There is a close link between the family and the family firm. The firm is usually the family's main investment, and family members often work for the firm. The family's fortunes often depend on the firm, and the firm's success depends on the family's resources and skills.
The family and the family firm
The family firm usually represents the family's main investment, and that creates a close correlation between firm size and family wealth.
The figures below divide firms into deciles based on their revenues in 2015 (1=smallest decile by sales in 2015, 10=largest decile by sales in 2015). They then show the mean and median net and gross wealth of the controlling family (owners and insiders) for firms in each decile.
Apart from the firm's equity, the family often also provides part of the firm's labor force. The graph below presents the number of family members that work for the family firm by firm size.
The close relationship between firm size and the family's wealth is also visible when we rank firms by the wealth of their controlling family:
Firms controlled by wealthier families may be less financially constrained. This is indicated by their higher payout ratios, lower leverage (measured as net leverage = (total liabilities minus cash holdings)/(total assets-cash holdings)), and higher current ratios (current assets/current liabilities). Similarly to their firms, wealthier families have lower personal leverage (where personal leverage is calculated as personal debt divided by personal gross wealth at tax values).