Family-owned businesses were also better performers financially vis-à-vis non-family owned companies.
India, with a total of 111 companies and $839 billion total market capitalisation, continues to rank third globally in terms of number of family-owned companies, Credit Suisse said in its report released this week. It closely follows China (159 companies) and the US (121 companies).
The rating agency analysed over 1,000 family-owned, publicly-listed companies, and compared their 10-year performance to a control group of more than 7,000 non-family owned companies globally.
In the Non-Japan Asian region, China, India and Hong Kong dominate. Family businesses from these three territories have a combined market capitalisation of $2.85 trillion.
Family-owned businesses proved to be better performers financially vis-à-vis non-family owned companies. In 2017 alone, Non-Japan-Asia-based family-owned companies generated 25.63 percent greater cash flow return on investment (CFROI) than their non-family owned counterparts, and delivered a 4.2 percent outperformance in annual average share price return since 2006, Credit Suisse said in its report.
Indian family-owned companies generated a 13.9 percent annual average share price return since 2006, compared to 6 percent by their non-family-owned peers.
In terms of sector contributions to total market capitalisation, Tech (18 percent), Consumer Discretionary (16 percent) and Materials (15 percent) make up the top three sectors.
Eugène Klerk, Head Analyst of Thematic Investments at Credit Suisse and the report’s lead author, said: This year we find family-owned businesses are continuing to outperform their peers in every region, every sector, whatever their size. We believe this is down to the longer-term outlook of family-owned businesses relying less on external funding and investing more in research and development.
“Our research on a global scale also suggests family-owned companies with special voting right structures perform relatively in line with those with ordinary shares, contrary to the fears expressed by many investors,” Klerk further added.
Asia outperforms other regions
Asia-based family-owned companies generated much higher returns than their global peers, the report said. Out of the top 50 most profitable companies globally, 24 were from Asia, with a total market capitalisation of $748 billion.The list also included 12 Indian family-owned companies with a total market capitalisation of $192.2 billion, generating an average annual CFROI return of 22.7 percent to 43 percent over a three-year period.