Do Family Firms Have Better Reputations Than Non‐Family Firms? An Integration of Socioemotional Wealth and Social Identity Theories

We draw from socioemotional wealth and social identity research to develop a theory on reputational differences among family and non‐family firms. We propose that family members identify more strongly with their family firm than non‐family members do with either a family or non‐family firm. Heightened identification motivates family members to pursue a favourable reputation because it allows them to feel good about themselves, thus contributing to their socioemotional wealth. We hypothesize that when the family's name is part of the firm's name, the firm's reputation is higher because family members are particularly motivated for their firm to have a better reputation. Family members also need organizational power to pursue a favourable reputation; thus, we hypothesize that the level of family ownership and family board presence should be associated with more favourable reputations. We find support for our theory in a sample of large firms from eight countries with disparate governance systems and cultures.     

CEO ownership and firm value

This paper examines the hypothesis that the amount of CEO ownership has a dominating effect on the value of the firm. Using a diverse sample of firms, firm value as measured by Tobin's q is found to be a nonmonotonic function of CEO ownership. Specifically, Tobin's q rises when the CEO owns between 0 and 15% and declines as CEO ownership increases to 50%. Beyond 50%, the value starts to rise. Firm value also is found not to be a function of management ownership when CEO ownership is separated out, indicating that CEO ownership does have a dominating effect on firm value. Copyright © 1999 John Wiley & Sons, Ltd.     

Who Appoints Them,What Do They Do? Evidence on Outside Directors from Japan

Although reformers often claim Japanese firms appoint inefficiently few outside directors, the logic of market competition suggests otherwise. Given the competitive product, service, and capital markets in Japan, the firms that survive should disproportionately be firms that tend to appoint boards approaching their firm‐specifically optimal structure. The resulting debate thus suggests a test: do firms with more outsiders do better? If Japanese firms do maintain suboptimal numbers of outsiders, then those with more outsiders should outperform those with fewer; if market constraints instead drive them toward their firm‐specific optimum, then firm characteristics may determine board structure, but firm performance should show no observable relation to that structure. We explore the issue with data on the 1000 largest exchange‐listed Japanese firms from 1986 to 1994. We first ask which firms tend to appoint which outsiders to their boards. We find the appointments decidedly nonrandom. Firms appoint directors from the banking industry when they borrow heavily, when they have fewer mortgageable assets, or when they are themselves in the service and finance industry. They appoint retired government bureaucrats when they are in construction and sell a large fraction of their output to government agencies, and they appoint other retired business executives when they have a dominant parent corporation or when they are in the construction industry and sell heavily to the private sector. Coupling OLS regressions with two‐stage estimates on a subset of the data, we then ask whether the firms with more outside directors outperform those with fewer, and find that they do not. Instead, the regressions suggest—exactly as the logic of market competition predicts—that firms choose boards appropriate to them.     

Corporate Value, Managerial Stockholdings and Investments of Japanese Firms

We use a simultaneous equation model which treats firm value, investments and management ownership as endogenous to the firm. Our results show a feedback relation between corporate value and management ownership, i.e., corporate value is positively impacted by management ownership, which in turn is positively impacted by corporate value. Corporate value also affects investments made by the firm. We also find that the effect of the main bank on corporate value is positive but only up to a certain point; then, it turns negative. Supporting the argument that keiretsu firms have lower agency cost, we find that firms belonging to a keiretsu have higher valuations during the sample period. Finally, we find that management ownership increases as the ownership of the main bank, ownership of institutional holders and cross‐holdings decreases, suggesting a substitution effect among these monitoring forces. Our results indicate that ignoring the web of these relationships leads to incorrect inferences.     

