Sphere Performance and the Financial Crisis 2008-2009 - Evidence from the OMXS
Abstract: Influential sphere ownership and its implications on company performance, is an area of continuous research. Previous literature focuses on agency costs and how these are affected by family ownership related to firm performance, but also on banking-relationships, and investment horizons. We have studied the performance of Investor, Industrivärden and Kinnevik firms and non-sphere firms listed on the OMXS Large Cap and Mid Cap from the first quarter 2006 to the third quarter 2009, thus we will be able to study how the sample firms in general and the sphere firms in particular were affected by the crisis starting in early 2008. We find evidence that the Investor and the Industrivärden firms did not experience as heavy declines in excess stock returns as the other firms during the crisis, confirming some branches of agency cost theory’s claim that they are more stable. These firms also report higher debt ratios; Investor has a higher ratio for the entire period and for Industrivärden we find an increase for the crisis period. For Kinnevik, we cannot find any difference from the non-sphere firms, which suggests that spheres can take advantage of their bank relations. It seems like sphere firms acted very conservatively regarding investments during the crisis, which gives no support to arguments of extended investment horizons, but that is a matter of concern in the definition of efficient investments during the crisis. What we have seen though is that the firms invest in general in accordance with the industry they operate in.
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