Is family ownership of a firm associated with the control of managerial discretion and corporate decisions?

Abstract

Purpose

This paper considers the association between family firms and managerial discretion, hypothesising that a higher degree of family ownership may decrease the conflict of interest between owners and managers, thus avoiding the risk of discretionary actions by the latter.

Design/methodology/approach

Our empirical analysis is based on a large sample of international listed companies from 20 countries including the Special Administrative Region of Hong Kong and covers the period 2002–2010. Methodologically, we use a logit model with marginal effects on the panel data.

Findings

Our analysis shows that family ownership is associated with greater control and monitoring of managerial decisions, thus avoiding information asymmetries and, therefore, the risk of discretionary actions. In other words, family owners impose a stronger discipline and dissuade non-family managers from using managerial discretion to act in their own interest. Finally, we clarify the inconclusive results reported previously about the effects of family ownership on discretionary practices.

Originality/value

Our paper contributes to the family firm literature by providing evidence of the impact of ownership structure on the level of discretionay practices. Furthermore, we explore the differences between family and non-family firms as each group has its own varied characteristics. Moreover, in contrast to most previous studies, which have focused on only one country, we extend the analysis to include an international sample of 20 countries. This leads to potentially more powerful and generalizable results.

Citation

Martinez Ferrero, J., Rodríguez-Ariza, L. and Bermejo-Sánchez, M. (2016), "Is family ownership of a firm associated with the control of managerial discretion and corporate decisions?", Journal of Family Business Management, Vol. 6 No. 1. https://doi.org/10.1108/JFBM-06-2015-0022