Family matters: are family firms distinguished in environments with resource constraints?

PurposeThe purpose of the study is to examine how operating efficiencies from incentive alignment compensate for rent extraction in family firms. The author asks whether ownership (1) improves operating efficiencies to increase firm value, (2) positively affects related-party transactions (RPTs), or (3) destroys firm value. Finally, the author assesses whether the incentive effect dominates the entrenchment effect.Design/methodology/approachThis study employs a panel of 333 listed family firms (and 185 nonfamily firms) and handles endogeneity using a dynamic panel system GMM and panel VAR.FindingsOwnership decreases discretionary expenses and increases asset utilization to add firm value. The efficiency gains generate more value in family firms, especially majority-held ones, than in nonmajority ones. However, ownership is also related to increased RPTs (especially dubious loans/guarantees), reducing firm value. RPTs destroy value more severely in the family (or group) firms than in nonfamily (nongroup) firms. It could be why ownership's positive impact on value is lower in family firms than in nonfamily firms. Overall, the incentive effect dominates the entrenchment effect and is robust to controlling private benefits of control in the dynamic ownership-value model.Research limitations/implications(1) A family firm's ownership may not be optimal. (2) The firm's long-term commitment as a dynasty limits the scale of expropriation yet sustains impetus for long-term value creation. The paradox partly explains why large family holdings and firm-specific investments endure over generations. (3) This way, large ownership substitutes weak investor protection in India despite tunneling as skin in the game provides necessary investor confidence. (4) Future studies can examine whether extraction varies with family generations and how family characteristics affect the incentive effects.Practical implications(1) Concentrated ownership may not be a wrong policy choice in emerging markets to draw firm-specific investments. (2) Investors, auditors, or creditors must pay closer attention to loans/guarantees. (3) More vigorous enforcement, auditor scrutiny, and board oversight are needed.Social implicationsFamily firms are not necessarily a bad organization type that destroys investor wealth. They can be valuably efficient due to their ownership and wealth concentration, and frugality. They matter in the economic growth of a developing market like India.Originality/value(1) Extends ownership-performance research to family firms and shows that although ownership facilitates tunneling, the incentive effect dominates; (2) family ownership is not impacted by firm value; (3) family ownership levels reduce discretionary expenses and increase asset utilization to create added value, especially in majority-held family firms; (4) RPTs and loans/guarantees increase with ownership; (5) value erosion from RPTs is higher in family (group) firms than in other firms.

Family firms (FF) tend to be classified as less risky and volatile than nonfamily firms (NFF). This article aims to examine whether there are differences in risk and volatility between FF and NFF, using Portuguese listed firms during 2008 and 2017. Through different models and specifications, we were able to verify that there exists a positive relationship identified in the volatility-return nexus which depends on the model used, and even so, negative in the case of FF, but that volatility is stronger in NFF than in FF as descriptive statistics reveal. Furthermore, it was found no considerable differences in terms of the liquidity-volatility relationship between the two types of firms, and we cannot argue that the negative relationship between returns and turnover is higher in NFF. It was also found that more illiquid stocks have negative returns but there are no clear differences between FF and NFF. The crisis effect is more able to explain volatility positively than returns negatively, being the impact lower for NFF. Our results do not strictly confirm the fact that FF are less volatile than NFF but provided variables interaction effects we may argue that a risk-averse investor will be more prone to invest in FF stocks, while a risk lover agent will prefer to look at NFF when building their investment portfolios.

This research provides insights on factors affecting performance of family firms in comparison with the non-family firms making use of data from Cameroon. We estimated total factor productivity via a Cobb–Douglas production function while accounting for the correlation between input levels and productivity. As concerns the management and control of firms, family members are heavily involved in family firms than those of non-family firms which are mostly managed externally. It is observed that non family firms employ more labour and invests more in capital compared to family owned and managed firms. Based on the two-staged least-squares technique, results show that family firms and even those managed by families are, on average less productive than externally managed family firms and non-family owned firms after controlling for sector as well as other characteristics. The findings are important for both policy makers and practitioners.

