External managers,family ownership and the scope of SME internationalization

SMEs are important to world business and the majority of SMEs are family firms. Yet some family SMEs are inert, local firms while others are dynamic and international. Do certain governance structures encourage the scale and scope of their internationalization? We jointly apply social capital and corporate governance theories to explain the scope of family SMEs internationalization, and find that professional managers externally recruited from outside the family are important, but only for lower levels of family ownership, suggesting synergistic combinations of ownership and management. It is the combination of external capital with external managers that really works.     

Influence of CEO characteristics in family firms internationalization

This research uses a survey dataset of 187 Spanish family firms to study the characteristics that may influence family firms in their decision of internationalize their activity. Based on individual and demographic variables, the study concludes that the CEO academic level of achievement influences the level of success in international expansion. In addition, the capacity for generating resources of the family firm provokes a lower resistance from family members to export. Moreover, we confirm that industry characteristics do matter in internationalization processes, noting that the specific market, product/service and technology characteristics influence the family firm internationalization. Contrary to expectations, the gender variable and the percentage of family members sitting on the board do not significantly predict the propensity to export.Our findings suggest family firm leaders seeking greater levels of firm internationalization to seriously consider the qualification level of their CEO. These insights can be useful for regulators who have to develop programs for supporting sales internationalization, as well as owners and managers of family firms, who need to understand the CEO abilities that may improve their capacity to internationalize their business.     

The sensitivity of compensation to social capital: Family CEOs vs. nonfamily CEOs in the family business groups

This study examines the role of CEO social capital, defined as external directorship ties held by the CEO, in determining family vs. nonfamily CEOs' compensation in a network-based business society and governance system. Using a sample of pooled data of family firms listed on the Taiwan Stock Exchange (TSE) from 2000 to 2002, the empirical results show that CEO social capital is an important determinant in setting nonfamily CEOs' pay level, consistent with the expectation of the contractual governance model. By contrast, as expected by relational governance model, family CEOs' social capital is not incentive-relevant. This study extends the literature on CEO compensation by documenting that in a market where guanxi and connections are considered valuable business tools, corporations will be willing to compensate professional CEOs for the social capital that they bring to the firm.     

The impact of board of directors’ characteristics on the internationalization of family SMEs

Family small and medium-sized enterprises (SMEs) face both general bounded rationality challenges and a unique expression of bounded rationality in their internationalization process: the bifurcation bias, a concept aligned with modern transaction cost theory (TCT). We argue that efficient governance in family SMEs, and especially features of the Board of Directors’ composition, can help alleviate bounded rationality. Complementing TCT with upper echelons theory (UET), we investigate which Board characteristics in family SMEs contribute to efficient governance and the ensuing strategy decisions. We focus specifically on strategy decisions in the internationalization sphere. Our empirical analysis of survey data from 328 Belgian family SMEs, operating out of a small open economy, reveals that family SMEs internationalize more if their Boards are ‘open’, ‘inclusive’, ‘experienced’ and ‘active’. These Board characteristics, all reflective of efficient governance, i.e., providing the Board with the capacity to alleviate bounded rationality constraints, positively contribute to internationalization, especially (and perhaps paradoxically) when the family SME is managed by a CEO who is also a family member.     

Joining forces: Top management team and board chair characteristics as antecedents of board service involvement

Boards in early stage high tech firms have an important role to play through their involvement in service tasks. Building on the attention based view of the firm and self-efficacy theory, we investigate the role of top management team (TMT) and board chair characteristics as antecedents of board service involvement (BSI). Studying a sample of 117 Norwegian early stage high tech firms, we find that TMT diversity positively affects BSI, whereas CEO duality negatively affects BSI. We further find that the industry experience of the board chair positively moderates the relationship between TMT size and BSI whereas CEO duality reinforces the TMT diversity-BSI relationship.     

Family SMEs' Internationalization: Disentangling the Influence of Familiness on Spanish Firms' Export Activity

This paper studies the relationships between family involvement and internationalization of family small and medium enterprises (SMEs), examining the effects exerted by the three main dimensions that comprise the concept of familiness: power, experience, and culture. Disentangling the influence of familiness dimensions lead us to discover the combined effects of family's governance, generation, and culture on SMEs' export activity. The results, using the F‐PEC scale over a sample of 500 Spanish firms, show that this multidimensional approach better identifies the determinants of the family SMEs' internationalization. Specifically, we find that the family experience and its culture orientation positively affect the firm's export activity, whereas family governance/management does not have any significant influence.     

Why Architecture Does Not Matter: On the Fallacy of Sustainability Balanced Scorecards

This study focuses on CEO hubris and its detrimental effect on corporate financial performance along with an examination of critical corporate governance contingencies (CEO power and board vigilance) that may moderate the negative effect. From 654 observations of 164 Korean firms over the years 2001–2008, we found that CEO power exacerbated the negative effect of CEO hubris on corporate financial performance, whereas board vigilance mitigated it. This study provides empirical evidence that entrenchment problems arising from CEO hubris would be exacerbated as CEOs become more powerful, but weakened as board of directors become more vigilant. Theoretical contributions and practical implications will be discussed.     

