Founding Family Firms,CEO Incentive Pay,and Dual Agency Problems

This paper contributes to the literature on agency theory by examining relations between family involvement and CEO compensation. Using a panel of 362 small U.S. listed firms, we analyze how founding families influence firm performance through option portfolio price sensitivity. Consistent with the dual agency framework, we find that family firms have lower CEO incentive pay, which is further reduced by higher executive ownership. Interestingly, such incentive pay offsets the positive impact that families have on firm valuation. Collectively, our results show that, compared with nonfamily firms, lower incentive pay adopted by family firms due to lower agency costs mitigates the direct effect of family involvement on firm performance. Once accounting for CEO incentive pay, we do not observe performance differences between family and nonfamily firms.     

Determinants of Speed of Adjustment (SOA) toward Optimum Capital Structure: Evidence from Listed Firms in Sri Lanka

This research article aims at examining the determinants of speed of adjustment (SOA) toward the optimum capital structure (OCS). Particularly, this study focuses the impact of firm-specific factors and corporate governance factors on the capital structure adjustment in the Sri Lankan context. The methodology utilizes the benefits of the partial (stock) adjustment model, namely, two-step panel framework using generalised method of moments (GMM) to determine the SOA to OCS. The results indicate that Sri Lankan firms are found to have an OCS and do rapidly adjust toward their target structures. Further this study reveals that profitability, size, tangibility, nondebt tax shields, and governance factors such as directors’ compensation and CEO duality significantly affect the SOA to OCS. The past studies in the emerging market context hardly go into corporate governance factors, leaving a large space for research in the area of capital structure. This study of the listed firms in Sri Lanka contributes to the literature, by examining the determinants of SOA to OCS decision.     

Factors influencing the choice between founder versus non-founder CEOs for IPO firms

Despite the innate advantage founder CEOs have by virtue of their founding vision, organizational influence, positive image, and ownership stakes to lead their firms at their initial public offering (IPO), extant empirical evidence indicates that between a third to half of IPO firms go public with non-founder CEOs at the helm. Relatively little however, is known regarding factors that influence the choice of founder versus non-founder CEO for firms issuing IPOs. This study examines the impact of factors such as founder characteristics, size of founding team, governance structure, ownership structure, top management team independence, venture capitalist influence, and the demand for equity financing on the probability of founder CEO at IPO.     

Founder/Chief Executive Officer Exit: A Social Capital Perspective of New Ventures

The founder/chief executive officer (CEO) exit is a significant event for all business organizations. However, a social capital perspective suggests that the exit of the founder/CEO may be more disruptive for new start-ups due to the critical role the founder/CEO plays in the new organization and the heightened potential chance for failure of a new venture. A social capital perspective suggests that the ability of the entrepreneurial firm to perform better is affiliated with the social capital within the organization. This study supports a social capital perspective of CEO exit and social capital's impact on performance. It helps establish a foundation of study of CEO exit and new ventures from this perspective.     

商业“她时代”萌芽下的中国“裙子CEO”资本初探

对于"裙子CEO",早已引起社会广泛关注。研究显示:人力资本、社会资本以及人丽资本三者共同促成了女CEO这一特殊人才的形成。其人力资本与企业绩效是成正相关,发挥作用最大;社会资本这把双刃剑对于女CEO来说还是处于一个"凸弧"的上升阶段,还未发挥其最大的效用,有待开发;人丽资本对女CEO工作是有帮助的。研究同时表明:人力资本的形成过程中,IQ比EQ起的作用要稍大一些,说明在社会资本的组成里,情商要比智商更加重要。研究成果进一步表明,不仅人们不能带着有色眼镜看待女CEO,而且为正在奋斗成为女CEO路上的女高官以及普通女职员们指明了一个正确的职业导向,即加强学习,努力增强自己的人力资本,才能尽快地化茧成蝶。     

