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Article
Publication date: 24 February 2021

Alex Johanes Simamora

The purpose of this paper is to examine the effect of founding-family firms on managerial ability.

Abstract

Purpose

The purpose of this paper is to examine the effect of founding-family firms on managerial ability.

Design/methodology/approach

Founding-family firms are determined by founder and/or family involvement as block holder and as in the firm board. Managerial ability is estimated by data envelopment analysis. Research samples consist of 412 manufacturing firm-years listed in the Indonesian Stock Exchange. Analysis data use random-effect regression as the main analysis and Huber-White regression as an alternative analysis.

Findings

This research finds that founding-family firms have a negative effect on managerial ability. Further, the result shows that lower managerial ability occurred when founding-family firms led by founder and professional CEOs, when other family members involved in the ownership and the board have higher family ownership. It indicates that founding-family firms concern more about family interest, such as family reputation, rather than business needs and best management practice.

Research limitations/implications

Limitation of this research does not occur if the founding-family firms are managed by first, second, third, etc., family generation. Future research expected to consider family generation in founding-family firms management.

Practical implications

This research can be used by founding-family firms in Indonesia as consideration of management policy formulation that can improve managerial ability.

Originality/value

This research provides new evidence if founding-family firms promote lower managerial ability in emerging market such Indonesian market where family businesses are the root of private businesses which have a major contribution to economics.

Details

International Journal of Productivity and Performance Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0401

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Article
Publication date: 23 August 2013

Mattias Hamberg, Egil Andre Fagerland and Kristoffer Kvamme Nilsen

The purpose of this paper is to investigate the extent to which foundingfamily firms create value. In particular, the paper investigates how agency costs and monitoring…

Abstract

Purpose

The purpose of this paper is to investigate the extent to which foundingfamily firms create value. In particular, the paper investigates how agency costs and monitoring capabilities influence the value creation process.

Design/methodology/approach

The empirical analysis relies on unique hand‐collected ownership data that has been collected for all Swedish publicly listed firms in the years 2001 to 2010 (2,128 observations). The research design employs level regression specifications and they are tested using pooled cross‐sectional regressions with controls for year and industry fixed effects.

Findings

The paper confirms previous studies that firms with founding family ownership have a higher value (Tobin's Q) and higher performance (RNOA). In contrast to prior studies, the paper finds that firm value and performance is significantly higher when ownership is concentrated the most. The paper also shows that firm value and performance is significantly lower for long‐term non‐foundingfamily ownership.

Originality/value

This is one of the largest single‐country analyses of founding family owner effects on value and performance in publicly listed firms. The paper confirms known associations between ownership and performance in a unique institutional setting. The paper extends previous research findings by identifying differences in value and performance between founding family owners and long‐term non‐foundingfamily owners.

Details

Managerial Finance, vol. 39 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 4 February 2019

Kriengkrai Boonlert-U-Thai and Pradyot K. Sen

The purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding

Abstract

Purpose

The purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.

Design/methodology/approach

This is an empirical archival research.

Findings

The authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.

Research limitations/implications

The authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.

Practical implications

The study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.

Social implications

The society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.

Originality/value

This if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

Details

Asian Review of Accounting, vol. 27 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 19 October 2015

Esra Memili, Hanqing Chevy Fang and Dianne H.B. Welsh

The purpose of this paper is to examine the generational differences among publicly traded family firms in regards to value creation and value appropriation in the…

Abstract

Purpose

The purpose of this paper is to examine the generational differences among publicly traded family firms in regards to value creation and value appropriation in the innovation process by drawing upon the knowledge-based view (KBV) and family business literature with a focus on socioemotional wealth perspective.

Design/methodology/approach

The authors tests the hypotheses via longitudinal regression analyses based on 285 yearly cross-firm S & P 500 firm observations.

