Abstract
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 (2007-2011) 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.
Highlights
The current global economic system is saturated with family businesses, the most common type of business in industrialized as well as developing countries (Astrachan & Shanker, 2003; Zahra & Sharma, 2004)
With regard to founder CEO, the results show that the majority of family CEOs are non-founders (94.3 percent) and only 12 (5.7 percent) of the family firms have their founders as CEOs
This study aims to provide fresh evidence from Gulf Cooperation Council (GCC) emerging market on the effect of family involvement in ownership and management on firm accounting and market performance
Summary
The current global economic system is saturated with family businesses, the most common type of business in industrialized as well as developing countries (Astrachan & Shanker, 2003; Zahra & Sharma, 2004). Many gaps in family business research have been reported (Collins & O’Regan, 2011). Among these gaps is the link between family involvement and its effect on the performance, which is still under debate (Filatotchev, Lien, & Piesse, 2005). Any current evidence extending knowledge that causes the inconsistent empirical literature is valuable (Sacristan-Navarro et al, 2011), as these inconsistencies have made the link between family involvement in ownership and firm performance more “complex and very probably moderated or mediated by factors...” Testing for moderating-effect is called for when contradictory findings surround the relationship between a predictor and criterion, which in turn, opens the question on whether the relationship between the two variables is depending on a third variable ( Dawson, 2013; O’Boyle, Pollack, & Rutherford, 2012; Baron & Kenny, 1986)
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