1. Why do family firms congregate in certain industries? En-Te Chen, QUT, Australia John Nowland, CityU, Hong Kong

2. Prior Studies - Family Firms USEuropeAsiaChina Size/Age--+- Performance+-+ Fixed Assets-+- Debt-++ Control Wedge++++ Board Independence-- Risk++- Anderson & Reeb (2003), Villalonga & Amit (2009), Doukas et al. (2009), Maury (2006), Chen & Nowland (2010), Amit et al. (2009)

3. Research Questions Is family firm participation across industries random? Are family firms better suited to certain industry conditions? Do these conditions provide advantages or disadvantages to shareholders in family firms?

4. Family Firms - advantages Investment in fixed assets  Family firms better suited to industries with more fixed assets?  Advantage – more willing to undertake long-term investment or overinvestment? Access to debt  Family firms better suited to industries with more debt?  Advantage – can access debt when it is scarce? Tax  Advantage – can make better use of political connections to gain tax concessions?

5. Family Firms - disadvantage Private benefits of control  If family owners want to consume private benefits then which industry conditions facilitate this? Greater uncertainty Entrenched ownership Less external monitoring  Disadvantage – if consumption has a measurable effect on performance.

6. Data Taiwan Stock Exchange 1997 – 2007 All firms categorized as family controlled or not by TEJ 27 domestic industry groups Participation = proportion family firms Market Share = proportion family firm sales Relative Performance = TQfamily / TQother

7. Table 2 – Descriptive Statistics Family Firms (n=3482) Non-Family Firms (n=4179) Means Tests MeanStdevMeanStdev Total Assets (NT$ billions)17.0645.1212.9053.974.16*** Age (years)9.4810.454.657.114.83*** Fixed Assets0.140.210.100.170.04*** Debt0.090.170.060.160.03*** Tax (%)14.816.7916.118.09-1.30*** Risk0.780.140.770.180.01*** Ownership0.250.170.260.19-0.01 Control Wedge1.450.671.370.640.08*** Board Independence0.040.100.080.14-0.04*** Tobin’s Q1.160.561.200.56-0.04*** Return on Assets (%)4.5025.906.0637.48-1.56**

8. Table 3 - Industries IndustryFirm-years Family Firm Participation Family Firm Market Share Relative Performance Paper & Pulp771.00 n/a Rubber990.890.931.47 Glass & Ceramics550.800.971.35 Automobile500.780.670.99 Cement770.710.911.11 Food2200.650.440.63 Financial & Insurance3490.640.700.93 Oil, Gas & Electricity880.630.840.91 Plastics2300.620.890.81 ……………. Semiconductor5870.400.421.05 Computer & Peripheral5920.34 0.89 Optoelectronic5340.320.601.00 Electronic Products Distribution2550.300.611.14 Communications & Internet3500.280.290.98 Electrical & Cable1320.250.631.20 Other Electronic3710.240.431.18 Information Service1090.200.190.67

9. Tables 4 and 5 - extract Family Firm ParticipationFamily Firm Market Share (1)(2)(1)(2) Fixed Assets 0.4363 (4.34)*** 0.4347 (4.26)*** 0.5571 (5.16)*** 0.6046 (4.42)*** Tax -0.0025 (-0.74) -0.0068 (-2.23)** -0.0037 (-1.19) 0.0018 (0.44) Control Wedge 0.0668 (1.45) 0.0827 (1.70)* 0.0026 (0.05) -0.0018 (-0.03) Board Independence -0.8929 (-7.57)*** -0.7589 (-6.00)*** -0.4580 (-2.34)** -0.7567 (-3.29)*** Size 0.0001 (2.93)*** 0.0001 (2.08)** -0.0004 (-0.49) -0.0001 (-1.06) Age 0.0158 (10.04)*** 0.0130 (7.45)*** 0.0125 (7.29)*** 0.0093 (4.01)*** Competition 0.0570 (0.86) 0.0245 (0.34) -0.2320 (-1.85)* -0.2608 (-2.31)** Relative Fixed Assets 0.0240 (4.58)*** -0.0070 (-0.98) Relative Tax 0.0101 (2.08)** 0.0087 (1.84)* Relative Risk 0.0325 (0.54) 0.1323 (1.64)* Relative Control Wedge -0.1060 (-2.14)** 0.1339 (2.01)** Adj-R 2 0.580.540.390.35

10. Table 6 - extract Relative Performance (1)(2)(3)(4) Family Firm Participation 0.2244 (1.61) Family Firm Market Share 0.2679 (2.65)*** Tax 0.0024 (0.42) 0.0137 (1.85)* Board Independence -0.5375 (-2.07)** -0.8101 (-2.50)** Relative Debt -0.0474 (-2.61)*** Relative Control Wedge -0.2610 (-2.11)** Relative Size -0.0008 (-2.62)*** Relative Age -0.0168 (-3.05)*** Adj-R 2 0.010.030.010.11

11. Conclusions Family firm participation is not random. Higher in industries with more fixed assets and lower board independence. Family firms performing better than non- family firms in high tax and low board independence industries. Performing worse when have more debt and higher control wedge.