Managerial ability in founding-family firms: evidence from Indonesia

Abstract

PurposeThe purpose of this paper is to examine the effect of founding-family firms on managerial ability.Design/methodology/approachFounding-family firms are determined by founder and/or family involvement as block holder and as in the firm board. Managerial ability is estimated by data envelopment analysis. Research samples consist of 412 manufacturing firm-years listed in the Indonesian Stock Exchange. Analysis data use random-effect regression as the main analysis and Huber-White regression as an alternative analysis.FindingsThis research finds that founding-family firms have a negative effect on managerial ability. Further, the result shows that lower managerial ability occurred when founding-family firms led by founder and professional CEOs, when other family members involved in the ownership and the board have higher family ownership. It indicates that founding-family firms concern more about family interest, such as family reputation, rather than business needs and best management practice.Research limitations/implicationsLimitation of this research does not occur if the founding-family firms are managed by first, second, third, etc., family generation. Future research expected to consider family generation in founding-family firms management.Practical implicationsThis research can be used by founding-family firms in Indonesia as consideration of management policy formulation that can improve managerial ability.Originality/valueThis research provides new evidence if founding-family firms promote lower managerial ability in emerging market such Indonesian market where family businesses are the root of private businesses which have a major contribution to economics.