Family ownership is in fact much more extensive in Europe than in North America, and with it, a tendency towards a more conservative approach to financing and risk management.

Scope Ratings, which has public and private ratings for family-run firms in Europe with aggregate revenue of EUR 125bn, takes this distinctive characteristic into account in its credit-rating methodology.

“Family-owned businesses are common world-wide, but they play a particularly important role in the European economy,” says Olaf Tölke, managing director at Scope Ratings.

Of the world’s 500 biggest family enterprises, according to the latest EY Family Business Yearbook, 224 or 44.8% are in Europe compared with 139 or 27.8% in North America. To take another measure, Germany and France have roughly as many privately held companies with revenues of more than USD 2bn than the whole of the US, according to Bloomberg data.

“Experience shows that family owners often have longer time horizons than managers focused on the shorter-term financial imperatives of capital markets,” says Tölke.

Stock-market investors might well penalise a company for holding large amounts of cash which could otherwise be distributed as dividends or used to buy back shares.

For Scope, cash on the balance sheet might just reflect the caution of a company’s owner--a common feature of family-owned businesses. Such liquidity, under certain conditions, is likely to have positive credit implications by acting as a cushion in times of economic stress, while available liquidity can be netted against adjusted debt for debt-ratio calculations.

Scope’s methodology in general relies on qualitative and quantitative assessments of creditworthiness, another reason for taking family ownership into consideration.

“Assessing the credibility of management’s commitment to maintain a credit-rating level is critical,” says Tölke. For example, when a debt-funded acquisition causes short-term deviations from stated financial policies, management’s determination to maintain the rating level is usually stronger among family-owned companies than non-owner managed companies.

“We would reflect this in our financial-policy assessment based, of course, on a company’s track record and level of commitment,” says Tölke.