Advanced search

The effect of family ownership and control on equity-based compensation: Evidence from S&P SmallCap firms

Hyungkee Young Baek (Department of Finance, H. Wayne Huizenga School of Business and Entrepreneurship, Nova Southeastern University, Ft Lauderdale, Florida, United States)
Philip L Fazio (Department of Finance, H. Wayne Huizenga School of Business and Entrepreneurship, Nova Southeastern University, Ft. Lauderdale, Florida, United States)

Journal of Family Business Management

ISSN: 2043-6238

Publication date: 13 April 2015

Abstract

Purpose

Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation.

Design/methodology/approach

The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables.

Findings

For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs.

Practical implications

Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies.

Originality/value

S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

Keywords

Citation

Baek, H.Y. and Fazio, P.L. (2015), "The effect of family ownership and control on equity-based compensation: Evidence from S&P SmallCap firms", Journal of Family Business Management, Vol. 5 No. 1, pp. 55-72. https://doi.org/10.1108/JFBM-04-2014-0008

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

To read the full version of this content please select one of the options below

You may be able to access this content by logging in via Shibboleth, Open Athens or with your Emerald account.
To rent this content from Deepdyve, please click the button.
Rent from Deepdyve
If you think you should have access to this content, click the button to contact our support team.
Contact us
Manage cookies

We’re listening — tell us what you think

Join us on our journey