Family Control,Socioemotional Wealth and Earnings Management in Publicly Traded Firms

We examine the unique nature of agency problems within publicly traded family firms by investigating the earnings management decision of dominant family owners relative to non-family. To do so, we draw upon literature demonstrating that family owners are loss averse with respect to the family’s socioemotional wealth, or the affective endowment derived from firm ownership and control. Our theory and findings suggest that potential reputational consequences of earnings management lead family principals to engage in less of this practice relative to non-family firms, and that founder family firms are less likely than non-founder family firms to use earnings management. Moreover, the family-firm effect varies with the firm size, the degree of CEO entrenchment, and the firm’s stock structure. We provide important insights regarding differences between family and non-family principals in the use of unethical accounting practices, thereby extending agency theory and advancing an underdeveloped research area.     

Non-family chair and corporate performance

Using a sample of Chinese family firms listed from 1999 to 2014, we investigate the relationship between non-family leadership and firm performance. We find that firms with a non-family member as board chair perform significantly worse than firms whose chair belongs to the family. Moreover, we show that the underperformance of nonfamily-chair firms is more pronounced when firms are under weaker outside monitoring and when the controlling families care less about family business longevity. The negative effect of a non-family chair is robust to a variety of endogeneity tests. We also dismiss alternative explanations other than concern for reputation. Overall, our empirical results suggest that the social norms regarding family reputation are important in shaping the controlling shareholders’ expropriation incentives and firm performance.     

Non-family chair and corporate performance

Using a sample of Chinese family firms listed from 1999 to 2014, we investigate the relationship between non-family leadership and firm performance. We find that firms with a non-family member as board chair perform significantly worse than firms whose chair belongs to the family. Moreover, we show that the underperformance of non-family-chair firms is more pronounced when firms are under weaker outside monitoring and when the controlling families care less about family business longevity. The negative effect of a non-family chair is robust to a variety of endogeneity tests. We also dismiss alternative explanations other than concern for reputation. Overall, our empirical results suggest that the social norms regarding family reputation are important in shaping the controlling shareholders’ expropriation incentives and firm performance.     

Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms

Employing a process-based perspective and using a generalized method of moments (GMM) procedure, this paper examines the difference in innovation activities between family firms and non-family firms in China. We find that the level of research and development (R&D) by family firms is dependent on prior R&D spending and more so relative to non-family firms. Next, we find that R&D investment by family firms is more likely to be motivated by the availability of both internal and external cash flows relative to non-family firms. Further analysis suggests that these findings are unlikely to be driven by firm maturity.     

Does family involvement explain why corporate social responsibility affects earnings management?

We investigate how family involvement in the ownership, management, or governance of a business affects its engagement in earnings management both directly and indirectly through its corporate social responsibility (CSR) activities. Using a sample of S&P 500 companies, we find that family firms tend to have higher CSR performance, which can help them to maintain legitimacy and preserve socio-emotional wealth. Family firms also engage in less accrual-based earnings management, although they are indistinguishable from non-family firms in terms of real earnings management. In contrast to previous research, we find that CSR performance is not significantly associated with either accrual-based or real earnings management behavior after we account for the effect of family involvement. Our findings suggest that the association between CSR performance and family involvement is the primary driver of the relation between CSR performance and earnings management documented in previous research.     

Family Firms’ Corporate Social Performance: A Calculated Quest for Socioemotional Wealth

This study investigates the engagement of family firms in corporate social responsibility. We first compare their corporate social performance (CSP) to non-family firms. Then, following recent evidence on the heterogeneity of family firms, we examine two factors that may influence CSP within family firms: the level of family control and the governance orientation of the country in which they operate. This research is based on a theoretical framework which considers both agency and socioemotional wealth (SEW) influences on family firms CSR engagements. Overall, we find that family firms exhibit lower CSP than non-family firms. But when focusing on family firms, our analyses show a curvilinear relationship between family control and CSP. At lower levels of control, family owners invest more in social initiatives to protect their SEW. Beyond a threshold level of control that we estimate at 36 % in our sample, economic considerations prevail over SEW and social performance starts decreasing. We also find that family firms operating in stakeholder-oriented countries are more attentive to social concerns than those operating in more shareholder-oriented countries.     