Ownership structure,information asymmetry and growth of the firm: Implications from nonfinancial firms listed in S&P500

This paper investigates the association between growth of the firm and ownership structure under conditions of information asymmetry. The objective is to show the effects of information asymmetry (favorable vs. adverse selection) on the choice of the ownership structure that helps firms grow. Our sample includes nonfinancial firms listed in the S&P500 over the period 2000 to 2016. The dependent variable is growth of the firm measured by growth in sales. The independent variables are proxies for changes in ownership structure, individual investors, investment managers, and brokerage firms. Observations are grouped according to level of information asymmetry (high or low) using three proxies for information asymmetry: beta of return on equity (ROE), probability of default of ROE, and q ratio. The results conclude that (a) changes in ownership structure affect growth of the firm positively and (b) the effect of ownership structure is more significant and consistent at low level of information asymmetry. The contribution of the paper is threefold. First, it extends the arguments of corporate governance by showing the impact of ownership structure on growth of the firm. Second, the paper offers robust evidence that growth of the firm is associated with low level of information asymmetry. Third, the paper shows that fundamental financial information can help lessen the level of information asymmetry and thus help firms grow.     

Corporate Governance,Investment, and Firm Valuation in Asian Emerging Markets

We investigate the effects of corporate governance and family ownership on firm valuation through investment efficiency in Asian emerging markets. Using 3 years of time series data from the Credit Lyonnais Securities Asia corporate governance score for 10 Asian emerging markets, we find that good corporate governance leads to better or more efficient investment decisions and eventually to higher firm value. We also find that investors reward firms for improvement in corporate governance. The findings do not hold for Asian firms with a family or concentrated ownership structure. The results are not driven by changes in accounting standards in these markets.     

The Effect of Founding Family Influence on Firm Value and Corporate Governance

We examined a sample of 120 Norwegian, founding family controlled and non‐founding family controlled firms, to address two important research questions: (1) is founding family control associated with higher firm value; and (2) are there unique corporate governance conditions under which a founding family controlled firm can be more valuable? We find a positive association between founding family control and firm value for four alternative definitions of founding family control. We find that the association between founding family CEOs and firm value is stronger among younger firms, firms with smaller boards, and firms with a single class of shares. However, the impact of founding family directors on firm value is not affected by corporate governance conditions such as firm age, board independence, and number of share classes. We also find that the relation between founding family ownership and firm value is greater among older firms, firms with larger boards, and particularly when these firms have multiple classes of shares. Our results imply that founding family controlled firms are more valuable and governed differently than firms without such influence. Furthermore, our results also suggest that founding family CEOs can enhance firm performance when family influence does not create shareholder entrenchment or when their cash flow rights are more aligned with their control rights.     

Acquisitions of family owned firms: boon or bust?

Using a hand-collected dataset, we examine the acquisitions of 307 family owned targets for the period 1984–2000 to study the conflicting roles of entrenchment and alignment of interests in these firms. We find that bidders experience the strongest announcement market reaction at the medium levels of family ownership. However, bidder returns are negatively impacted when acquiring a public target family firm, even controlling for the percent owned by the family. We also find that overall firms that acquire family owned targets experience significant large negative returns in the long run. However, the long run results are also sensitive to the ownership structure of the family firm target with medium levels resulting in insignificant returns in the long run.     

Option introduction and insider trading in the NASDAQ/NMS equity market

This paper investigates and supports the hypothesis that insiders have an incentive to shift their informed trading activities when options initially are listed for a firm. Firm size is found to be related to the level of insider trading activity. There is a significant decrease in insider equity-market volume for the smallest third of firms, a significant increase in insider-equity market volume for the middle third of firms, and a significant decrease in insider equity-market volume for the largest third of firms. This supports the hypothesis of a difference in the degree of impact on equity volume upon option introduction based upon firm size. This research provides additional evidence of informed trading activities when option introduction, insider trading, and firm size are considered simultaneously.     

