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.     

Effects of family ownership and family management on the performance of entrepreneurial firms

Extending past research, this paper proposes that the quadratic inverse-U relationship between family ownership and the performance of entrepreneurial firms when moderated by the presence of family management and external blockholding. Specifically, it proposes that both factors exacerbate the decline in performance when the proportion of family ownership in entrepreneurial firms remains high. The proposed hypotheses are tested on ten years of panel data from a sample of European firms. Analysis of data supports the hypotheses. Implications for the theory and practice of entrepreneurial firms are discussed.     

Corporate social performance, financial performance and institutional ownership in Canadian firms

This study examines the relationship of corporate social performance (CSP) to financial performance (FP) and institutional ownership. We perform our empirical analyses on a large-sample of publicly held Canadian firms and use a novel independent measure of CSP. Based on tests utilizing four years of panel data, we found no significant relationship between a composite measure of firms’ CSP and FP. However, we found significant relationships between individual measures of firms’ CSP regarding environmental and international activities and FP. Our findings indicate a significant relationship between firms’ composite CSP measure and the number of institutions investing in firms’ stock. In addition, we found significant relationships between firms’ CSP ratings regarding their international activities and product quality and the number of institutions investing in firms’ stock. These findings, while subject to the limitations inherent in the use of specific CSP measures, provide mixed support for the business case for CSP.     

Tax avoidance in family firms: Evidence from large private firms

Ownership structure plays an important role in firms’ decisions on tax avoidance. Recently, the effect of family ownership on corporate tax avoidance has become an issue of increasing interest among scholars from both the fields of family business research and tax research; however, empirical findings have so far remained ambiguous. Based on a unique sample of 678 large private firms from Germany, we show that for unlisted large firms (i) family firms avoid more tax than non-family firms, (ii) tax avoidance increases with the percentage of family ownership, and (iii) tax avoidance is a function of the number of shareholders. We interpret our results as evidence that benefits from avoiding taxes outweigh the non-tax costs in the case of large private family firms in Germany. Furthermore, as the number of family shareholders increases, family firms satisfy increasing demand for dividends by avoiding taxes.     

Corporate board and board committee independence,firm performance,and family ownership concentration: An analysis based on Hong Kong firms

This study examines whether the relationship between corporate board and board committee independence and firm performance is moderated by the concentration of family ownership. Based on a sample of Hong Kong firms, we find no significant association between the independence of corporate boards or board committees and firm performance in family firms, whereas board independence is positively associated with firm performance in non-family firms. Additionally, our findings show that the proportion of independent directors on the corporate boards of family firms is lower than that of non-family firms, but we find no significant difference in the representation of independent directors on the key committees of corporate boards between family and non-family firms. Overall, these results suggest that the “one size fits all” approach required by the regulatory authorities for appointing independent directors on corporate boards may not necessarily enhance firm performance, especially for family firms. Thus, the requirement to appoint independent directors to the corporate boards of family firms needs to be reconsidered.     

A literature survey of financial reporting in private firms

This paper provides a survey of the empirical literature on financial reporting in private firms. Although private firms play a dominant role in country-level economic development, research on their financial reporting is limited. The survey reveals that there remains uncertainty as to the purpose of financial reporting in private firms which is also reflected in the current body of the empirical literature. The survey provides implications for regulators with respect to regulating the financial reporting of private firms. The survey also identifies some limitations of existing research and offers potential avenues for future research.     

Product innovation, budgetary control, and the financial performance of firms

Organizations are increasingly calling for greater budgetary oversight of the product innovation process. A major focus of their concern is the costs associated with product innovation together with their need to enhance their financial performance through these endeavours. However, the literature has raised a number of issues arising from such budgetary proposals, suggesting that the creativity of those involved in product innovation should not be constrained by cost concerns, that the use of management control systems is incompatible with product innovation, and that budgets may stifle innovation. It is argued in this paper that the extent to which product innovation has a positive impact on the financial performance of firms is dependent on the manner in which budgets are used in organizations. If budgets are used predominantly as a planning mechanism, then such budget planning facilitates product innovation resulting in enhanced performance. In contrast, if budgets are used primarily as a control mechanism, then it is unlikely that product innovation will contribute to financial performance. The results of the study are consistent with these expectations. This paper makes a contribution to the literature by providing empirical evidence of the impact of budgets in the context of product innovation.     