Practicing fairness in the family business workplace

One of the main challenges facing family firms is achieving fairness between family and non-family employees in the workplace. Family and non-family employees have the potential to offer unique and distinct contributions to the firm, which makes the achievement of fairness between them messy and complicated. Hence, two interesting questions are worth exploring: Given the complex nature of the family business human capital, how can family firms achieve fairness between family and non-family employees? Why should family business decision makers and advisors promote fair practices in the family business workplace? We first introduce a fair process model as a possible solution for family businesses to achieve fairness between family and non-family employees. Then, based on several examples and studies, we show that family business owners can benefit significantly from promoting fairness in the workplace both in terms of preserving business reputation and in terms of achieving long-term family business survival and success.     

The value of family control during political uncertainty: Evidence from Thailand's constitutional change in 2014

We examine the effect of family control on firm value and corporate decision during Thailand's constitutional change arising from the 2014 coup d'état. We find that Thai family firms perform poorly when compared to non-family firms during the period of political uncertainty. The effect is more pronounced when firms have high expected agency costs from outside investors. Further, we find that family firms delay their investments, hold less cash, pay smaller dividends and have poorer access to debt financing sources relative to non-family firms. The reductions in investment and financing activities may at least partially account for their underperformance. Our evidence is consistent with the view that family control enhances firms' survivorship by establishing political connections in times of political uncertainty at the expense of minority shareholders.     

Family firms and financial performance: The cost of growing

This study examines the relationship between financial performance and family involvement for 523 listed and non-listed Colombian firms over 1996–2006. Using a detailed database and performing several panel data regression models, we find that family firms exhibit better financial performance on average than non-family firms when the founder is still involved in operations, although this effect decreases with firm size. With heirs in charge, there is no statistical difference in financial performance. Both direct and indirect ownership (control through pyramidal ownership structures within family business groups) affect firms' financial performance positively. However, this positive effect decreases with firm size. The results suggest that some kinds of family involvement appear to make firm growth expensive.     

Corporate diversification and CEO turnover in family businesses: self-entrenchment or risk reduction?

Our study investigates differences in CEO turnover between focused and diversified firms to determine whether diversification strategies are necessarily associated with governance efficiency in family businesses. We find that large family CEO firms are more likely to engage in corporate diversification than are small non-family CEO firms and their CEOs are seldom replaced. Large family CEO diversified firms also have lower turnover sensitivity relative to focused firms. The results imply that the CEOs of diversified firms have entrenched themselves, thereby increasing agency costs within family businesses. However, we fail to find diversification discounts in family businesses. It is interesting that CEOs tend to diversify their businesses in order to decrease firm risk. Founding families favor risk-reducing decisions in order to maintain family wealth and prestige; suggesting that family businesses are more interested in survival than growth. Although family businesses may benefit from risk reduction, a negative relationship between diversification level and CEO turnover is still evidence of poor corporate governance. Agency theory may not completely account for the adoption of diversification strategies in family businesses and corporate diversification may weaken the effectiveness of internal monitoring mechanisms.

Family firms and corporate social performance: evidence from Korean firms

This study examines the effects of family firms on the corporate social performance of Korean firms and analyses how their effect varies depending on the presence of family CEOs or chaebols. Based on the agency theory, we find that family firms exhibit lower corporate social performance. In particular, there is no difference in the performance of related stakeholders, such as society, consumers, environment, and employees, compared to non-family firms, but corporate governance registers as low performance. We further find that family firms managed by family CEOs show lower corporate social performance, whereas chaebol firms show higher corporate social performance.     