Foreign Equity Ownership and Information Asymmetry: Evidence from Japan

Using a large sample of Japanese firms, we investigate whether the level of foreign ownership in a firm is inversely related to information asymmetry between firm (managers) and market (outside investors). Since information asymmetry is not directly observable and, thus, is difficult to measure empirically, our analysis focuses on the link between foreign shareholding and a measurable consequence of information asymmetry; that is, the timing and magnitude of intertemporal return‐earnings associations. The empirical results support our hypothesis, and subsequent tests based on residual foreign ownership show that the relation between foreign ownership and information asymmetry is robust to the addition of various control variables such as market capitalization and cross‐corporate holdings. We also show that foreign investors tend to avoid stocks with high cross‐corporate holdings. Overall, our results suggest that foreign (institutional) investors are likely to be efficient processors of public information and are attracted to Japanese firms with low information asymmetry.     

Management ownership and corporate value

Existing literature on the relation between management ownership and firm value has provided competing hypotheses and conflicting evidence. Using samples of Fortune 500-sized firms in 1976, 1980 and 1984, we find that corporate value measured by Tobin's q is a function of management ownership. Specifically, the q rises when management ownership is between 0% and 5-7%, and falls as the ownership increases to 10-12%. Beyond this range, we find that the q continues to fall in the 1976 sample, and starts to rise in the 1980 and 1984 samples. The evidence supports the hypothesis that there is a nonmonotonic relation between management ownership and corporate value.     

Cross-ownership as a hostage exchange to support collaboration

The impossibility of writing complete contracts causes loss of profitable transactions among firms, since their managers cannot ex ante bind themselves to future actions. We show how a reallocation of ownership rights into a network of mutual shareholdings among a coalition of firms produces an efficient enforcement mechanism. Co-operation is achieved by exchanging control rights until a mutual threat of capture of control is established. By making control over their firms vulnerable to a takeover by the other members of the coalition, each firm is able to make a credible commitment to future efficient actions. In equilibrium no punishment is administered, so that the arrangement achieves the outcome under complete contracts. More generally, it is proved that a mutual hostage exchange may dominate the threat of loss of reputation as an enforcement mechanism.     

Institutional investors’ ownership stability and their investee firms’ equity mispricing

This study examines the impact of institutional investors' equity ownership stability and their investment horizon to determine the impact on their investee firms' equity mispricing. Mispricing represents the difference between a firm’s market and fundamental values. We treat institutional investors as a heterogenous group, i.e., dedicated, transient, or quasi-indexer as defined by Bushee, 1998, Bushee, 2001 since their categorization determines their trading strategy. Higher institutional ownership, higher stability in institutional investors' equity ownership, and institutional investors classified as long-term are all associated with lower equity mispricing at investee firms.     

Employee ownership and firm performance: a meta‐analysis

Employee ownership has been an area of significant practitioner and academic interest for the past four decades. Yet, empirical results on the relationship between employee ownership and firm performance remain mixed. To aggregate findings and provide potential direction for future theoretical development, we conducted a meta‐analysis of 102 samples representing 56,984 firms. Employee ownership has a small, but positive and statistically significant relation to firm performance ( = 0.04). The effect is generally positive for studies with different sampling designs (samples assessing change in performance pre‐employee–post‐employee ownership adoption or samples on firms with employee ownership), different performance operationalisation (efficiency or growth) and firm type (publicly held or privately held). Suggesting benefits of employee ownership in a variety of contexts, we found no differences in effects on performance in publicly held versus privately held firms, stock or stock option‐based ownership plans or differences in effects across different firm sizes (i.e. number of employees). We do find that the effect of employee ownership on performance has increased in studies over time and that studies with samples from outside the USA report stronger effects than those within. We also find little to no evidence of publication bias.     

The Information Content of Earnings Components: Evidence from the Chinese Stock Market

China's listed firms report substantial non-operating revenues and expenses. We argue that these non-core earnings should have different properties and different valuation implications than operating or core earnings. Furthermore, the different types of firm ownership may have differential impacts on the information content of earnings components. Based on data from 1996 to 2008, we find that core earnings are more persistent than non-core earnings. Because of this, core earnings have a greater association with contemporaneous stock returns. However, the stock market does not fully incorporate all the information in earnings; we find that core earnings are undervalued and non-core earnings are overvalued. This effect is much reduced for privately controlled listed firms. We develop an investment trading strategy to exploit these market inefficiencies.     

The Relationship between Slack Resources and the Performance of Entrepreneurial Firms: The Role of Venture Capital and Angel Investors

In this study, we seek to further delineate factors that condition the relationship between slack resources and firm performance. To do so, we develop and test a model that establishes the role of venture capital (VC) and angel investors as powerful external stakeholders who positively moderate the slack–performance relationship. In addition, we provide more insight into this relationship by examining differences between these two types of private investors and by examining the role of their ownership stakes. We test our hypotheses using a sample of 1215 private firms, including VC‐backed firms, angel‐backed firms, and similar firms without such investors. We find that the presence of VC investors positively moderates the relationship between both financial and human slack resources and firm performance, while angel investors only positively moderate the effect of human resource slack. Further, VC investors are only marginally better at helping entrepreneurs to extract value from human resource slack than angel investors and they are no better when it comes to financial slack. Finally, we find that the impact of financial and human resource slack on firm performance is more positive in VC‐backed firms when investors hold high ownership stakes, an effect which is significantly stronger than when angel investors hold high ownership stakes.     

Capital procurement of a consumer cooperative: Role of the membership market

Cooperative firms are commonly thought to be financially weak and unable to flourish in the market economy. This paper addresses the idea that a consumer cooperative issues a membership, which represents an ownership share in the cooperative, as a method of procuring equity capital. It then shows that, in theory, consumer cooperatives are not necessarily financially weaker than investor-owned firms in the presence of a membership market. This implies that the consumer cooperative is potentially a promising alternative to the investor-owned firm when the latter type of firm induces serious market failure in the product market.     

The Effects of a Separation of Ownership from Control on UK Listed Firms: An Empirical Analysis

There has been a wide‐ranging debate concerning the effects of the separation of management and ownership of large firms. Given recent issues concerning corporate remuneration, this debate is as relevant and possibly more so today as it has ever been. Theoretically, as the ownership of a firm becomes more diverse, the management of the firm will have more discretion and opportunity to act in accordance with their own interests at the expense of those of the shareholders. This paper considers the effect of a separation of ownership from control on 406 UK listed firms. Simultaneous equations are used to test for a relationship between the percentage of shares owned by significant outsiders and insiders and the performance of the firm. A number of authors have suggested that there may be a significant relationship between these variables. The analysis conducted in this study supports the view that there is a relationship between ownership structure and firm performance. Copyright © 2011 John Wiley & Sons, Ltd.     

Large shareholders and firm value: Are high-tech firms different?

This paper explores the relationship between ownership structure and firm value in firms listed on the Warsaw Stock Exchange. The results of the estimations, taking into account simultaneity and reverse causality, show that the relationship between ownership concentration and firm value differs across firms belonging to the sector of innovative technologies and more ‘mature’ firms. The results give support to the hypothesis that ‘mature’ firms with higher ownership concentration are likely to perform better than firms with more dispersed ownership. In contrast, in high-tech companies, with large share of knowledge related activities, higher ownership concentration is associated with lower firm value. This effect is robust to various alternative specifications.     

Ownership Concentration,Institutional Development and Firm Performance in Central and Eastern Europe

This paper analyzes the relationship of ownership concentration and firm performance in the context of different institutional environments in 28 Central and Eastern European transition economies. We focus on private, non‐listed firms that have been largely neglected by the extant literature. Using the BEEPS data for the period from 2002 to 2009 we find an inverted u‐shaped relation of ownership concentration and firm performance for those firms that operate in non‐EU‐member countries as well as those firms that are situated in less developed institutional systems. We interpret these findings as evidence for a classic agency problem in the lower part of the ownership concentration distribution that is dominated by a ‘private benefits of control’ problem with rising ownership concentration. Copyright © 2015 John Wiley & Sons, Ltd.