Keeping the business within the family bumps up returns: Credit Suisse

Published Thu, Oct 26, 2017 · 03:58 AM

IT seems keeping things within the family has its perks.

A new report from Credit Suisse on Thursday showed that family-owned companies have outperformed broader equity markets in every region and sector, with Singapore family-run businesses standing out as well.

Globally, this outperformance had stood at an average of 3.9 per cent per year since 2006.

Family-run businesses also offer better growth prospects and profitability numbers, with stronger revenue, higher profit margins, larger cashflow returns, and more moderate momentum in gearing.

Within Asia-Pacific ex-Japan, Singapore family-owned companies achieved the greatest relative returns in share price of 7 per cent since 2006, stronger than the regional average of 3 per cent. They have also generated the strongest sales growth of 16 per cent relative to non-family-owned businesses in the last year.

The report studied close to 1,000 family-owned, publicly listed companies by region, sector and size. Companies from Asia-Pacific made up just over half of the tally. China tops the charts with the highest representation of companies at 167, followed by the US and India.

Younger family-owned companies - that is, those run by the first or second generation in the family - tend to perform much better than older firms, generating share price returns of around 9 per cent per annum.

The returns drop as companies move into the third generation of ownership or beyond, to less than 6.5 per cent. This drop could be due to younger family-owned companies being on average smaller, reflecting a "small-cap growth" factor, said Credit Suisse.

Eugene Klerk, the report's lead author said: "Family-owned businesses are outperforming their peers in every region, every sector, whatever their size.

"Our research seems to suggest that investors are not too concerned about the level of ownership but rather how involved the family owners are in the daily running of the business. This seems to be at the core of the success of family-owned companies in our view."