There is a positive correlation between market performance and companies owned by their founder or family, according to a report from Credit Suisse.
Research into around 900 family-owned enterprises found they had stronger revenue and EBITDA (earnings before interest, tax, depreciation and amortization) growth, higher margins and better cash flow returns — averaging 14 percent — compared to non-family-owned businesses.
“Since early 2006, our ‘Family 1000’ universe has outperformed broader equity markets by an annual average of around 400 basis points per year,” said the CS Family 1000 report, published Wednesday.
The report defines a family-owned company as one where the founder or their descendants directly own at least 20 percent of shares or have voting rights of at least 20 percent.
Based on this definition, Alphabet, Facebook and Alibaba are the largest family-owned companies by market cap.
Credit Suisse found that this outperformance takes place regardless of other categories.
“Over time, family-owned companies very structurally outperform in every region, every sector, and for small and larger companies,” Eugene Klerk, head analyst of thematic investments at Credit Suisse, told CNBC’s Squawk Box on Wednesday.
“The market used to acknowledge this, but our argument is it does so far less these days, even though fundamentally the financial performance has actually improved over the last three to five years.”
In it for the long term
One of the main reasons for this outperformance is that family-owned businesses have longer-term focus, according to the report. This long-term view then generally led to more robust growth, it said.