The Roles of Political and Business Ties in Governance Effectiveness of Founding Family Firms

Abstract

The relationship between managerial ties and firm performance has gained attention in the organization and management literature. Most studies that have examined the relationship between managerial ties and firm performance have reported inconsistent results, probably due to the omission of the moderating role of family ownership. Managerial ties include both business ties and political ties. Business ties refer to ties with other business, and political ties refer to ties with the government. Based on socioemotional wealth (SEW), social capital, resource-based view (RBV) and agency theory, this study investigates how founding family ownership moderates the influence of business and political ties on the return on assets (ROA) of 175 public firms in Taiwan from 2013–2015. This study finds that business ties have a greater impact on the performance of family-owned firms than nonfamily- owned firms. However, the negative impact of political ties on firm performance is greater for family-owned firms than nonfamily firms. Overall, these results provide an interesting implication: Although developing business ties is still a useful strategy for Taiwanese family firms, political ties are less important than in other countries. Therefore, business ties ensure health and well- being of overall family that can be more probability to contribute the betterment of society.