Bidders’ gains and family control of private target firms

This paper examines the announcement returns of bidders acquiring private firms owned by families versus the returns of bidders acquiring non-family controlled private firms. The sample consists of 391 acquisitions of private targets in seven continental European countries for the period 1997–2008. We find evidence that bidder's cumulative announcement returns (CARs) are lower when they acquire family controlled targets compared to non-family controlled targets. We show that this result holds regardless of whether the deal is paid with shares or cash and whether or not the bidding firm is also privately owned. Moreover, the result is independent of the size of the acquisition relative to the size of the acquiring firm. Our findings are consistent with the notion that the bidder has to pay a higher price in order to convince the family owners to sell in return for giving up private benefits.     

Leveraged buyouts,private equity and jobs

Using a unique data set of 533 leveraged buyouts (LBOs) observed over the 1993–2004 period, covering all size ranges, the study conducts a systematic analysis to determine and quantify: (1) the effect of private equity (PE) and LBO governance on employment and (2) whether the size of the target firm impacts on post-buyout employment effects. After accounting for endogeneity, we find that LBOs, whether PE financed or not, do not have significantly different employment levels compared with a control sample of firms. Additionally, there are no employment effects contingent on the size of the target firm. The findings contrast with anecdotal claims of job destruction. The study therefore makes an important contribution to the debate on the impact of LBOs and PE.     

数字金融的公司治理效应--基于非家族股东治理视角

非家族股东治理能够有效助力家族企业实现可持续发展与现代化转型的目标,因而提升非家族股东治理水平具有重要意义。数字金融作为传统金融发展模式的重要创新,能够实现“金融服务实体经济”的目标,促使非家族股东积极参与家族企业治理。基于此,本文以代理理论与社会情感财富理论为基础,探讨了数字金融对非家族股东治理的影响。实证检验发现,随着数字金融的发展,非家族股东治理水平不断提升。其作用机制在于,数字金融能够通过缓解代理冲突、弱化家族控制与强化传承意愿,提升非家族股东治理水平。拓展性分析发现,对于非创业型、融资约束较强、位于金融监管程度较强地区的家族企业来说,数字金融对非家族股东治理的积极效应更显著;数字金融对异质性非家族股东制衡度存在差异化影响,即相较于外资股东与机构股东制衡度,数字金融能够强化国有股东与民营股东对家族股东的制衡;数字金融能够通过提升非家族股东治理水平促进家族企业可持续发展。本文从数字金融视角探究非家族股东治理的动机,丰富了数字金融与非家族股东治理的相关研究。     

Age or size? Contributions to job creation

Small firms have been identified as drivers of job creation, although the evidence on their contribution to net employment growth has been disputed. This article shows that job turnover and firm growth vary systematically across firm size groups and that smaller firms do indeed make an important contribution to new job creation. There is a significant caveat, however; we find that it is not firm size per se that is driving these results but rather firm age. We show that younger firms are consistently more dynamic than older firms. We also find a strong inverse relationship between employment growth and size for young firms, but this declines very markedly for older age groups. This provides some support for the Gibrat’s law prediction that size and growth are independent, but only once the firm has moved beyond the start-up stage.     

Beating the recession blues: Exploring the link between family ownership,strategic marketing behavior and firm performance during recessions

This study explores whether family firms exhibit unique marketing behavior and whether their unique behavior in turn helps them outperform non-family firms during periods of economic contraction. Findings based on a sample of 275 large publicly listed U.S. firms reveal that family firms outperform non-family firms during recessions. This superior performance is partially driven by family firms' proactive marketing behavior and their relatively strong emphasis on corporate social responsibility (CSR). During recessions, while non-family firms tend to decrease their advertising intensities and rates of new product introduction (NPI), family firms are likely to maintain relatively high levels of advertising intensity and rates of NPI. Unlike non-family firms, family firms are also likely to maintain high levels of corporate social performance (CSP) during recessions. These results underscore the benefits of proactive marketing behavior and a continued emphasis on CSR during economic downturns. The authors also add to the scant family-firm literature, demonstrating the family firm to be an effective organizational form.     