Findings

First, the authors found that family ownership with second or later generation’s majority exhibits lower levels of value creation capabilities compared to non-family firms, whereas there is no difference between those of the firms with family ownership with a first generation’s majority and non-family firms. Second, the authors also found that family owned firms with a first generation’s majority have higher value appropriation abilities compared to nonfamily firms, while there is no significant difference in value appropriation between the later generation family firms and non-family firms.

Research limitations/implications

The study help scholars, family business members, and investors better understand family involvement, and how it impacts firm performance through value creation and value appropriation.

Originality/value

The paper contributes to the family business, innovation, and KBV literature in several ways. While previous family business studies drawing upon resource-based view and KBV often focus on the value creation in family governance, the authors investigate both value creation and value appropriation phases of innovation process.

Details

Management Decision, vol. 53 no. 9
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 9 October 2017

Bice Della Piana and Alessandra Vecchi

The purpose of this paper is to provide some illustrative evidence to understand the distinctive forms of governance implemented by a well-established family business…

Abstract

Purpose

The purpose of this paper is to provide some illustrative evidence to understand the distinctive forms of governance implemented by a well-established family business group (FBG) and to highlight the relative importance given to the different dimensions of socio-emotional wealth (SEW) during the internationalization process.

Design/methodology/approach

Drawing on multi-level and longitudinal data, the research provides in-depth insights into how the affiliated firms are linked to the focal firm, how the founding family in a large FBG organizes the top leadership roles spanning multiple countries and whether the inter-organizational and inter-personal networks changes over time and which are the most important items representing the SEW dimensions.

Findings

From the findings, it emerges that family ownership, family leadership and the presence of trusted people as pivotal actors in the FBG’s internationalization process.

Originality/value

The originality of the research stems from its contribution because despite providing illustrative evidence based on a single case-study, the findings offer additional insights over the importance of and the instrumental role played by SEW preservation as a perspective to explain FBGs’ internationalization.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 15 no. 4
Type: Research Article
ISSN: 1536-5433

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Article
Publication date: 22 February 2013

Kuntara Pukthuanthong, Thomas J. Walker, Dolruedee Nuttanontra Thiengtham and Heng Du

– The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.

Abstract

Purpose

The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.

Design/methodology/approach

The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.

Findings

It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.

Research limitations/implications

The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.

Practical implications

The results suggest investors should invest in family ownership firms.

Originality/value

The paper shows whether firm ownership increases firm value and the determinant of family firm value.

Details

International Journal of Managerial Finance, vol. 9 no. 1
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 18 October 2019

Kean Wu, Susan Sorensen and Li Sun

The purpose of this paper is to investigate the effect of independent directors in reducing firms’ information asymmetry. Moreover, the authors enrich this investigation…

Abstract

Purpose

The purpose of this paper is to investigate the effect of independent directors in reducing firms’ information asymmetry. Moreover, the authors enrich this investigation by differentiating the effectiveness of independent directors in an intriguing comparative setting of family vs non-family firms. Family firms are used to represent an interesting environment where controlling insiders (i.e. firms’ founding families) have dominant control over corporate decisions. This study addresses the question of whether controlling-insiders dominate independent directors.

Design/methodology/approach

The authors manually collect firms’ founder information to identify family firm status in a sample of S&P 500 firms. Following a large literature in capital market research, the authors proxy information asymmetry by trading volume, bid-ask spread and price volatility. The authors employ multivariate regression with two-stage least square analysis, instrumental variable method, Heckman selection model and Hausman–Taylor model to address the issue of endogenous selection of board of director and family firm status.

Findings

The authors find a negative relation between the board independence and information asymmetry, suggesting independent directors are effective in reducing information asymmetry. Furthermore, the authors find this negative relation is stronger in family firms. These results are robust after controlling for the endogenous issues using various models.

