Family-Ownership, or Founder-CEO, Does it Matter, For the Firm Performance? (original) (raw)
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TO REAP OR TO SOW? GOVERNANCE, STRATEGY AND PERFORMANCE IN FAMILY VERSUS FOUNDER BUSINESSES
2007
Corporate governance can have a profound impact on business conduct and performance. It may influence whether a business will be managed to sow value for all shareholders or to reap utility for only some. We argue that certain types of family businesses are especially prone to utility maximizing because many family owners divide their loyalties between the business and their family. This may result in harvest strategies and modest growth and returns. By contrast, businesses closely held by lone or unrelated founders are unencumbered by family distractions.
The influence of the CEO in listed family businesses
Intangible Capital, 2019
Purpose: Our objective is to analyze the influence that the type of CEO has on the management of listed family businesses in Spain, distinguishing between whether the CEO is a family member or not. The study mainly focuses on his/her influence on levels of profitability. Design/methodology: During de period from, 2012 to 2016, with data coming from Iberian Balance Sheet Analysis System (SABI) database. To analyze the effects of the CEOs on family businesses, we carried out two kinds of analyses. First, a univariate analysis that allowed us to identify differences regarding profitability, financial structure, growth, and dividend payout policies, and secondly, a linear regression model to see the influence-as well as the effect and significance-that variables, including the type CEO, had on profitability. Findings: Our results show the existence of a double effect on the profitability of family businesses of having an outside CEO. First, there is a statistically significant negative effect that is derived from the non-family CEOs' increased propensity to take on debt, and secondly, there is a positive causal effect on businesses' profitability that has to do with the different management styles that outside CEOs bring to the table, as they are more focused on profits. The results support the importance of having non-family CEOs in listed family businesses in Spain. Research limitations/implications: Our study focused on family businesses listed on the Spanish stock market, which means that the number of companies that were analyzed was reduced and the results cannot be extended to other kinds of businesses. However, this fact did enable us to get more high-quality data and focus on a specific field that was appropriate for considering the problem we proposed. Originality/value: While many studies have compared the performance of family businesses with that of non-family businesses, few have considered that family businesses are not homogeneous and that they have different management styles. And, These styles are determined by the type of CEO that is leading the company; this fact is analyzed empirically in this article.
Conditions to the performance of privately held family firms under a descendant CEO
A recent stream of research investigates family firm characteristics that could have an influence on performance measures. One such specific characteristic is the CEO position in a family firm. Although there are some results that suggest that descendants perform better than their founder CEO counterparts, the majority of studies suggest that descendant CEOs do not have the same degree of positive influence on family firm performance as founder CEOs have. The findings are, however, slightly different on the degree of negative impact on family firm performance. Therefore, there might be situations in which a descendant is detrimental for the performance of a family firm but also other occasions when there might be advantages connected to a descendant CEO in charge of a family business. This study investigates whether the board of directors has a moderating effect on the descendant CEO's influence on private family firm performance. As performance has several dimensions, we choose to measure performance variability as a proxy for entrepreneurial behavior. Our findings suggest that when a private family firm is lead by a descendant CEO, a vigilant and empowered board of directors will lead to more innovation and entrepreneurial behavior.
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.
Founding family controlled firms: Efficiency and value
Review of Financial Economics, 1998
We examine the efficiency and value of founding family controlled firms (FFCFs), firms whose CEOs are either the founder or a descendant of the founder. We find that FFCFs are more efficient and valuable than non-FFCFs that are similar with respect to industry, size, and managerial ownership. We also observe that descendant-controlled firms are more efficient than founder-controlled firms. Finally, we show that younger founder-controlled firms are more efficient than older ones. These results are robust after controlling for the age of the firm and a variety of investment opportunity measures. Our results are consistent with the notions that managerial ownership is endogenous to the firm and that family relationships improve monitoring while providing incentives that are associated with better firm performance. Public, founding family-controlled firms (FFCFs) represent an organizational form between the diffusely owned, manager-controlled firm and the closely-held private ftrm. The unique relationship between the founding-family CEO and the firm holds the potential for improved monitoring and top managerial incentives. This study examines the operating efficiency and the relative value of such firms.
Journal of Management & Governance
This study explores two ownership issues in private family firms. First, we investigate the relationship between the ownership of family CEOs and firm performance, and postulate that this relationship in private family firms is more complex than the inverted "U" relationship found in public family firms. Second, we predict a potential moderating effect of the second largest owner, who may exert a moderating effect on family CEOs. We focus on private family firms as recent studies show that private family firms have distinct features compared to public family firms, and that findings documented in public family firms may not apply to the ubiquitous, but much less studied, private family firms. We have applied agency theory to develop the two hypotheses, used secondary data on a large sample of private family firms, utilized an adjusted conventional quadratic technique to test the hypotheses, and validated the findings using a second method of piecewise linear specification. The results show that the non-linear relationship between the ownership of family CEOs and firm performance is more complicated than the often-documented inverted "U" shape from public firms. Meanwhile, the second largest owner with a high enough ownership stake can impose a positive moderating effect by mitigating potential agency problems caused by family CEOs.
FOUNDER INFLUENCE IN FAMILY BUSINESSES: A MULTINATIONAL CORRELATIONAL ANALYSIS
This study analyzed a sample of 367 family businesses in the United States, Croatia, France and India to determine how the influence of the founder(s) relates to managerial activities, styles and practices of that firm in the original generation stage and in the subsequent second and thirdgeneration stages. Statistical analyses indicated that founder influence has some significant impacts. Thus, this empirical analysis of family businesses provides partial support to the few earlier writings and studies involving founder influence in family firms. It should be considered a building block in the construction of a strong body of family business literature, and it indicates a need for considerable further research.
Asian Social Science, 2014
This study aims to provide an empirical evidence on the moderating effect of family involvement in management (family CEO and founder CEO) on the relationship between family ownership and firm's performance. From a sample of 75 public listed companies (375 firm-year observations) in Saudi Arabia, we use a five-year interval (2007)(2008)(2009)(2010)(2011) and two firm performance indicators (market to book value (MBV) and return on assets (ROA)) to test five hypotheses. The hypotheses that there is a direct impact of family ownership and founder CEO on ROA and MBV were supported respectively. The hypothetical moderating impact of family CEO and founder CEO have been partially confirmed with MBV. Overall, the findings highlight the importance of occupying CEO positions in family firms by family members, especially the founders for gaining better performance. However, the results are robust when only family firms are examined separately.
Journal of Family Business Strategy, 2011
We employ agency theory to argue that the effects of family (and founder) ownership vs. management will be quite different: the former is expected to contribute positively to performance, the latter is argued to erode performance. Previous studies, due to problems of multicollinearity have been unable to distinguish these effects. Using a Bayesian approach that avoids these problems, we find that whereas family and founder ownership are associated with superior performance, the results for family and even founder management are more ambiguous. Our study is the first to assess the distinctive performance effects of family and founder presence in both ownership and management.