Women’s Leadership and Firm Performance: Family Versus Nonfamily Firms

We evaluate the relationship between the appointment of women to CEO or Chair positions and firm performance, and shed light on the differences between family and nonfamily firms. By using a propensity score matching approach on a sample of 394 French firms over the period 2001–2010, we find major discordances between women’s leadership style and family business expectations relative to firm performance, as measured by return on assets and Tobin’s q. Notably, our results support the conjecture that family firms, which are more conducive to transformational leadership, offer women a more appropriate climate for exercising the function of Chair than that of CEO. In contrast, women CEOs perform better in nonfamily firms. Our findings move away from the predominant focus on barriers and stereotypes images about the female leadership and support the contingency theory of leadership, which states that the effectiveness of a leadership style depends on the organization and culture in which leaders operate, and on task-related positions     

Is blood always thicker than water? Family firm parents,kinship ties,and the survival of spawns

We theorize that due to their ability to draw upon the distinctive bonding and bridging social capital resources of their family firm parents, family member spawns have longer early survival times than nonfamily member spawns from family firms, which in turn should have longer early survival times than spawns from nonfamily firm parents. We also predict that the survival enhancing effects of family parent bonding and bridging social capital are conditional on the spatial, cognitive and social proximity between the parent and the spawn. Using a population wide sample of 114,837 spawns founded in Sweden between 2000 and 2007, we find that nonfamily member spawns survive longer than spawns from nonfamily firms, and that this survival enhancing effect is contingent on the spatial and social proximity between the spawn and its parent. We also find that spawns founded by family members, on average, do not survive longer than spawns from family firms founded by nonfamily members, and that greater spatial and cognitive distance even hurt the survival of family member spawns. We discuss the contributions of our research to the spawning, family firm, and entrepreneurship literatures.     

Family CEO and board service: Turning the tide for export scope in family SMEs

Adopting the socioemotional wealth perspective, we argue that the presence of a family CEO in family SMEs negatively affects export scope, but that such negative effect is mitigated by board service. We develop and test a model that considers the synergistic combination of family management and another important aspect of family governance in the context of family firm internationalization: the service behavior of the board of directors. The empirical evidence from a sample of 248 Belgian family SMEs shows that governance is crucial to overcoming the problems of family management: family CEOs may negatively influence export scope, but board service is able to turn the tide so that the family CEO effect becomes positive. With such novel findings, we contribute to international business and family business studies     

Business Ethics and the Decision to Adopt Golden Parachute Contracts: Empirical Evidence of Concern for All Stakeholders

Golden parachutes are often viewed as a form of excessive compensation because they provide senior management with substantial payouts following an acquisition while other stakeholders are subjected to layoffs, disrupted business relationships and other negative externalities. Using a sample of S&P 500 firms, an economic and ethical justification for this type of contract is given. Golden parachutes ensure effective corporate governance that, in turn, preserve the firm's value for all stakeholders. Boards of directors enter into parachute agreements to protect recently hired CEOs' human capital during periods of financial uncertainty and, thus, potential takeover activity. From an ethics viewpoint, golden parachutes are valuable to all stakeholders because they encourage merger or acquisition in lieu of bankruptcy.     

Family governance practices and teambuilding: paradox of the enterprising family

This paper explores the relationship between family governance practices and financial performance of the business and family assets of business-owning families. A business-owning family that shares a focus on preserving and growing wealth as a family is defined as the enterprising family. Results of the study are consistent with predictions about the functioning of the enterprising family derived from research using social capital theory and group dynamics, especially with respect to teams. Family governance practices (family constitution, family code of conduct, clear selection and accountability criteria, family council, formal family communication mechanisms and family reunions) are hypothesized to build a strong and unified business-owning family functioning as a team. Results show that these practices are positively associated with financial performance. This relationship is mediated by a focus on preserving and growing business wealth as a family. Analyses are conducted on a sample of 64 family businesses from 18 countries.     

The Relationship between Family Firms and Corporate Governance*

This paper contributes to the agency theory literature by identifying relations between family control and corporate governance structure. Emerging literature supports the notion that family control creates strong incentives that have potentially competing influences on the manner in, and extent to, which internal corporate governance mechanisms are utilized. A sample of 100 listed companies (evenly divided between family and nonfamily firms) is used to test the hypotheses that corporate governance structures are different between family and nonfamily firms; and that family firms adopt optimal corporate governance structures. This research finds evidence that suggests that family firms utilize substantially different corporate governance structures from nonfamily firms and that these differences lead to performance differentials. Indeed, results suggest that family control creates, rather than negates, agency costs and future research may be well rewarded by pursuing this latter notion further.     