Earnings Quality in Private SMEs: Do CEO Demographics Matter?

This study investigates the impact of CEO demographics on earnings quality for private SMEs. Using a 2012 sample of 30,476 French firms, we first find strong empirical support for a gender effect: female‐run firms engage in less earnings management than do male‐run firms. This result is consistent with female CEOs being more risk averse than their male counterparts are when making financial decisions. Second, CEO age is negatively correlated with the magnitude of discretionary accruals, and the relationship between gender and earnings quality is stronger for older CEOs. Overall, our findings suggest that CEO demographics affect the quality of accounting information.     

Inherited corporate control and returns on investment

This paper contributes to the literature on management in family firms by investigating how succession in family firms affects returns on investment. The identities of the chief executive officer (CEO) and the chairman of the board (COB) were used to establish whether the management of the firm can be characterized as founder, descendant, or external management. A unique, unbalanced panel data set on listed Swedish firms covering the period from 1990 to 2005 was used in the analysis. The results show that founder management has a positive effect on the returns on investment in family firms, whereas descendant management has a negative impact. An external CEO as a successor in family firms leads to more efficient investment policies with increased firm value as a result. That is, when studying corporate governance in family firms it is important to account for what type of management the firm has. Further studies are required to understand the relationship between ownership, control, management, and firm performance.     

Corporate Governance and Strategic Change in SMEs: The Effects of Ownership,Board Composition and Top Management Teams

This paper investigates how governance mechanisms affect the ability of small- and medium-sized enterprises (SMEs) to introduce strategic change. Previous research typically assumes that governance mechanisms operate independently of each other. Building on agency theory and insights from the literature on small firm governance, we hypothesize that governance variables related to ownership, the board of directors and the top management team all affect strategic change and that it is important to examine the interaction effects of these governance mechanisms. Using a longitudinal sample of over 800 SMEs, our general logic and hypotheses are supported by the analyses. We find that closely held firms exhibit less strategic change than do SMEs relying on more widespread ownership structures. However, to some extent, closely held firms can overcome these weaknesses and achieve strategic change by utilizing outside directors on the board and/or extending the size of the top management teams. Implications for theory and management practice in SMEs are discussed. All three authors have contributed equally to the paper. Their names are listed alphabetically.     

Network ties and export propensity of Vietnamese small and medium enterprises

This paper investigates the impacts of different network ties on export propensity of Vietnamese small and medium enterprises (SMEs) in the manufacturing sector. Using data from a survey of over 2,600 manufacturing SMEs in 2015, we found that social networks contribute positively to the export propensity of SMEs, while the size of business networks negatively associates with the likelihood of export. However, bank networks and political networks are not significant for the propensity to export of Vietnamese SMEs. We discuss the results in detail and offer recommendations for SME owners, managers and policy makers.     

Founder management and the market for corporate control for IPO firms: The moderating effect of the power structure of the firm

This study draws on agency and stewardship theory to evaluate the relationship between alternative governance regimes (founder versus non-founder CEO) adopted at the time of going public on post-IPO economic outcomes in the market for corporate control. We find that the presence of founder CEOs reduces the likelihood of post-IPO change of control but enhances target IPO firm wealth by increasing acquisition premiums. Additionally, we examine whether measures of CEO power over the board moderate the relationship between founder management and target IPO firm wealth. Our results suggest that CEO duality is the most effective instrument of CEO power available to founder CEOs to positively influence target firm wealth. Further, we find that while founder CEOs utilize power derived from CEO duality to increase acquisition premiums, non-founder CEOs use board leadership power to expropriate shareholder wealth.     

Why and how should SHE make her way into the family business boardroom?

The most successful and longest-enduring family firms are progressively encouraging the active presence of women on their corporate boards. Why is the presence of women on boards so important for family firms? And how can policy makers and controlling owners encourage the active presence of women on family business corporate boards? By integrating the literature on women in governance and the goals of family businesses, we take a step toward increasing shareholder awareness of the economic and noneconomic benefits that women can bring to the family business boardroom. Using theory and empirical evidence, we show that the presence of women on corporate boards can be instrumental for the controlling owners of a family business to achieve prosperity and success, to preserve family cohesion, and to improve the reputation of the family and business simultaneously. Furthermore, we discuss the socioemotional and economic ramifications of excluding women from the family business board of directors. We conclude with four practical recommendations for encouraging the active presence of women on family business boards.     

The influence of ownership structure and board strategic involvement on international sales: The moderating effect of family involvement

This paper contributes to the family business and the international business literature by analysing whether and to what extent different compositions of the ownership structure and degrees of board strategic involvement impact on the level of international sales of family and non-family businesses. Our main hypotheses are tested on a sample of 342 Norwegian firms via regression analysis. The results from this study show the existence, in both in family and non-family businesses, of a positive and significant relationship between foreign investors’ ownership and the level of international sales. Furthermore, the relationship between CEO ownership impacts negatively on international sales in both family and non-family businesses. While board strategic involvement contributes positively to international sales in non-family businesses it becomes not significant when we only look at family businesses. Implications for theory and practice and future research directions are discussed.     