The financial distress pricing puzzle in banking firms

This paper examines whether the financial distress pricing puzzle observed for non-financial firms is also observed for financial firms and how this puzzle differs according to the extent of short-sale constraints. By using the eight distress measures developed for financial firms, we find that there is a strong negative relation in the cross-section between financial distress and subsequent bank stock returns, regardless of adjustment for risk. However, this distress pricing puzzle is statistically significant only for high short-sale constrained banks, but not for low short-sale constrained banks. Thus, short-sale constraints are at least one non-risk attribute that causes the distress pricing puzzle for financial firms. We also find that despite its simple form, compared to the other complex distress measures, non-performing loans (NPLs) are the most informative in predicting future bank stock returns as well as bankruptcy and failure.     

The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation

Corporate governance plays a vital role in creating a corporate culture of consciousness, transparency, and openness. In this context, this paper provides a brief view about the background of corporate governance mechanisms in India and Gulf Corporation Council (GCC) countries, corporate legal system and monitoring policies laid down by Indian and GCC governments. Furthermore, it analyzes the impact of corporate governance mechanisms on the financial performance of Indian and GCC listed firms. The study uses a sample that consists of 53 non-financial listed companies from India and 53 non-financial listed companies from GCC countries for the period 2009–2016. Results revealed that board accountability (BA) and audit committee (AC) have an insignificant impact on firms' performance measured by ROE and Tobin’s Q. Similarly, transparency and disclosure (TD) have an insignificant negative impact on firms' performance measured by Tobin’s Q. Moreover, the country dummy results show that Indian firms are performing better than Gulf countries ones in terms of corporate governance practices and financial performance. The current study is considered as a battery for further research and studies particularly in India & GCC listed firms in the context of corporate governance and financial performance.     

Corporate governance in family firms,learning and reaction to recession: Evidence from Italy

This paper focuses on the interaction between internal and external factors explaining performance of small and medium-sized family firms. We used framework foresight to suggest how learning and internal factors such as CEO’s origin, tenure and turnover, could affect the firm’s reactions to one particular external factor, economic recession. The paper draws on empirical observations of a large sample of small and medium family firms operating in Italy between 2002 and 2011 to identify the baseline future, an expected future for these firms. This analysis may be of interest to both management scholars and practitioners. We hope to contribute to the debate on how internal and external factors interact to affect firm success, measured as sales growth. The implications for the future viability of an economic system based on family businesses are straightforward, as the turbulence and instability of the economic environment has grown significantly in the last decade, especially in more developed countries. Whether the ability of a company to adapt and survive to negative shocks depends on its governance provides a rationale for exploring alternative perspectives on the competitiveness of the economic system and the ability of different owners to cope with future negative events.     

Corporate governance and family firm performance during the Global Financial Crisis

We investigate the impact of corporate governance on accounting and market performance relationships of family firms during the Global Financial Crisis (GFC). We expect the monitoring aspects of corporate governance to complement the long-term orientation of family firms, improving the value relevance of accounting and market performance during times of exogenous financial shocks such as the GFC. We find that the family-firm value is more sensitive to book value than earnings changes. We also find better corporate governance, irrespective of whether it is a family firm or non-family firm, is associated with better accounting and market performance during the GFC.     

Family succession and firm performance: Evidence from Italian family firms

This article contributes to the growing empirical literature on family firms by studying the impact of the founder–chief executive officer (CEO) succession in a sample of Italian firms. We contrast firms that continue to be managed within the family by the heirs to the founders with firms in which the management is passed on to outsiders. Family successions, that is, successions by the founder's heirs, are further analyzed by assessing the impact of the sectoral intensity of competition on the post-succession performance. This analysis also addresses the endogeneity in the timing of the CEO succession by controlling for a pure mean-reversion effect in the firm's performance. We find that the maintenance of management within the family has a negative impact on the firm's performance, and this effect is largely borne by the good performers, especially in the more competitive sectors. These results indicate that there is no inherent superiority of the family-firm structure and emphasize the importance of conducting an analysis of governance in a variety of institutional settings.     

The determinants of cash holdings in private family firms

We present empirical evidence on traditional and family firm–specific determinants of cash holdings in the under‐researched context of private family firms. We examine, from an agency theoretic perspective, how and to what extent the relation between family firm management and cash holdings is moderated by the ownership structure. Results reveal that descendant CEOs appear to maintain higher cash holdings than founder CEOs. This effect seems to be stronger if there is a low ownership dispersion. Moreover, outside CEOs maintain higher cash holdings than family CEOs if the family firm is owned by a single owner.     

