The Governance and Finance of Norwegian Family Firms: Main Characteristics of the Population

Abstract

Little is known about the family firm as an economic entity except for the very few family firms that are public. Our paper describes a wide range of governance and finance characteristics in the population of all private and public family firms with limited liability. We find that the family firm is the dominating organizational form in the economy, and that family firms behave and perform differently than other firms. We use proprietary data from Norway in 2000–2015 to describe main characteristics of family firms, which we define as firms where more than half the equity is owned by individuals related by blood or marriage. A firm is either an individual entity or a business group. Analyzing about 86,000 firms per year, we find that family firms account for 66% of all firms in the economy, 33% of employment, 22% of sales, and 13% of the assets. We find that family firms have very concentrated ownership regardless of firm size, and that most firms have owners from the controlling family, only. The family’s dominance at the shareholder meeting carries over to the CEO and to the board, which is unusually small. The distribution of firm size is lognormal, growth is independent of size, and family firms are smaller and grow less than nonfamily firms do. Family firms are more labor intensive, and small family firms are particularly liquid, risky, and young. The financing and dividend policy is quite similar in family firms and nonfamily firms. We find a performance premium for family firms. This premium exists for family firms vs. nonfamily firms as a whole, across firms with different size, across firms with and without minority owners, and across most industries.