Research limitations/implications

Our results suggest that independent directors in family-controlled firms are more successful in reducing information asymmetry than their counterparts in non-family firms. The authors provide direct evidence to support the existing theoretical arguments from Rediker and Seth (1995) and Anderson and Reeb (2004) that founding families and independent boards might be a powerful combination for aligning the interest of insider and diffused shareholders. The findings ease a prevalent concern that the role of independent directors might be compromised in an environment with controlling shareholders, and advocate regulations promoting board independence for various business practices.

Originality/value

A number of studies concentrate on the practice of corporate disclosure of firm’s performance and governance and how corporate disclosure mitigates information asymmetry (Leuz and Verrecchia, 2000; Ali et al., 2007; Chen et al., 2008). To the best of our knowledge, this study is the first to examine the impact of independent directors in reducing information asymmetry. The research adds to understanding the incentives of board members and supports recent findings that different types of investors have heterogeneous incentives for corporate disclosure (Srinidhi et al., 2014).

Details

Asian Review of Accounting, vol. 27 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 2 February 2021

Kamrul Hassan Sunon, Muzhtaba Tawkeer Islam and M. Adnan Kabir

Academic research on the transgenerational performance differences among family firms in Bangladesh is still in its infancy. This paper delves into this issue to answer…

Abstract

Purpose

Academic research on the transgenerational performance differences among family firms in Bangladesh is still in its infancy. This paper delves into this issue to answer whether the financial performance of family firms run by second-generation family members is different from their predecessors and nonfamily firms.

Design/methodology/approach

The study employs panel data analysis that attempts to conceptualize the performance difference, quantified in terms of profitability and return, between founder- and second-generation-run public companies in Bangladesh. Moreover, cross-sectional regressions extend the research paradigm to investigate and validate whether heir-controlled family firms perform differently than nonfamily firms or firms that are yet to experience ownership succession within a family.

Findings

The study indicates that family firms perform better when founding family members are in control compared to second-generation-run family firms. Moreover, further analysis suggests that heir-controlled family firms do not show a significant difference in performance compared to firms that never had a family succession in its managerial positions. The implications are that there could be nonfinancial family-centric motivations for family business ownership transition.

Practical implications

Family succession of firm ownership is venerated without necessarily a validation of its financial merit. In Bangladesh, this is too often a de facto transfer of leadership within family firms. This study can act as a reference point to understand that family succession of firm ownership in Bangladesh may not necessarily be in the best financial interest of a firm.

Originality/value

The literature on family firms propounds a plethora of vacillating conclusions and opinions. This paper adds this body of empirical literature into an exercise of formal logic. Such an empirical investigation into the financial performance of Bangladeshi family firms, visualized through the lens of leadership transfer to a second-generation family member, has not been extensively studied in contemporary literature.

Details

Journal of Family Business Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2043-6238

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Article
Publication date: 13 April 2015

Hyungkee Young Baek and Philip L Fazio

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…

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.

Details

Journal of Family Business Management, vol. 5 no. 1
Type: Research Article
ISSN: 2043-6238

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Book part
Publication date: 16 February 2012

Jorun Solheim and Ragnhild Steen Jensen

The importance of family firms for the development of capitalism, both past and present, has in recent years become widely recognized. Today there is a fast increasing…

Abstract

The importance of family firms for the development of capitalism, both past and present, has in recent years become widely recognized. Today there is a fast increasing body of literature about forms of family business and variations in family capitalism. Despite this new interest, few of these studies have made the family itself the focus of enquiry – and how different types of family structures and cultural traditions may influence the strategies and development of the family firm. Such connections are explored by comparing and discussing two cases of family firms and their history, set in Norway and Italy, respectively. It is argued that these two cases may be seen as examples of quite different ‘modes of familism’, with different implications for the running of an economic enterprise. These differences concern, first and foremost, cultural conceptions of gender, forms of inheritance, and the role of marriage in constituting the family firm.

Details

Firms, Boards and Gender Quotas: Comparative Perspectives
Type: Book
ISBN: 978-1-78052-672-0

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