The outperformance of family firms: the role of variance in earnings per share and analyst forecast dispersion on the Swiss market

Recent studies provide empirical evidence that family firms are outperforming their non-family counterparts in terms of stock market performance. For the Swiss stock market we find that family firms indeed outperform their non-family counterparts after controlling for firm size and beta. In addition, our data shows that family firms display more stable earnings per share in contrast to their non-family counterparts. Furthermore we find that the variance of earnings per share positively affects analyst forecast dispersion. According to anomaly literature, lower analyst forecast dispersion has been found to induce higher excess return, which our data supports for the Swiss stock market. By linking variance of earnings per share, analyst forecast dispersion and stock performance we provide an insightful explanation for the excess stock market returns of family firms. In addition, our text extends the theory of dispersion effect with an additional empirical element, the variance of earnings per share.      

Influence of cost accounting change on performance of manufacturing firms

The purpose is to analyze the influence of cost accounting change (CAC) on the financial performance of Finnish firms. Empirical data are based on a survey responded by 121 manufacturing firms. PLS is used to extract the influence of CAC on performance. The general expectation is that CAC should have a positive lagged effect of performance. However, prior empirical evidence is mixed and usually only a weak influence is found, if any. This study shows that CAC is closely associated with a simultaneous pricing system change (PSC). CAC and PSC are interrelated because product cost usually plays an important role in pricing. PLS shows that CAC has a weak positive lagged main effect on performance whereas PSC has a strong negative effect. The total effect of CAC is insignificant because the positive direct effect is offset by the negative mediation indirect effect through PSC. The result indicates that when assessing the influence of CAC on performance it is important also to take account of the corresponding indirect influence through PSC. The study also shows that perceived environmental uncertainty (PEU) has a strong negative moderating effect on the influence of PSC on performance. Thus, the influence of PSC on performance is more negative when PEU is high.     

Trade credit and company performance during the 2008 financial crisis

We investigate whether the 2008 financial crisis had an impact on companies’ trade credit, and whether changes in trade credit mitigated the crisis’s impact on firm profitability. We document that the availability of trade credit decreased, and that this decline is more pronounced, the higher the companies’ pre‐crisis reliance on short‐term debt. We further report evidence that the redistribution hypothesis holds during crisis periods. Finally, we show that the crisis had a negative impact on company performance, but that this impact was lower (greater) for firms that report an increase in trade receivables (payables) in crisis compared to pre‐crisis periods.     

Private family firms,generations and bank debt

This paper focuses on the use of bank debt by private family firms and whether it is higher for the first generations of family businesses than for their descendants and subsequent generations. We use a unique hand-collected data set of 4,041 private Spanish firms for the years 2004 to 2013. We find statistical evidence that family-controlled firms make greater use of bank credit. Moreover, we show that first-generation family firms acquire more bank debt than those of second and subsequent generations. Furthermore, during financial crises, family-controlled firms were subjected to less rationing, with increased bank financing for first generations.     

Corruption exposure,political disconnection,and their impact on Chinese family firms

This study adopts a quasi-natural experimental approach to examine the responses of Chinese family firms to political disconnection following exposure to corruption scandals. Our results are consistent with the view that family firms build political connections to achieve better performance, for access to external financing, and to secure more investment opportunities. We also find that the impact of political disconnection is more profound for firms located in provinces with a low level of marketisation, located in the same provinces as their related corrupt officials, and belonging to industries with high levels of corruption. Our results are robust after ruling out the impact of corruption cases per se as well as to alternative measurements of key variables and sample selection methods.     

A two-part fractional regression model for the financial leverage decisions of micro,small, medium and large firms

In this paper we examine the following two hypotheses, which traditional theories of capital structure are relatively silent about: (i) the determinants of financial leverage decisions are different for micro, small, medium and large firms; and (ii) the factors that determine whether or not a firm issues debt are different from those that determine how much debt it issues. Using a binary choice model to explain the probability of a firm raising debt and a fractional regression model to explain the relative amount of debt issued, we find strong support for both hypotheses. Confirming recent empirical evidence, we find also that, although larger firms are more likely to use debt, conditional on their having some debt, firm size is negatively related to the proportion of debt used by firms.     

Organisational change and performance in long-lived small firms: a real options approach

This paper supports two key principles of real options reasoning: (a) the value of waiting and (b) the value of staging. It tests whether real options logic applies to small firms implementing significant changes (e.g. in technology) in a model of small firm performance, estimated on data collected by interviews with entrepreneurs. We found that to achieve a higher value by waiting, a delicate balance of precipitators of change against time until exercise is necessary (e.g. if there were just one or two precipitators, then waiting would certainly raise the value). Similarly, to achieve a higher value by staging, the entrepreneur needs to balance embedding against investment time. Thus, provided that investment time is less than 1¼ years, we found that embedding will raise the value. Overall, this implies that strategic flexibility in investment decisions is necessary for good long-run performance of small firms.