The Effects of CEO Founder Status and Stock Ownership on Entrepreneurial Orientation in Small Firms

This paper studies how governance drives entrepreneurial orientation (EO) in small firms. We argue that founder status and ownership create powerful personal incentives for small firm CEOs to engage in behaviors that influence EO. Integrating stewardship theory and the principal‐principal branch of agency theory, we test our hypotheses on a sample of 339 Swedish firms, and find that CEO founder status is significantly and positively associated with EO, while CEO stock ownership significantly but negatively predicts EO. We additionally test two boundary conditions that show that the founder‐CEO's prior managerial experience in start‐up firms positively moderates the founder‐EO relationship, while contrary to expectations, CEO ownership diversification has no effect on the negative association between ownership and EO. Thus, our study adopts a corporate governance perspective to explain how variations in EO across small firms are driven by the goals and motivations of its leader. Our research also shows that in small, private firms the balance of power is tipped in favor of the CEO rather than the board of directors. Finally, we underline the importance of adopting alternative theoretical lens like stewardship and principal‐principal agency, given that traditional principal‐agent problems are largely mitigated in the small firm context.     

The institutional context as a source of heterogeneity in family firm internationalization strategies: A comparison between U.S. and emerging market family firms

Existing research has underexplored the role of context as a source of heterogeneity in family firms’ (FFs) internationalization strategies. Drawing upon institutional theory, we develop and test a mid-range theory positing that differences in the quality of the institutional context can moderate the strength of the relationship between individual- and board-level attributes and FF internationalization. Our comparison of U.S. FFs with FFs from Brazil and Mexico reveals that in emerging market FFs, individual-level attributes such as CEO international experience, CEO educational attainment, and CEO international education exhibit a stronger relationship with internationalization. Similarly, we find that board-level attributes such as board size and board independence are also more strongly related to internationalization in emerging market contexts. We contribute to the literature by identifying a source of variation in FF internationalization strategies based on context and by examining the relationship between a wide range of FF attributes and internationalization.     

Dual entrenchment and tax management: Classified boards and family firms

This study examines whether and how multiple managerial entrenchment devices within a firm, specifically the structure of the board of directors and family firm status, interact to influence tax management. Using a sample of 4,000 U.S. public firm-year observations covering the period 1999–2013, we find that the classified board structure and family firm status are both negatively related with tax avoidance. However, accounting for the interaction between board structure and family firm status, we also find that the negative associations between both entrenchment measures and tax management apply only where the other entrenchment mechanism is absent. In further analysis, we find that higher levels of monitoring by institutional investors neutralize the interaction between the presence of a classified board and family firm status. Our evidence highlights that governance/monitoring mechanisms can interact in complex ways, including an offsetting effect between potentially redundant dual-level entrenchment mechanisms, to influence tax management behavior.     

The Link Between Small Business Governance and Performance: The Case of the Ghanaian SME Sector

ABSTRACT

The present study set out to examine corporate governance practices of SMEs in Ghana and whether there is any linkage between these governance practices and financial performance. We employed two levels of interaction to achieve our objectives: The first is an interview for a general understanding of governance issues in the SME sector and the subsequent design of a questionnaire for an exploration of the linkages between governance issues and firm financial performance by employing a linear model. The study reveals that governance structures in SMEs are jointly influenced by credit providers and business ethical considerations. The regression results show that board size, size of audit committees, corporate ethics and the proportion of outsiders on the audit committees have negative impact on financial performance while independence of the board and the presence of audit committees enhance firms' financial performance. The findings have some policy implications in that it shows that exporting SMEs are relatively profitable. It is recommended that in an attempt to promote exports, the legal and regulatory environment should be conducive for these firms.     

Are SMEs with immigrant owners exceptional exporters?

Immigrant owners possess valuable human and social capital from which small and medium-sized enterprises (SMEs) might derive advantages when internationalizing. According to this resource-based perspective, such advantages might be manifested in immigrant-owned SMEs' enhanced ability to identify, evaluate, develop and exploit opportunities in international markets. However, a cognitive perspective offers an opposing view: insofar as immigrant owners are more prone to overconfidence than their non-immigrant counterparts when making internationalization decisions, immigrant-owned SMEs might reap less financial rewards from potentially high-risk international markets. We pit the two perspectives against each other theoretically and empirically by evaluating a) the relationship between business owners' immigrant background and SMEs' export intensity, and b) the extent to which such background moderates the relationship between SMEs' export intensity and (risk-adjusted) financial performance. Based on a representative sample of 9977 Canadian SMEs, we find that the presence of immigrant owners positively impacts export intensity, but negatively moderates the relationship between export intensity and financial performance. We interpret this evidence, combined with supplementary analyses, as support for a cognitive theory of international entrepreneurship in general, and particularly in relation to the role and consequences of entrepreneurs' immigrant background.     

Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative association with managerial ownership, such relationship becomes significant and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures.