Anticipating intergenerational management transfer of family firms: A typology of next generation’s future leadership projections

A key assumption in family business research and practice is that for family businesses to have a future, succession must be secured. Because family businesses are hybrid organizations with partially or totally overlapping family and business identities, a second consensual assumption is shared by most family business scholars and entrepreneurs: the business needs to stay in the family, so intra-family succession is the optimal ownership and management transfer solution. Yet both assumptions adopt the perspective of the business founder or the current family business leader. Next generations are rarely asked to express their thoughts and feelings about the future of the family firms that they are expected to protect, develop and pass on to their own children. Do next generation members share these two assumptions or do they envision their potential leadership role differently, expressing alternative views about the meaning and scope of family business succession? In this article, we present and discuss four alternative future leadership projections generated by a group of 14 next generation members participating in a training workshop held in the west of France in August 2013.     

Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

This study investigates the relationship between family control and corporate capital structure considering the dynamic nature of the debt policy and the ownership structure of family firms. Our results show that the sensitivity of debt to fluctuations in cash flow is less pronounced in family firms and highlight that family control increases the speed of adjustment toward target debt. Four dimensions of the family business model explain these results: deviations of voting from cash flow rights, the presence of a second blockholder in the company, involvement of family members in management, and the generation in charge of the business. The weaker negative impact of cash flow on debt is driven by family firms with no control‐enhancing mechanisms, companies with active family participation in management and family businesses that are still controlled by the first generation. By contrast, the more severe agency conflicts between owners and creditors in family firms with a second blockholder lead to more pronounced pecking order behaviour. Furthermore, the higher flexibility in corporate decision‐making of family firms managed by the family and under the influence of the first generation explains why family companies are able to rebalance their capital structure faster.     

Determinants of ownership structure: An empirical study of the Korean conglomerates

This study characterizes the ownership structure of multifirm conglomerates in terms of two dimensions; the degree of direct ownership and the amount of family stake. The determinants of the two dimensions are investigated simultaneously using the seemingly unrelated regression model. The results show that the conglomerates with a higher leverage and the bigger proportion of nonmanufacturing businesses tend to have a direct ownership. On the other hand, the conglomerates with a bigger size and a larger proportion of nonvoting shares tend to have a pyramidal ownership. As for the family stake, conglomerates with focused business lines tend to have a larger family stake. However, conglomerates that use more nonvoting shares and have more listed firms tend to have a lower family stake. The empirical results can be interpreted as a rational response of the market participants to the business environment that looks like ‘financing without governance.’     

Mixing family with business: A study of Thai business groups and the families behind them

How does the structure of the families behind business groups affect the group's organization, governance, and performance? We construct a unique dataset of family trees and business groups for 93 of the largest business families in Thailand. We find a strong positive association between family size and family involvement in the ownership and control of the family businesses. The founders’ sons play a central role in both ownership and board membership, especially when the founder of the group is dead. Greater involvement by sons is also associated with lower firm-level performance, especially when the founder is dead. One hypothesis that emerges from our analysis is that part of the decay of family-run groups over time is due to the dilution of ownership and control across a set of equally powerful descendants of the founder, which creates a “race to the bottom” in tunneling resources out of the group firms.     

Tax savings opportunities in estate freeze transactions: An application of the black scholes model

Transfer tax valuation rules for interests in family businesses include a minimum value to reflect the option value of “junior” equity interests transferred to family members. We examine the option features of the junior interest and use the Black-Scholes model to identify situations in which an estate planner could structure a plan of ownership succession that results in undervaluation of the transferred interest. The Black-Scholes model may also be used to identify situations in which a lifetime ownership transfer should be avoided because of the minimum value rule.     

Are family firms really superior performers?

Although international evidence suggests that families may be unhelpful to firm performance, recent analyses of U.S. public companies indicate that family firms outperform. This study probes these contrasting findings by investigating more fine-grained measures of family business in the U.S. Specifically, it makes a fundamental but neglected distinction between lone founder businesses in which no relatives of a founder are involved, and true family businesses that do include multiple family members as major owners or managers. The research also seeks to overcome issues of endogeneity and selection bias by examining both Fortune 1000 firms and a random sample of 100 much smaller public companies. The results show that findings are indeed highly sensitive both to the way in which family businesses are defined and to the nature of the sample. Fortune 1000 firms that include relatives as owners or managers never outperform in market valuation, even during the first generation. Only businesses with a lone founder outperform. Moreover neither lone founder nor family firms exhibited superior valuations within a randomly drawn sample of companies. Our results confirm the difficulty of attributing superior performance to a particular governance variable.     

Determinants of International Insurers' Participation in Foreign Non-Life Markets

Mirroring the trend in the broader marketplace, the global insurance industry is steadily moving toward increased liberalization and deregulation. This study seeks to develop the first empirical model that examines the importance of foreign market characteristics as they relate to the participation of international insurers in the non‐life business of those countries. The analysis reveals that market structure is an important factor in determining whether international insurers participate in a given foreign market. In addition, for markets that are not competitive, removing trade barriers would significantly improve the desirability of those countries as host markets. The results also suggest that countries with higher gross domestic product tend to attract more involvement from international insurers. While this research focuses on the markets of industrialized countries, the findings will provide significant implications for those emerging markets that have not yet collected relevant data on a number of the variables included in this study.     

营业准入制度的国别效应分析

营业准入制度的国别效应是指国际资本、跨国投资、国际产业分工和全球贸易对不同国家或地区营业准入制度设计、调整和变化的反应程度.以国际资本的流动为例,从静态来分析,表现为营业准入限制国的资本挤出效应和营业准入开放国的资本集聚效应;从动态来分析,则表现为营业准入限制国因制度调整而创造的投资洼地效应和营业准入开放国因制度供给过剩而产生的资本溢出效应.对欠发达国家和营业准入限制国来说,适度地对其营业准入制度进行有效的调整,选择自由、开放型营业准入制度,可以解决营业准入方面的制度不公和制度供给不足问题,进而以营业准入制度优势来换取国家竞争优势.     

Transaction cost, corporate governance and division of labor—A general equilibrium analysis of professional managers and its implication to China's practice

This paper develops a Walrasian general equilibrium model based on transaction cost and specialization to investigate the emergence and evolution of the role of management services in a competitive market with the general concern of corporate governance. It explains the reason why along the commercialization and modernization of human society, there is substantial increment of professional managers available for business world, and also becoming more affordable for more business companies. With the improvement of transaction efficiency, the market demand of professional managers are more preferred and profitable, which will also bring about new business structures and new economic institutional systems to improve the well-being to the overall members of society. Thereby, hiring professional managers in a competitive market can promote aggregate productivity by enlarging the scope for trading off network effects of the division of labor on aggregate productivity against transaction costs. To business practitioners, this model suggests hiring professional managers a key element of business viability during that a major transition took place in human society. China's recent practices in ownership transformation and corporate governance have also been examined, which further proves our argument that performance and effectiveness of interaction and interrelation between ownership and corporate governance are endogenously determined by different market conditions. It is impossible to achieve success ownership transformation and establish effective corporate governance without upgraded changes and consecutive adjustment and improvement of market conditions to facilitate the solid function of market mechanism.     

Openness, profit opportunities and foreign banking

Using new data from the World Bank and OCC surveys, we show correlations across a wide range of countries between foreign banking and domestic economic, financial and bank regulatory conditions. Foreign banking tended to be more prevalent in countries that were more open to foreign ownership of their banks, more open to banks’ engaging in a wider range of financial activities and more open to international trade. Restrictions on foreign ownership of domestic banks that were in place in the late 1970s reduced the current extent of foreign banking. Foreign banking was negatively correlated with current restrictions on banks’ securities, insurance and real estate activities. Countries that had more international trade tended to have more foreign banking. Foreign banking was more pervasive in countries where banking was more profitable and where the domestically-owned banking sector was smaller relative to GDP.     