This chapter examined the effects of human resource management (HRM) and market orientation strategies on competitive strategy and firm performance in family and non-family firms. It also examined how these effects varied across family and non-family firms in Ghana. Data for the study came from two different respondents within each of the 122 manufacturing firms sampled in Ghana. The results indicated that the market orientation strategy was positively related to both cost leadership and differentiation in both family and non-family firms. However, the impact of market orientation strategy on competitive strategy was not different between family and non-family firms. While HRM participation was significantly related to both cost leadership and differentiation strategies only for family firms, the impact was stronger in terms of the differentiation strategy only for family firms. Market orientation strategy was not directly related to performance for both family and non-family firms. However, the HRM strategy of human resource (HR) participation was directly related to profitability only in family firms, and the impact was stronger for family firms than for non-family firms.

This study examines the initial price performance of family and non-family controlled IPO firms listed on the Australian Securities Exchange (ASX) between 1988 and 1999. Ownership and control are significant factors that influence managerial incentives, whereas the dynamics underlying family relationships reduce agency costs, improve efficiency and positively impact on firm performance. The study finds evidence of lower (15.54%) initial underpricing on the first day of trading for family firms compared with non-family IPOs (36.12%) after adjusting for industry effects. The results also show a positive and significant association between firm value and fractional ownership for both family and non-family firms, which indicates that family and non-family IPO firms use fractional ownership to signal the value of the firm. These findings provide empirical support for signalling models articulated in the literature. Implications of these differences will allow market participants to make more informed investment choices. For example, investors seeking higher immediate returns might choose to invest in non-family firms rather than in family controlled firms.

The objective of the paper is to determine if family firms are able to provide a return premium compared to their non-family counterparts. The assumption is that some of the benefits and costs related to family ownership can be absorbed into the business model. This may mean that family characteristics could actually impact the perception of the market and in turn affect their returns. We test this by using a unique sample of 152 family firms and matching them with non-family firms on the basis their sector, stock market index and size. Three models - CAPM, Fama-French 3-factor model and Carhart model - are used to test a trading strategy, i.e. buying family firms and selling short non-family firms, on the FTSE All Share, Fledgling and AIM Index. The results showed that the strategy is able to generate an abnormal profit for the firms on the FTSE All Share and Fledgling but fails to do so on the AIM in the presence of the 'momentum' factor-mimicking portfolio. It is far more profitable to use a trading strategy of buying past winners and selling short past losers on the AIM. We further investigate into the factors that drive the returns of family and non-family firms. Using factors related to risk, price-level, liquidity and growth-potential, we find that family firm returns are driven by their growth potential where as non-family firms' need to balance their risk in order to increase returns. A similar application on the 3 indices mentioned above reveals that the AIM and the Fledgling index behave similarly but differ from the FTSE All Share portfolio of firms.

The aim of this paper is to distinguish the financial behaviour adopted by family firms in comparison with non-family firms in an environment where tax regulation can influence the financing costs of equity capital. Indeed, the coming into force of an allowance for corporate equity on the Belgian market creates a field where relevant investigations on capital structure can be carried out. Moreover, the literature review shows how little attention has been paid to family firms in terms of financial behaviour, the main research focusing on family SMEs (Colot & Croquet, Management et Avenir, 2007; Lopez-Gracia & Sanchez-Andujar, Family Business Review, 2007). The analysis of our results demonstrates a divergence between family and nonfamily firms. Nevertheless, this situation must be appreciated for the period 2006– 2010, since no significant evidence regarding a behavioural dissimilarity was found for the previous period, 2002–2005. While family firms seem to pursue an indebtedness target ratio and to finance their funding deficit by issuing stocks, non-family firms follow none of the theories considered in our research. Hence, the financial policies adopted by family firms shift towards a reduction of their indebtedness level and an increase of their financial independence level. Such a situation allows them to limit their financial distress costs (Frank & Goyal, Journal of Financial Economics, 2003) and to benefit from a tax advantage owing to the deductibility of a fictitious and undisbursed interest expense. The double benefit resulting from the coming into force of the new tax regulation could thus exercise an effect on the financial behaviour adopted by family firms. Nonetheless, we cannot draw a robust conclusion, as the observation period 2006–2010 was perturbed by the consequences of the financial and economic crisis. In such a context, it would be inappropriate to attribute Int Adv Econ Res (2012) 18:459–460 DOI 10.1007/s11294-012-9372-1