Effects of family control on the degree and type of diversification: Empirical evidence for business groups

This article analyzes the impact of ownership structure on corporate diversification, with reference to large listed family business groups. By considering agency theory and socioemotional wealth, the study examines the relationship between family ownership, concentration of ownership, and degree and type of diversification. The study considers 99 Spanish listed business groups (50 family‐controlled‐ and 49 nonfamily‐controlled groups) and considers diversification of business group as the focus of analysis. The results show how family business groups present a lower preference for unrelated diversification than related diversification. There is also a nonlinear relationship between the concentration of ownership in family groups and the degree of diversification, showing different behaviors in family groups according to shares owned by the family's leading shareholders. This article contributes to the literature by providing a more precise identification of the corporate strategy adopted by business groups and establishing new evidence about the impact of family control on diversification strategies and the differences regarding nonfamily business groups.     

Hindering or enabling structural social capital to enhance buyer performance? The role of relational social capital at two levels in China

Purpose: In its cognitive, relational, and structural forms, social capital has been identi?ed as a powerful strategic tool. However, prior empirical studies focus only on the direct effect of various dimensions of social capital and address relational social capital at either a dyadic level or a network level. Drawing on the social capital theory and social network theory, this study fills the above-mentioned gaps by examining the role of structural and relational social capital on performance through exploring direct and interaction effects simultaneously and revealing the moderating effect of relational social capital at the dyadic and network levels (including business ties and political ties) simultaneously.

Methodology/Approach: Based on data for 393 distributors from China, a moderated regression analysis is used to test the hypotheses.

Findings: The empirical test generally supports the hypotheses and indicates that the value of structural social capital is conditional on both curvilinear and linear moderating effects of relational social capital: the moderating effects of business ties on the structural social capital–buyer performance relationship is inverted U-shaped, while the moderating effects of relational social capital at the dyadic level and political ties on the structural social capital–buyer performance relationship is positive.

Research Implications: This study incorporates all three dimensions of social capital, represents one of the first attempts to examine the interplay between structural and relational social capital in emerging economies, explores relational social capital at the dyadic and network levels simultaneously, and responses to the fact that buyer–supplier relationships (BSRs) are embedded within a larger context of social networks. By addressing these issues, this study sheds new light on the individual and joint impact of various dimensions of social capital and provides new evidence on both the positive and negative aspects of social capital in a single model.

Practical Implications: The results provide important implications for managers in addressing social capital in an emerging economy. In order to improve performance, managers should first encourage and foster frequent, diverse, scarce, and high-quality information exchange and interactions to accumulate structural social capital. Additionally, managers should not only emphasize relational social capital building and development in BSRs, but also pay attention to the cultivation of relational social capital among the business network. They should acknowledge the persistent positive effect of political ties and the potential negative effect of business ties.

Originality/Value/Contribution: First, few studies examine both the individual and synergetic effects of various dimensions of social capital in a single model or explicitly explore relational social capital in a dyadic relationship and deeply consider it at the network level in a single model. This study addresses these issues.     

The Effect of Family Business Professionalization as a Multidimensional Construct on Firm Performance

In family business literature, business professionalization is often simplified into a binary characteristic, that is, the presence of a nonfamily manager. We contend that other professionalization features, which may act simultaneously, can influence firm performance. This study addresses professionalization as a multidimensional construct, as intended by general management literature, and assesses the impact on business performance based on these underlying dimensions. Using a representative sample of 523 private Belgian family businesses, we identify five different dimensions of the professionalization construct by means of an exploratory factor analysis. Further regression results revealed significant positive effects of increasing nonfamily involvement, implementing human resource control systems, and/or decentralizing authority on firm performance. However, nonfamily involvement only seems to improve firm performance if there is sufficient decentralization of authority and an average or even low amount of formal financial control systems.     

