Study: Asian Family Businesses Outperform Peers

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Asian family businesses delivered 261% cumulative total return on investment during the past 10 years and outperformed local benchmarks in seven out of 10 Asian markets, according to a new study conduced by the Credit Suisse Emerging Markets Research Institute

Nannette Hechler-Fayd'herbe, Credit Suisse

Nannette Hechler-Fayd'herbe, Credit Suisse

The Credit Suisse Emerging Markets Research Institute’s inaugural Asian Family Businesses Report 2011: Key Trends, Economic Contribution and Performance, provides the first systematic, quantitative research and analysis of primary data on development trends, economic contribution and capital market performance of 3,568 publicly-listed family businesses in 10 Asian nations.

Total market capitalization of Asian family businesses in the study has expanded roughly six-fold between 2000 and 2010. This partly reflects the entrepreneurial drive of early stage family businesses to seek for growth opportunities through fundraising in the capital markets, and the rapid development of the Asian capital market since the Asian financial crisis in 1997-1998.

The analysis shows that family businesses have been a crucial source of private wealth creation in Asia and are an important pillar of the region’s economies. Across the 10 Asian markets studied, family businesses account for around 50% of all listed companies, 32% of total market capitalization, 57% and 32% of all listed companies’ employees in South Asia and North Asia respectively.

The study finds that the early life cycle development stage of Asian family businesses underpins their general growth bias. Family businesses outperformed their local benchmarks in seven of the 10 Asian markets during 2000-2010, delivering a 261 per cent cumulative total return and compound annual growth rate of 13.7 per cent during the period. Family businesses in China, Malaysia, Singapore and South Korea achieved the strongest outperformance in total return against their local benchmarks during the period.

“Here in Asia, many family businesses are first generation, tracing their entrepreneurial origins to the period after the Second World War, and in some cases, in the last two to three decades,” Marcel Kreis, head of private banking Asia Pacific for Credit Suisse said. “In the past decade since the Asian financial crisis, many family businesses have seen dramatic changes in the global business environment and financial markets. Many had to restructure, or in some cases, reinvent themselves.”

In the study, a family business is defined as family-controlled companies if a family (or an individual of the family) holds at least 20% of the cash flow rights in the firm either directly, or indirectly, through holdings in private or public entities. Unlike previous studies that mainly relied on surveys or case studies, this study analyzes development trends and economic contribution of 3,568 publicly-listed family businesses with market capitalisation of more than $50 million and evaluates financial performance of 1,279 publicly-listed family businesses in China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand with market capitalisation of more than $500 million.

Asian family businesses at early stage of the life cycle – 38% of family businesses were listed after 2000.

“Despite the dominance of Asian family businesses in the local economies, the topic of family businesses is relatively under-researched due to a lack of official and systematic data,” said

, head of global financial markets research for private banking and asset management for Credit Suisse.

Hechler-Fayd’herbe highlighted a notable finding of the study is the relatively short equity market history of Asian family businesses as compared with their peers in Europe and the US – 38% or 1,371 of the family businesses with market capitalisation of more than $50 million reviewed in the study were listed only after 2000. This should be largely attributable to the much more early stage of their life cycle and the less developed capital markets in Asia.

“In Asia, many family businesses are first generation businesses, in contrast with many family businesses in Europe and the US which are already in their fourth or even fifth generation. Their early life cycle development stage underpins a growth bias among Asian family businesses,” said Hechler-Fayd’herbe.

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