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Good day everybody,

I am currently writing my master thesis and I research whether family owned companies (FFF=1 if family owned, 0 otherwise) have a positive or negative effect on the performance of the company and according to the literature I expect a positive relationship (reasoning: family wealth is tied to the financial wealth of the company, long term investments, less agency costs, maybe less consumption on the job, better monitoring etc.).

My dependent variable is company performance (approximated by Tobin's Q) and my independent variables are CashFlow, Dividends, TotalAssets, TotalDebt, RoA and dummy variables for the year (2007-2016) and the Industry.

MY panel data contains around 25 000 observations for companies from 17 European countries for the period between 2007 and 2016.

Firs I ran a OLS regression and found that the coefficient of FFF is negative and significant. Than I tested the OLS-assumptions. The Breush-Pagan test suggested possible presence of heteroskedasticity, so I conducted the Hausman test for fixed vs. random effects which suggested that I need to use Fixed Effects.

Now when I apply Fixed effects to the same variables from the OLS model (excluding the Industry dummies) I find a positive relationship between Performance and the Family fummy (FFF). Does anybody know why the sign changes eventhough the variables I use in both regression are the same?

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  • $\begingroup$ It is a bit unclear which predictors you have as fixed and which as random effects in either fit, could you be more specific? If you have R formulas or similar for either model it would also make answering easier. $\endgroup$ – Martin Modrák Sep 4 '19 at 10:49

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