基于社会资本的产业集群交易治理研究——交易域、交易频率及交易对象视角的分析

文章研究了社会资本对于产业集群内部企业间交易的治理机制,从交易域、交易频率、交易对象这三个维度,对匿名市场现货交易进行扩展,建立了基于社会资本的交易治理模型,分析了产业集群内企业进行交易时的主要特点：交易嵌入社会网络、交易频率高、主要与集群内部交易对象进行交易。依据这三个特点,将上述模型进行综合,得出适用于产业集群内部企业间交易的社会资本治理机制模型,并分析了该模型的适用条件。研究结果显示由于社会资本的存在,使得产业集群内部交易得到了有效治理,这种有效治理的水平受到产业集群规模和信息畅通水平的约束,当产业集群规模不大、存在通畅的信息沟通渠道、交易者存在实施集体惩罚的动力时,社会资本能够成为产业集群内部企业间交易的有效治理机制,但是这种机制并不适用于集群内部企业与外部企业间的交易治理。     

Human capital in the internationalization of family firms

Research concerning the influence of human capital (HC) on internationalization strategies typically highlights skills displayed by business executives. This article is one of the few studies that examines the values, attitudes, and capabilities related to the HC of international companies. Our study attempts to understand the role that HC plays in the international commitment (IC) achieved by family and nonfamily firms and whether the HC of family firms (FFs) can be considered a source of competitive advantage in pursuing an international strategy. Partial Least Squares method is used for analyzing data collected from 270 Spanish firms. Results show HC differs between family and non‐FFs and plays a crucial role in the international strategy of FFs. Specifically, professional experience, training, and educational level, the degree of market and industry knowledge, specific skills to work in international markets, and concern for employees are superior in FFs, resulting in the achievement of higher levels of IC when compared to non‐FFs. The results should encourage managers and/or owners of these companies to exploit and effectively govern specific human resource strengths when they enter and experience growth in other markets.     

Delineating Publicly Listed Family and Nonfamily Controlled Firms: An Approach for Capital Market Research in Australia*

Recent capital market research evidence suggests that a large proportion of public companies worldwide are characterized by controlling stockholders who are more often families, usually the founder(s) or their descendants. There has been considerable debate on whether “family” firms can indeed be accurately delineated from nonfamily firms given the diversity and abundance of family business definitions in the literature. This paper provides a robust definition of family business for the purposes of capital market research. Using an accounting‐based definition of family business, the paper outlines a four‐step procedure that provides validation for identifying family controlled companies listed on the Australian Stock Exchange. A significant feature of the research methodology was reliance on data collected from the Australian Securities and Investments Commission. Having access to the corporate regulator's restricted data enabled the researchers to establish important links between directors and their private related entities.     

Founder CEOs,personal incentives,and corporate social irresponsibility

This study integrates organizational identity (OI) theory and upper echelons theory to explore the impact of CEOs’ founder status on corporate social irresponsibility (CSI). We theorize that compared with other CEOs, a founder CEO is more likely to generate a high degree of OI with the firm, which will drive the founder CEO to actively avoid CSI that may damage the positive image and long-term development of the firm. Furthermore, we argue that CEO duality and CEO ownership will strengthen the aforementioned relationship by increasing the possibility of founder CEOs generating a high degree of OI. Conversely, CEO underpayment will weaken the relationship between founder status and CSI by decreasing the possibility of founder CEOs generating a high degree of OI. We obtained empirical evidence in support of our arguments from a large Chinese private listed company dataset. Overall, this study’s theory and evidence clearly show that founder status and personal incentives can jointly shape CEOs’ CSI decisions, thereby providing useful insights for corporate shareholders and government agencies to better prevent and govern firms’ CSI.     

Firm Growth in Family Businesses—The Role of Entrepreneurial Orientation and the Entrepreneurial Activity

Previous studies show that growth is an important goal for businesses, but little is known of how the entrepreneurial orientation–performance relationship works in family businesses and how this differs from their nonfamily peers. We examine that and how entrepreneurial activity mediates the relationship in family and nonfamily businesses. Our results on 532 firms show that family businesses benefit from innovative orientation, which is both directly and indirectly associated with firm growth via entrepreneurial activity. This association does not exist in nonfamily businesses. Furthermore, risk taking does not influence family business growth even if it does in nonfamily businesses.     

Executive Compensation and Corporate Fraud in China

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms.