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Investment Returns on Family-Owned Firms Better Than Non-Family-Owned Businesses, Says Credit Suisse Study

PH is 11th in most number of large family-held firms among 25 countries covered by report
By Lorenzo Kyle Subido |

 

 

Businesses run by a family tend to perform better than companies that are not family-owned, according to a study by Swiss financial services company Credit Suisse.

 

In its report on The Credit Suisse Family 1000 published last September, the firm concluded that family-owned companies outperform non-family-owned companies around the world and across all classifications—in both developed and developing countries, as well as in both small and large businesses. Analyzing company data from 2006 to 2016, the study found that family-owned businesses reported higher growth rates and margins overall than their non-family-owned peers.

 

The report found that the Philippines had the 11th most number of large family-owned enterprises among 25 countries in the world. It ranked eighth among 11 Asian countries covered by the study.

 

“The financial performance of family-owned companies is superior to that of non-family-owned businesses across the globe,” said Credit Suisse in the report. “Revenue and EBITDA growth is stronger, EBITDA margins are higher, cash flow returns are better and momentum in gearing is more moderate.” The study also noted that family-owned businesses have a bigger budget allocated to research and development (R&D) than non-family-owned businesses, which Credit Suisse attributes to a “greater focus on innovation”.

 

Credit Suisse defines family-owned companies as those where at least 20 percent of the company’s shares and voting rights are held by founders and/or their descendants. The study compared almost 1,000 family-owned companies with around 8,500 non-family-owned companies around the world, including the Philippines.

 

As for why family-owned companies fare better, Credit Suisse points to their greater foresight with where they want to take the business in the future. “Successful family-owned companies manage to combine their view of ownership and control with a sense of direction,” explained Credit Suisse. “This drives family-owned companies to take a ‘longer-term view’ toward earnings and profitability compared to non-family-owned peers."

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This is supported by a survey Credit Suisse conducted with over 100 family-owned companies across 10 countries. In the survey, Credit Suisse reported that over 90 percent of respondents “believe they have greater focus on quality long-term growth than non-family-owned peers.” As well, Credit Suisse also highlighted that family-owned companies tend to prefer “conservative growth”, explaining that new ventures and investments are “largely financed through organic cash flows and equity.”

 

While Credit Suisse did not specify which Philippine companies were included in the study, it is clear from a cursory look at the country’s most valuable companies that family-owned companies dominate the country’s market. Except for a handful, most of the 30 companies that make up the Philippine Stock Exchange (PSE) index are family-held companies.

 

 

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Lorenzo Kyle Subido is a staff writer of Entrepreneur PH

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