Abstract
Recent progress in the literature shows that board efficacy might be signaled by lower firm performance variability in a firm’s income, since the board has a fiduciary duty to protect shareholder investments that may be affected when performance is variable. Our analysis is an attempt to contribute to this debate by extending it to include family firms. In particular, we detect appointments of directors to family firm boards within a sample of 483 observations (year/firm) regarding Italian publicly listed companies. Sampled family firms have one of the family members as CEO and/or chairman (in cases of non-CEO duality) of the firm’s board. The aim is to test predictions which suggest that the presence of independent (Agency Theory), on the one hand, and interlocking directors (Resource Dependence theory), on the other, have a significant impact on performance stability. Unlike agency theory, which affirms that independents are efficient, our findings suggest that the number of independents on the board of a family firm has no impact on performance stability. Instead, we find that interlocking directors can provide a significant contribution to the achieving of lower performance variability.
Highlights
The main aim of this paper is to make a contribution to the verifying of whether, and if so, how, family firms might use board governance to lower significant deviations from the performance trajectory that ensures the company's long term survival
Unlike agency theory, which affirms that independents are efficient, our findings suggest that the number of independents on the board of a family firm has no impact on performance stability
Unlike agency theory, which arms that independents are efficient, our findings suggest that the number of independents on the board of a family firm has no impact on performance stability
Summary
The main aim of this paper is to make a contribution to the verifying of whether, and if so, how, family firms might use board governance to lower significant deviations from the performance trajectory that ensures the company's long term survival. In this way, the paper covers the gap in family firm literature which is due to the lack of empirical contributions in this field. The actions of an owner-manager of a family firm are driven by the desire to create and maintain long-term associations with bankers, customers, and suppliers who provide valuable resources and lend stability to the enterprise. The largest class of blockholders is that of families who are active in the family firm while the second class is the state or other public bodies (Cascino et al, 2010; Corbetta & Minichilli, 2005; Montemerlo, 2000; Soana & Crisci 2017; Scafarto et al, 2017)
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