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UNIVERSIDAD DE SALAMANCA
Facultad de Economía y Empresa
Departamento de Administración y Economía de la Empresa

Doctoral Thesis
Corporate Governance in Family Firms.
Effects of Family Control on Firm Value
and Corporate Financial Decisions
Author
D. Ignacio Requejo Puerto
Supervisors
Dr. Julio Pindado García & Dra. Chabela de la Torre Olvera
Salamanca, 2010



UNIVERSIDAD DE SALAMANCA FACULTAD DE ECONOMÍA Y EMPRESA
Departamento de Administración y Campus “Miguel de Unamuno”
Economía de la Empresa 37007 SALAMANCA (SPAIN)
Tel.: +34 923 294 640 Ext. 3506
Fax: +34 923 294 715




D. Julio Pindado García, Catedrático de Economía Financiera, y Dª Chabela de la Torre
Olvera, Profesora Titular de Economía Financiera

CERTIFICAN

Que la presente tesis doctoral, que lleva por título “Corporate Governance in Family Firms.
Effects of Family Control on Firm Value and Corporate Financial Decisions” y que presenta
D. Ignacio Requejo Puerto para optar al grado de Doctor por la Universidad de Salamanca, ha
sido realizada bajo su dirección en el Departamento de Administración y Economía de la
Empresa de la Universidad de Salamanca y que cumple todos los requisitos necesarios para
proceder a su defensa pública.

Y para que así conste y surta los efectos oportunos, se expide el presente certificado en
Salamanca a 14 de septiembre de 2010.







Dr. Julio Pindado García Dra. Chabela de la Torre Olvera
Universidad de Salamanca Universidad de Salamanca






To my family and my supervisors



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Acknowledgements


There are many people to whom I am indebted for helping and supporting me during my
doctoral studies. First and foremost, I would like to thank my supervisors, Julio Pindado and
Chabela de la Torre, who have always been available whenever I needed them. They have
provided me with the skills and knowledge necessary to work in academia, and taught me how
to face the difficulties and hard times that lie in the road ahead. I am very grateful to them for
their guidance and advice, and especially for putting their trust in me during these years of hard
and endless work.
I would like to pay special thanks to Colin Mayer and Julian Franks for giving me the
opportunity to spend some time as a visiting doctoral student at Saïd Business School
(University of Oxford) and London Business School (University of London), respectively. They
were incredibly kind hosts and the conversations I had with them greatly contributed to
improving the thesis. The months I spent and the experience I acquired in these institutions
have been vital for my doctoral formation.
In the UK, I also owe a debt of gratitude to David Hillier and Kevin Keasey for inviting
me to Leeds University Business School (University of Leeds), where I presented part of the
dissertation. More importantly, during our meetings they have shown me that the academic
profession is more than just a job; it is a way of life. Thus, to succeed both as an academic and
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in a more general sense, it is of paramount importance to build one’s own network of
colleagues and friends.
As a doctoral student, I have had the opportunity to make some good friends and learn
from other students enrolled in the doctorate programs in Salamanca, Oxford, and London. At
the Prato Symposia, in Italy, which I have attended since the first time it was held, I have been
very fortunate to meet many pleasant scholars and PhD students from different universities
from all over the world. All of these people have contributed in one way or another to this
project. For this reason, here I express my most sincere thanks to them.
Similarly, I must acknowledge the support and encouragement received from the faculty
members at the Departamento de Administración y Economía de la Empresa, Universidad de
Salamanca. My first contact with most of them took place during my undergraduate degree
and, therefore, they have played a significant part in my formation in the Business Economics
field. In addition, prior to and during the doctorate program they provided me with valuable
advice for my career as an academic.
Last but not least, I would like to mention my sister and my brother for their love and
support; and I wish to thank my parents for listening to my concerns and encouraging me to
keep on working at all stages of the thesis. I owe immense gratitude to my family for
everything.
Finally, I am grateful to the Spanish Ministry of Education and Science (Ministerio de
Educación y Ciencia) for providing me with financial support throughout the doctoral studies
and for financing my two research stays abroad (under the program for the training of the
university teaching staff—Formación del Profesorado Universitario, FPU—). I greatly
appreciate this support.

Ignacio Requejo
Salamanca (Spain), September 2010
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Table of Contents


CHAPTER I – INTRODUCTION ..................................................................................... 1
I.1. The prevalence and uniqueness of family-controlled corporations .................. 4
I.2. Do family firms differ from their non-family counterparts in their
corporate performance? 7
I.3. Does family control play a moderating role in the investment–cash flow
sensitivity? ....................................................................................................... 11
I.4. Are financing and dividend decisions affected by family control of
corporations? ................................................................................................... 15
I.5. Objectives and formulation of the thesis ......................................................... 20

CHAPTER II – THE EFFECT OF FAMILY CONTROL ON CORPORATE
PERFORMANCE .................................................................................... 23
II.1. Introduction ..................................................................................................... 25
II.2. Theory, hypotheses, and empirical models ..................................................... 30
II.2.1. Do family firms perform differently as compared to
non-family ones? ................................................................................. 30
II.2.2. Is the performance difference of family firms moderated by
firm-level characteristics? .................................................................. 36

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TABLE OF C ONTENTS
II.2.3. Does family control substitute for the lack of legal protection for
minority shareholders? ....................................................................... 41
II.2.4. Do family firms continue to outperform when accounting for
nonlinearities? .................................................................................... 44
II.3. Data, family firm definition, and the estimation method ................................ 50
II.3.1. Data .................................................................................................... 50
II.3.2. Family firm definition ......................................................................... 52
II.3.3. Estimation method .............................................................................. 58
II.4. Results ............................................................................................................. 59
II.4.1. Summary statistics 60
II.4.2. Descriptive analysis ............................................................................ 61
II.4.3. Regression results ............................................................................... 66
II.4.3.1. Do family firms perform differently as compared to
non-family ones? .................................................................... 66
II.4.3.2. Is the performance difference of family firms moderated by
firm-level characteristics? ...................................................... 69
II.4.3.3. Does family control substitute for the lack of legal protection for
72 minority shareholders? ...........................................................
II.4.3.4. Do family firms continue to outperform when accounting for
nonlinearities? ......................................................................... 74
II.5. Robustness checks ........................................................................................... 78
II.6. Conclusions ..................................................................................................... 86
APPENDIX II.A. Definition of performance variables ....................................... 89
APPENDIX II.B. Definition of ownership structure variables ........................... 90
APPENDIX II.C. Definition of control variables ................................................ 91
APPENDIX II.D. Summary of coefficients of interest in the value models ....... 92
APPENDIX II.E. Additional robustness checks ................................................. 94

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