Are business groups different from other family firms? Evidence from corporate investments during political uncertainty

Using a large sample of Indian family firms, we examine the investment behaviour of group-affiliated family firms versus standalone family firms during local state elections. While state elections negatively affect corporate investments, family firms invest more than non-family firms. Therefore, using a difference-in-difference estimation, we find that group-affiliated family firms invest significantly more than standalone family firms. Additionally, we find no evidence of distortive investments by group-affiliated family firms due to political pressure; rather, it appears that the unique structure allows these firms to make value-relevant investments when other firms adopt a conservative approach. Overall, our study improves the understanding of family firm investments during periods of political uncertainty.     

Strategic reference points in family firms

Family firms are classically seen as risk averse organizations, and this is evident in their generally lower R&D investments compared to non-family firms. Recent research, however, challenges this predominant view and suggests that family firms can embrace higher strategic risk when faced with threats to their family-centered goals. Still, the internal and external conditions that drive variations in the strategic risk taking behaviors of family firms are little known and understood. This article adds to this literature by developing and testing a conceptual model of strategic risk taking that incorporates behavioral theory, family business literature, and the logic of the strategic reference point theory. With recognition that the interplay between family and economic goals determines heterogeneity in strategic actions of family firms, this model suggests that family managers respond differentially to the feedback information regarding internal and external reference points, and consequently identifies key drivers of variation in the R&D investment behavior of family firms. By examining the pattern in R&D investments of 437 Spanish private manufacturing firms from 2000 to 2006, this study shows how strategic inputs, strategic outputs, and external benchmarks produce variations in strategic decisions about R&D investments in family and non-family firms. The findings offer insights into how internal and external reference points are considered in family firms’ decision making, thereby contributing a deeper understanding into the circumstances under which family goals cope or collide with the economic goals of the firm, and how this influences strategic risk decisions in family firms.     

Impact of TMT structural power asymmetry on family firm internationalization

We examine the impact of the top management team’s (TMT) structural power asymmetry on a family firm’s degree of internationalization. Structural power is the administrative power drawn from formal positions and is different from ownership power. We argue that family identity creates a faultline between the family and non-family managers in the family firm’s TMT. This faultline gets strengthened when the family managers skew ‘structural power’ toward themselves (termed as ‘family structural power concentration’), leading to poor team integration and cooperation among family and non-family managers. Resultantly, family firms are unable to leverage the knowledge, expertise, and network of the non-family managers in the firm’s TMT for the firm’s internationalization attempts. We hypothesize a negative relationship between ‘family structural power concentration’ and the ‘firm’s degree of internationalization’. Further, we argue that this relationship is moderated by environmental dynamism and competitive intensity. Our findings have implications for research and practice.     

Corporate governance in publicly traded small firms: A study of Canadian venture exchange companies

Most evidence regarding the determinants and effects of corporate governance practices is based on large firms. Herein, we explore these issues in the context of small publicly traded Canadian companies. We exploit the fact that such firms were not subject to corporate governance guidelines prior to 2005 and thus analyze the determinants of voluntary governance practice choices, as well as the effects of those practices on firm performance. Using a unique data set, we construct a corporate governance index for each firm. We measure performance by two variables: quality of accounting earnings and financial performance. The results indicate that corporate governance does matter for smaller traded Canadian firms. We find that both accounting and financial performance are positively related to corporate governance; however, their underlying mechanisms may differ somewhat. Given this result, it would be natural to expect all firms to choose higher levels of governance. However, our results also suggest small firms face resource constraints that limit their choices. We conclude that good governance is an important driver of small firm performance that cannot be neglected by the owners and managers of these firms.