PurposeThe aim of this study is to understand a family firm's choice of related-party transaction (RPT) types and analyze their value impacts to separate the abusive from benign RPTs.Design/methodology/approachIt uses a 10-year panel of BSE-listed 378 family (and 200 non-family) firms. The fixed effects, logit and difference-in-difference (DID) models help examine value effects, propensity and persistence of harmful RPTs.FindingsLoans/guarantees (irrespective of counterparties) destroy firm value. Capital asset RPTs decrease the firm value but enhance value when undertaken with holding parties. Operating RPTs increase firm value and profitability. They improve asset utilization and reduce discretionary expenses (especially when made with controlled entities). Family firms have larger loans/guarantees and capital asset volumes but have smaller operating RPTs than non-family firms. They are less likely to undertake loans/guarantees (and even operating RPTs) and more capital RPTs vis-à-vis non-family firms. Family firms persist with dubious loans/guarantees but hold back beneficial operating RPTs, despite RPTs being in investor cross-hairs amid the Satyam scam.Research limitations/implicationsRent extractability and counterparty incentives supplement each other. (1) The higher extractability of related-party loans and guarantees (RPLGs) dominates the lower extraction incentives of controlled parties. (2) Holding parties' bringing assets, providing a growth engine and adding value dominate their higher extraction incentives (3) The big gains to the operational efficiency come from operating RPTs with controlled parties, generally operating companies in the family house. (4) Dubious RPTs seem more integral to family firms' choices than non-family firms. (5) Counterparty incentives behind the divergent use of RPTs deserve more research attention. Future studies can give more attention to how family characteristics affect divergent motives behind RPTs.Practical implicationsFirst, the study does not single out family firms for dubious use of all RPTs. Second, investors, auditors or creditors must pay close attention to RPLGs as a special expropriation mechanism. Third, operating RPTs (and capital RPTs with holding parties) benefit family firms. However, solid procedural safeguards are necessary. Overall, results may help clarify the dilemma Indian regulators face in balancing the abusive and business sides of RPTs.Originality/valueThe study fills the gap by arguing why some RPTs may be dubious or benign and then shows how RPTs' misuse depends on counterparty types. It shows operating RPTs enhance operating efficiencies on several dimensions and that benefits may vary with counterparty types. It also presents the first evidence that family firms favor dubious RPTs more and efficient RPTs less than non-family firms.

ABSTRACTPrivate equity (PE) firms are increasingly investing in family firms, as these organizations look to grow and deal with ownership succession. In this study we contribute to the developing entrepreneurship literature on PE investment by addressing the heterogeneity of PE firms. We distinguish between private independent and captive PE firms to understand whether different types of PE firms select different (i.e. family vs. non-family) firms as their target. We also look at whether the relationship between the type of PE firm and likelihood of investing in a family firm (vs. a non-family firm) is moderated by two factors, which are related to risk reduction in PE deals, namely size of equity stake and deal syndication. Our analysis of all 902 PE deals that took place in Canada between 2009 and 2014 indicates that family firms are not the preferred investment choice for private independent PE firms, although taking a minority stake positively moderates this relationship.