论小企业内部控制:COSO的经验及其对我国的启示

小企业在规模、产权和组织架构等方面均与大企业有着较大差异,这就决定其不能照搬大企业内部控制的方法,尤其是对成本的考虑将对小企业实施内部控制形成严重的制约。小企业应当在符合成本效益原则的前提之下,建立健全内部控制,以保障自身目标的实现。我国小企业应当借鉴COSO的有益做法,并结合我国实际,建立健全内部控制。     

In search of future alternatives for family business: Family law contributions through Civil and Common Law comparison

One of the major issues in family business field is the understanding of what makes family businesses different. Despite an increasing development of research during the last 30 years, little attention has been paid to the legal component of the family. The aim of this article is to explore the way legal attributes of the family, comparing Civil Law and Common Law, foresight the heterogeneity and the future of family business. The identification of a Civil Law specificity, No Exit Option, and the Common Law specificity, Exit Option, supports the formulation of different alternatives for family business futures.     

Corporate Governance in India

The Indian corporate governance system has both supported and held back India's ascent to the top ranks of the world's economies. While on paper the country's legal system provides some of the best investor protection in the world, enforcement is a major problem, with overburdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model, with significant pyramiding and evidence of tunneling activity that transfers cash flow and value from minority to controlling shareholders. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third‐largest number of trades in the world, just behind the NASDAQ and NYSE. Among more recent changes, the enactment of Sarbanes—Oxley type measures in 2004—which includes protections for minority shareholders in family‐ or “promoter”‐led businesses—has contributed to recent increases in institutional and foreign stock ownership. And while family‐ and government‐controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus.     

Conservation,Discrimination, and Salvation: Investors’ Social Concerns in the Stock Market

Stocks appear to have investor clienteles based on their business practices and products. The variety in expressive benefits each individual receives from owning controversial stocks causes them to modify their portfolio to accommodate their beliefs. We examine the ownership of firms with social concerns and sin stocks (tobacco, alcohol and gambling). Women tilt their portfolios towards stocks with progressive labor policies for women and minorities. Younger investors avoid companies with poor environmental records but seek companies with progressive labor policies. Democratic voters favor stocks with progressive policies regarding women/minorities and gays/lesbians and are less likely to own sin stocks. Christian objections to homosexuality lead their members to invest less in stocks with progressive labor policies for gays and lesbians. The Christian denominations vary, though, in regard to sin stocks. Catholics are more likely while Mormons are less likely to own a sin stock relative to other investors. Socially responsible investors are clearly not all alike. Social characteristics that are important to one investor may not be important to another socially conscious investor.     

Converging to International Accounting Standards: Views from Japan

Many countries, including the European Union member states and Australia, adopted international accounting standards in 2005. This year was also critical in Japan for convergence activities. Based on a review of 2005 financial statements and a survey of securities analysts, this study identifies key issues for convergence of Japanese and international accounting standards. We find that accounting requirements relating to fair value measurement, comprehensive income items, leases and business combinations are relevant to Japanese firms. A survey of 974 members of the Security Analysts Association of Japan about these issues indicated support for convergence and the use of fair value measurement, disclosure of comprehensive income, recognition of leases and use of the purchase method for consolidation. We report support for several positions favoured by the International Accounting Standards Board (IASB), a positive signal for achieving convergence goals in Japan, which will be of interest to capital market participants in Japan and other countries .     

Various Aspects to Consider with Regard to Special Insolvency Rules for Small and Medium‐Sized Enterprises in South Africa

