The Survival of the Weakest: Flourishing Family Firms in Germany

Abstract

This article presents new evidence that partly contradicts the conventional wis-dom that German corporate ownership and governance practices are increasingly resembling the fragmented ownership and market-based governance systems associated with public companies in the U.S. and U.K. the ownership of listed German companies remains remarkably concen-trated, even in cases where bank and inter-corporate holdings have largely dis-appeared. In particular, the authors report that family owners hold equity stakes of at least 25% in well over a third of the largest 200 listed German companies. To be sure, the authors also report that the proportion of listed German companies that do not have such large blockholders—family or otherwise—has more than doubled since 1990. But even such signs of “fragmentation” are mislead-ing. For if the German banks and other companies that once owned large stakes have been replaced by international institutional investors, in a remarkable number of these “widely held” companies, families continue to have a major presence, with ownership stakes that range from 5-15%.In attempting to explain this persistence of family ownership, the authors begin by citing the explanation offered by many other finance and governance scholars—namely, that family and other forms of concentrated ownership predominate in national economies with relatively under-developed capital markets that over limited protection for minority investors. But as if to cast doubt on this story, the authors also note that today’s German equity markets appear to be more vibrant—at least in terms of the number of IPOs and listed companies—than the American and Eng-lish equity markets, where the numbers of listed companies have fallen signicantly in recent years. And this in turn raises the possibility that families, in their role as con-trolling shareholders, do a reasonably good job of looking out for the minority share-holders who have entrusted their funds to such companies.

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