Voluntary Disclosure of Individual Outside Director Compensation in Public Family Firms

Abstract

As minority shareholders have only limited options to guard their investment against opportunistic behavior of a dominant family owner, outside directors take a central role in corporate governance. The decision to voluntarily disclose their individual compensation induces confidence in the family firm's governance system but also contradicts a family's endeavors to keep exclusive control. Using the socioemotional wealth based FIBER model, we investigate family influence on a firm's voluntary disclosure decision while distinguishing between different types of family firms. Our findings show that control enhancing aspects, such as a family CEO and a high ownership concentration are required for owning family's to exert influence and that the preferred outcome of a disclosure decision varies strongly contingent upon the type of family firm.