The notion of special insolvency rules for small and medium‐sized enterprises (SMEs) has attracted attention in international spheres, and within the ambit of some international and comparative approaches, same is considered in this article with particular focus on the South African position. In particular, we show that the South African insolvency regime does not, at present, cater for financially distressed small businesses in a specific and viable manner. In South Africa, although attention has been paid to the development and support of small businesses, similar considerations have not been observed with regard to the insolvency side of small business concerns. No comprehensive and focused process of dealing with financially distressed small businesses exists in the South African insolvency framework. This scenario prevails, notwithstanding that there are existing foreign and international policy guidelines, rules and regimes in developed jurisdictions that can serve as pointers in this regard. The purpose of this article is to first highlight the need for special treatment of small businesses by focusing on the shortcomings in the South African system, and, as a natural sequential development, policy proposals as unavoidable foundations to address these shortcomings. In the premises, the focus is on the principles and policies that are relevant to any discussion regarding insolvent businesses that fall within the scope of the SME category. Therefore, this paper deals with the concept of the small business, the South African insolvency regime and the international position pertaining to small businesses. In particular, the need for special treatment of SMEs under insolvent circumstances is discussed, consideration is given to the existing South African mechanisms available to small businesses in distress and the lack of suitable contextual provisions for small businesses in distress is noted. A core component of this article is the position in South Africa viewed against the backdrop of some international developments, international documents and principles that are relevant to an insolvency and rescue/rehabilitation regime within the context of the small business. As a logical conclusion, recommendations for reform of the South African regime are made. Copyright © 2015 INSOL International and John Wiley & Sons, Ltd     

The impact of ownership transferability on family firm governance and performance: The case of family trusts

Ownership structure plays a critical role in the incentives and behaviors of business organizations. The literature has focused on the effects of firm ownership dispersion across managers and investors. We extend the literature by examining the roles of ownership structure within a controlling family. Specifically, we focus on the family trust structure, which is a popular vehicle for holding family ownership around the world. The trust structure typically locks controlling ownership within a family for a very long period. Although it ensures family control, the share transfer restriction may induce family shirking problems, make family conflicts difficult to resolve, and distort firm decisions. Based on a sample of publicly traded family firms in Hong Kong, we report that trust-controlled firms that are more susceptible to these problems tend to pay higher dividends, invest less in the long term, and experience worse performance. The costs of using a trust structure are more significant when the family stakes have been locked inside the trust for a longer period and when a larger amount of family ownership is held by the trust.     

Factors contributing to business actions in response to climate change in Korea

Climate change is a growing problem and has been highlighted as a global issue. Empirical evidence increasingly indicates its obvious potential risks to humans and society. As members of this society, business organizations face greatly diverse climate change-related risks that they must recognize and respond to. However, gaps exist between scientific evidence and the actions of business organizations. Few empirical studies have examined the business organizations’ actions taken in response to climate change in Korea. This paper addresses this critical gap in the climate change literature by examining business organizations’ behaviors and identifying the factors influencing their actions. We employ statistical models to compare corporate climate change actions, and we explain their variations using survey data. The results indicate that despite increasing concerns about climate change, businesses have implemented very limited precautionary mitigation and adaptation actions. In addition, the concerns of the businesses about future climate change impact, organizational capacity (leadership, staff capacity, existence of a relevant division or department), and business size are significant factors with respect to the implementation of climate change actions.     

Business environment and the incorporation decision

Using firm-level data from 52 countries we investigate how a country’s institutions and business environment affect firm’s organizational choices and what impact the organizational form has on access to finance and growth. We find that businesses are more likely to choose the corporate form in countries with developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes and efficient bankruptcy processes. Corporations report fewer financing, legal and regulatory obstacles than unincorporated firms and this advantage is greater in countries with more developed institutions and favourable business environments. We do find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions.     

The futures of family businesses and the development of corporate social responsibility

Existing theoretical and empirical research on the diffusion of social responsibility in family businesses (FBs) has largely focused on the differences in corporate social responsibility (CSR) activities between family firms and nonfamily firms. But the differences in CSR activities and perceptions among different types of family businesses has not yet been researched, even if there are important differences in family businesses. Drawing on the evolution of CSR approach from positive to post positive and to Habermasian approach, and integrating it with a view of family firms as systems made of three different subsystems that over the course of time can be differently preponderant, we identify a typology of family firms. Our typology supports a fine-tuned understanding of the dynamics of CSR and family businesses in different configurations and facilitates envisioning the futures of family businesses in the development of CSR through the different types but also beyond. With this work we contribute to the literature by suggesting that patterns of CSR can be conceived by drawing on the evolving political conception of CSR. Specifically, we show that family firms can represent an ideal laboratory to depict the possible evolution of family firms CSR behaviors and test the tenets of the Habermasian approaches in addition to other approaches.