This chapter is connected in a direct way to the main research question of this thesis: whether family firms are more long-term-oriented than non-family firms are. Under particular circumstances, downsizing can be regarded as a short-term strategy. This is the case if, for the sake of shareholders' (short-term) profits, the firm engages in deep job cuts and releases the skills and knowledge embodied in their workforce. Thus, if family firms are more long-term-oriented than non-family firms, they should also be less likely to downsize than non-family firms are. Besides comparing family and non-family firms, I also distinguish between family management and family ownership as two dimensions of family firms and analyze their respective influence on downsizing. In general, little is known about the relationship between family firms and their employees. This chapter aims to shed more light on this issue.KeywordsFamily FirmAgency TheoryFamily OwnershipFamily ManagementStewardship TheoryThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

PurposeThe debate over differences in the behaviors of firms facing globalization is ongoing. This study examines whether globalization impacts the behavior of family firms and if this influence differs between family and non-family firms.Design/methodology/approachDrawing on panel data from the Amadeus database on 62 family firms and 98 non-family firms in Europe, the authors employ panel vector autoregression estimation and the Wald test of Granger causality to verify our conjecture. Additional impulse response functions and the forecast error variance decomposition technique were applied to illustrate complementary shock dynamics. Additionally, the KOF globalization index is used as a proxy for globalization.FindingsThe results show that globalization visibly impacts family and non-family firms, but the polarity and extent of the effect are different. The authors demonstrate that family firms are in a more favorable position regarding globalization and are less vulnerable to the adverse effects of the globalization process. In contrast, non-family firms fare worse, generating adverse effects. Non-family firms take a more open stance toward globalization than family firms' more conservative behaviors.Research limitations/implicationsOf course, there are some limitations to the work presented in this paper. On the one hand, the authors’ data span only ten years due to data limitations. This causes the generalizability of the results to be hindered. Therefore, the authors encourage scholars to collect more time series data to increase confidence in the empirical results in future studies. On the other hand, the selection of proxy indicators concerning family firm behavior is mainly focused on financial and employment facets. A multidimensional selection of indicators could make the findings of this study more convincing. Despite its limitations, the study certainly adds to the authors’ understanding of its behavior and globalization activities.Practical implicationsThe authors’ findings have twofold theoretical and practical implications, as they highlight the necessity of developing specific policies aimed at reducing the gap between family and non-family facing globalization and promoting sustainable operations of non-family firms. Although family firms tend to be more frugal and conservative in their overall decision-making, it should be acknowledged that stockholder and stakeholder interest-oriented corporate management policies have made them more capable of steadily improving corporate performance in the sweep of globalization.Social implicationsTo this end, this study deepens the authors’ understanding of the theory of global governance of family firms. It also provides possible paths and directions for future theoretical research on family firms. Globalization affects both family and non-family firms, but our results suggest that family firms are better able to withstand the adverse effects of globalization shocks and adopt efficient governance paths and strategic thinking to gain a competitive advantage. In this regard, the authors encourage non-family firms to actively learn from family firms' operational practices and systems to achieve better adaptability.Originality/valueThis study provides strong empirical evidence on the effectiveness of family firms' governance patterns and business behavior under globalization. Additionally, this study also reveals that managers can learn from the practical experience of family firms to help them confront business crises and gain a sustainable competitive advantage.

Purpose The purpose of this paper is to examine the effect of investor sentiment on share returns, exploring whether this effect is different for public family and non-family firms. Design/methodology/approach The author uses the European Economic Sentiment Indicator data, from Directorate General for Economic and Financial Affairs as a proxy for investor sentiment and focused on the share returns of family and non-family firms, using panel data methodology. Findings Using data from listed family and non-family firms for the period between 1999 and 2011, in accordance with behavioural finance theory, the results indicate that there is a negative relationship between sentiment and share returns. In addition, the author found no difference between family and non-family firms in what concerns the effect of sentiment on share returns. The evidence also suggests that young, large and medium growth firms are most affected by sentiment. Finally, the results suggest that the evidence concerning the relationship between sentiment and returns is sensitive to the proxy used to measure the sentiment. Research limitations/implications A limitation of this study is the small size of the sample, which is due to the small size of the Portuguese stock market, the Euronext Lisbon. Originality/value This paper offers some insights into the effect of investor sentiment on the share returns in the context of public family firms, a strand of finance that is scarcely developed. It also contributes to the analysis of a small European country, with a high concentration of equity ownership.

