industry and firm size effects Findings: Larger families associated with lower firm performance Association appears driven by number of sons Negative performance effects restricted to groups where founder is gone Negative performance effects also restricted to private firms 6

7 Family Structure and Performance (III) Tables 6 and 7: Regress firm-level (residual) ROA on family ownership and measures of family excess control (control>ownership): Contrast excess control by sons versus excess control by other family members Data allows us to compute ownership and control in a given firm at the individual level. Findings: Excess family control is associated with lower performance once the founder is gone Excess control by sons is associated with lower performance: More sons with excess control associated with lower performance Higher average excess control among sons associated with lower performance Excess control by other family members has no apparent impact on performance Findings are concentrated in private firms Family Structure and Governance (I) Table 8: Regress measures of excess control on number of sons and an indicator for presence/absence of founder Findings: Likelihood of excess family control at a group firm increases with the number of sons Excess control by sons increases when the founder is gone Average excess control by sons increases when the founder is gone Number of sons with excess control increases when founder is gone Governance structure of the firm deteriorates with more sons in the family and once founder is gone Table 9: Similar patterns reflected in group structure Once the founder is gone, larger families associated with larger, more pyramidal groups 7

8 Summing Up Sons play a central role in ownership and control, especially after the founder is gone Ownership and control by sons responsive to the supply of sons More sons, especially when the founder is gone, are associated with: Lower firm performance, especially in private firms Greater discrepancy between ownership and control Larger, more pyramidal groups Excess control by sons related to lower firm performance, in contrast to excess control by other family members More sons, especially when the founder is gone, are also associated with less efficient restructuring after the crisis Interpretation The decay of family groups with larger family (son) involvement may be due to: Race to the bottom: Incentives between sons to take out resources before another son can appropriate them Higher cost of within-family coordination arising from heterogeneous decision making units (conflicts across multiple sons running the business) Family ownership can create governance problems, instead of being a (second best) solution to governance failures In weak legal environments, founders might choose to allocate ownership and control in this way to ensure that all children receive cash flows from the family business 8