Entrepreneur-Controlled Firms Beat State-Owned in Stock Market

  • Ecstrat surveys shareholding structures of 6,600 companies
  • Founder-owned companies’ stocks returned most since 2005

The performance of publicly traded companies is linked to their ownership structure with entrepreneur-controlled stocks yielding the biggest returns compared with those owned by governments, families or foreign investors, according to Ecstrat Ltd.

“Listed companies controlled by entrepreneurs have offered the highest returns since the start of 2005, even after adjusting for the sector bias, while state-controlled companies have been the worst performers,” John-Paul Smith and Mark Artherton of the London-based emerging-markets consultancy wrote in a report analyzing the shareholding structures of more than 6,600 companies across 61 global markets.

Ecstrat analyzed listed companies with a minimum market capitalization of $500 million and average daily trading volume of more than $1 million over a three month period. It categorized them under one of five ownership categories: entrepreneur; state; family; overseas investors; or dispersed in absence of a dominant shareholder. The report didn’t provide actual return data for the different ownership categories.

At 16 percent, emerging markets have a higher proportion of companies controlled by entrepreneurs versus developed nations’ 9 percent and 8 percent for frontier markets, according to Ecstrat. Family companies such as the South Korean chaebol is the most prevalent form of control in emerging markets, accounting for 34 percent, while state-owned enterprises lead that share in market capitalization as they are concentrated in “more capital intensive sectors and large financial stocks.”

“The relative performance of companies subject to dispersed and family control has been mixed, although there is a significant shift in the performance of control structures in the wake of the GFC, supporting our thesis that investor perceptions of governance structures runs in cycles, which are both a cause and effect of broader market cycles,” the report, using an acronym for the 2008-2009 global financial crisis.