My meta-analysis clearly shows that family management is a curse and not a blessing according to financial performance of family firms compared to nonfamily firms. Based on a univariate and multivariate meta-analysis of 270 studies from 42 countries, I addressed the main objective of my dissertation to investigate the financial performance of family firms compared to nonfamily firms. My first robust finding proves that family firms outperform nonfamily firms financially (Research question 1). This result endorses former meta-analyses and the majority of primary studies. My second finding (Research question 2) supports the finance research stream differentiating in market and accounting based measures. So, the market, represented by analysts, assumes that family firms do not outperform family firms. Contrary to what family firms report and document in their financial statements with accounting measures as my findings show. A third finding (Research question 3) is that the composition of primary studies samples, consisting of only publicly listed companies, only manufacturing or technological firms, do not influence the overall results. However, small and medium-sized companies report smaller financial performance indices and therefore reduce the dependent variable. The majority of SME's in almost all countries possesses less market power and therefore achieves smaller revenues (Cressy & Olofsson, 1997). The forth result (Research question 4) shows that the engagement of family management leads to a significant drop in financial performance of family firms and therefore family firms underperform nonfamily firms. Family managers in family firms, however, preserve the wealth of all family members and therefore the financial performance indices are not always the key. Again, nonfinancial goals should be drawn into conclusion in empirical analyses. My second objective to investigate the influence of institutional factors is addressed by a multivariate analysis revealing the associations among family firms, financial performance is sensitive to institutional factors (Research question 5): in Europe, the financial performance of family firms is lower compared to North America. That is, European publicly listed companies are mainly underrated compared to North America (Caldwell, 07.06.2014). Furthermore, in a society with high masculinity, family firms reveal a better financial performance compared to nonfamily firms. Masculinity is associated with male assertiveness, ambition, acquisition of wealth, and clearly distinct gender roles. But law regimes do not influence firm performance at all. Additional evidence comes from the investigation of the rule of law logic. A high rule of law excels the performance of family firms because they get a discount on their debt costs.

Purpose of the study: Purpose of this study was to examine how family firms differ from non-family firms in the relationship between corporate social responsibility (CSR) and capital allocation efficiency, including slack resources as moderating variables. Methodology: This study used moderated regression analysis and subgroup analysis of nonfinancial companies listed in Indonesia Stock Exchange from 2011-2016. The data were gathered from Thomson Reuters and analyzed using STATA 14 unbalanced panel fixed effect. Main Findings: The results show that family firms and non-family firms are different in relation to CSR performance and capital allocation efficiency. When family firms are efficient, there is no relationship between CSR, capital allocation efficiency, and slack resources. When family firms are inefficient, CSR performance negatively affects capital allocation efficiency and slack resources reduce this negative effect. Implications: It is implied that trade-off theory only applies to non-family firms and inefficient family firms. Family firms are more efficient in allocating resources for CSR. Therefore, shareholders shall not be afraid of investing in family firms.

This paper examines the effect of trust on the quality of M&A across family and non-family firms. We find that family firms are associated with better M&A quality than non-family firms and that M&A deals involving high trust are of better quality. When we consider the association of trust, family firms and their interaction, we find that trust is the channel/mechanism through which family firms are associated with better M&A quality. Collectively, these results suggest that trust enables family firms to build long-term relationships with employees, suppliers and customers, and potentially mitigate the Type I agency problems.