Publications

This dissertation consists of three research papers on foundation owned firms in Germany, which are structured into three chapters. All chapters and their respective main research results are briefly summarized below.

There are several prominent examples of foundation owned firms, such as Aldi, Bosch, Lidl, ThyssenKrupp, and ZF Friedrichshafen. Foundation owned firms are firms that are fully or partially owned by a foundation. A foundation is a legal entity without owners that is set up by a founder. The founder transfers the founded assets to the foundation, and fixes the foundation charter which defines the purpose of the foundation. Basically, there are two types of foundations. Charitable foundations provide financial support for charitable projects. Family foundations support the founder's family. The impact of the beneficiaries of foundations on foundation owned firms is restricted in most cases. In particular, it is questionable who pushes the management for financial success of the firm. Thus, there is some room for agency conflicts due to the strict separation of ownership and control. According to standard agency theory, this is supposed to endanger the long-term survival of a foundation owned firm.

In the first chapter of the dissertation, co-authored with Günter Franke, we analyze firm policies and financial performance of foundation owned firms. We compare them to firms matched by industry and size in order to identify whether the foundation setup induces different policies and financial performance. In addition, we account for different foundation setups creating a lot of heterogeneity among foundation owned firms. We find that, relative to matching firms, foundation owned firms are much larger which seems to be due to a birth bias since only successful entrepreneurs usually set up a foundation. Employees appear to have a privileged position in foundation owned firms due to the power vacuum created by the absence of natural persons as residual claimants in most foundation owned firms. As consequence, we observe more labor intensity in foundation owned firms, e.g., there seems to be less outsourcing. In addition, the financing policy of foundation owned firms is more conservative, measured by lower leverage levels and lower payout ratios. This seems to stabilize the long-term existence and, thus, creates more job security in foundation owned firms. The employees' benefits seem to come at the cost of lower financial performance, measured by the return on assets. On the other hand, the return on assets appears to be exposed to lower volatility in foundation owned firms. A measure for risk-adjusted financial performance, the Sharpe ratio, does not differ for foundation owned firms and matching firms. All the observed impacts are generally more pronounced for foundation owned firms with charitable foundations as owners, relative to family foundations. In any case, we find foundation owned firms to be clearly viable, in contrast to predictions from standard agency theory.

In the second chapter of the dissertation, co-authored with Phillip Heiler, we analyze return differences of foundation owned firms and firms that are not foundation owned. We attribute return differences to differences in firm policies. The choice of the relevant firm policies is based on the findings of the first chapter. There exist several studies, in particular in the field of labor economics, that decompose outcome variables into several components. These studies mainly analyze mean outcome differences. The decomposition method we use allows to make the analysis at different quantiles. In contrast to quantile regression, the effects of the analyzed variables add up to the overall return difference of foundation owned firms and firms that are not foundation owned in our study. In addition, the method accounts for nonlinear data generating processes. We discuss the problem of a potential simultaneity bias which is adherent when using accounting data. By the construction of the firm policy variables, we exploit persistence in order to mitigate this bias. Estimates can be interpreted as lower bounds for true effects, but the more persistent explanatory firm policy variables are, the closer the estimates get to the true effects.

Comparing the mean and quantiles of returns, we find pronounced return differences for the mean and high quantiles, where the returns of foundation owned firms are significantly lower. A substantial proportion of the observed return differences at several quantiles can be attributed to differences in firm policies. We find that lower risk in foundation owned firms, as measured by the standard deviation of return on assets, increases the underperformance of foundation owned firms at high quantiles, but offsets it at low quantiles, a lower leverage of foundation owned firms offsets their underperformance at low quantiles and the median, higher labor intensity in foundation owned firms offsets their underperformance at low quantiles, the larger size of foundation owned firms increases their underperformance for the mean and all quantiles, lower operating revenue growth rates of foundation owned firms increase their underperformance at high quantiles, and residual differences beyond firm policies tend to be insignificant.

In the third chapter of this dissertation, I analyze the impact of varying intensities of the profit motive on firm policies and financial performance. While the first chapter deals with the comparison of for-profit foundation owned firms and other for-profit firms, I compare for-profit foundation owned firms to non-profit firms in the third chapter. By (legal) definition, the profit motive in non-profit firms is restricted due to the infeasibility to allocate net earnings to owners, managers, and directors. Instead, net earnings have to be spent for the firm's purpose. In contrast to other for-profit firms, the profit motive is weakened in for-profit foundation owned firms due to the fact that natural persons as owners are usually absent. However, I conjecture that the profit motive in for-profit foundation owned firms is not as restricted as in non-profit firms. I test several hypotheses performing an empirical analysis.

I find that, relative to for-profit foundation owned firms, non-profit firms have a lower leverage, operate more labor-intensively, and their financial performance, measured by the return on assets, is lower but also less volatile, still their risk-adjusted financial performance is lower. These findings may be attributed to two main channels arising from a reduced profit motive in non-profit firms. First, there are less rewards to managers of non-profit firms to make profits. Second, sponsors, the owners of non-profit firms, face higher reputational costs in the case of financial distress of non-profit firms due to non-profit firms being usually highly regarded in the public. These two channels seem to mitigate risk taking in non-profit firms lowering returns and the volatility of returns. A more conservative leverage also contributes to a more stable development of a firm. In addition, managers of non-profit firms might be averse to painful firings due to more public attention which might increase labor intensity.

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