Newspaper article THE JOURNAL RECORD

Companies Led by Their Founders Are Winners on Stock Market

Newspaper article THE JOURNAL RECORD

Companies Led by Their Founders Are Winners on Stock Market

Article excerpt

Companies that are still run by the men and women who started them tend to perform better in the stock market than do other firms, a new study suggests.

Firms with founder-CEOs outperformed other companies in the stock market by 8.3 percent from 1993 to 2002, said Rudiger Fahlenbrach, author of the study and assistant professor of finance at Ohio State University's Fisher College of Business.

"Entrepreneurs who started a company and developed it through years of hard work often consider that their life's achievement," Fahlenbrach said. "They approach their company differently than any successor could, and that is reflected in how the company is valued."

Fahlenbrach studied 2,327 large U.S. firms from 1993 to 2002. He compared those companies still run by their founders - 11 percent of the total - to all the remaining firms. The founder-CEO firms contain some of the largest and most successful firms of the 1990s, including Berkshire Hathaway, Comcast, Dell, Home Depot, Microsoft and Toys "R" Us.

The results showed a clear advantage for those companies led by their founders, even after Fahlenbrach took into account a wide variety of other factors that may have affected the results. For example, he took into account the industries the firms were in, to ensure that the success did not occur only in, say, technology companies. He also examined the size and age of the firms, and many other factors.

Even after controlling for these other variables, founder-CEO firms still outperformed other companies by 4.4 percent.

The findings revealed several key differences between firms led by their founders and other firms that may help explain why founder- CEOs seem to be more successful, at least in terms of Wall Street.

One key difference is that founder-led firms tended to spend more on capital expenditures, research and development. For example, firms with founder-CEOs spent up to 8.8 percent more on research and development than nonfounder firms, results showed. …

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