Family Chief Executive Officer Research Articles

Absorptive capacity in family firms: exploring the role of the CEO

PurposeAbsorptive capacity (AC), the ability to leverage external knowledge for innovation, helps explain the mixed findings on family firms' (FFs) innovation performance. Our research focuses on the chief executive officer (CEO)’s role – whether family or non-family and founding or later generation – in influencing AC. We also explore how firm size and environmental dynamism affect these relationships, offering insights into varying AC levels among FFs.Design/methodology/approachOrdinary least squares (OLS) regression models were estimated to test the hypotheses using a sample of 364 FFs in Spain.FindingsFFs’ AC is greater when the CEO is a family member, and even more so when the family CEO belongs to the founding family generation. While AC diminishes in larger FFs, this effect is mitigated when the CEO is a family member. The predicted moderating effect of environmental dynamics is not supported by the analyses.Originality/valueThis paper adds insights about the drivers of heterogeneity in innovation among FFs, addressing recent calls for more nuanced views of how family members drive the strategic behavior of the business and incorporating considerations of different types of FFs based on the identity of the firm CEO. The results overall support the theoretical claims and also open up important questions for future studies.

The Influence of Intellectual Capital on The Financial Performance of Family Companies and The Role of Family as a Moderation Variable (Case Study: Family Company Listed on The Indonesia Stock Exchange in 2019-2020)

This study aims to analyze and examine the influence of intellectual capital on the financial performance of family companies with the role of the family as moderating the influence relationship. Intellectual capital is estimated using the Value Added Intellectual Coefficient (VAIC) method developed by Ante Pulic. The company's financial performance is measured by Return on Assets (ROA), Return on Equity (ROE), and Asset Turnover Ratio (ATO). Family role variables were measured using Family Ownership (OWN), Family Board of Directors (BOD), and Family Chief Executive Officer (CEO). The population in this study is a family company that is listed on the Indonesia Stock Exchange (IDX) and has information regarding the final shareholders of the company. The sample used is 98 family companies. The analytical tool used is multiple linear regression with cross section data type. The research year takes and compares 2 different years. The year 2019 aims to reflect conditions before the covid-19 pandemic and 2020 reflects conditions during the covid-19 pandemic. The results showed that intellectual capital is a positive and significant variable affecting the financial performance of family companies in crisis conditions and before the crisis. The role of the family, which was expected to strengthen the influence of VAIC on financial performance, turned out to be the opposite in some indicators.

The effect of CEO entrepreneurial passion on family firm entrepreneurial orientation: does generational stage matter?

PurposeThe purpose of this study is to explore to what extent passionate family chief executive officers (CEOs) increase the entrepreneurial orientation (EO) of the family firm. More specifically, the authors investigate the impact of the family CEO’s entrepreneurial passion (EP) on the firm’s EO and explore whether the generational stage of the family CEO alters this relationship.Design/methodology/approachA multiple moderated regression model was used to test the hypothesized relationships, based on a unique sample of 140 private Belgian family firms. All respondent CEOs are members of the controlling family, meaning they are in a unique position to influence firm-level outcomes.FindingsThe results reveal a significant positive effect of a CEO’s EP on the family firm’s EO. The generational stage of the family CEO moderates the EP-EO relationship, so the positive effect is strongest in first-generation family CEOs and becomes negative in third- or later-generation CEOs.Originality/valueThis research builds on insights from imprinting and upper echelon theory to explore how the EP of the family CEO impacts the family firm’s EO. This study thereby contributes to research regarding the antecedents of EO and introduces the concept of EP in a family firm context. The present study further contributes to the literature on imprinting, as it empirically shows how the EP-EO relationship differs depending on the generational stage of the family CEO. In a family firm context, the generational stage acts as a contingency variable, determining the dominant theory (i.e. upper echelon or imprinting theory) in explaining the EP-EO relationship.

Under which circumstances do family SMES achieve high growth? A behavioural perspective

High-growth firms contribute disproportionately to the creation of employment, wealth and economic development on a global basis. Yet, knowledge of the circumstances under which such growth patterns occur is limited, and the findings with regard to small and medium sized enterprises (SMEs) are inconclusive. Adopting the behavioural agency model, we analyse the effect of family control and related nuances (i.e. degree of family ownership and presence of a family chief executive officer (CEO)) on SME growth. Furthermore, we argue that the type of slack resources and their availability are a crucial organisational contingency when investigating high growth in SMEs. Using a sample of 39,631 European SMEs over a 13-year period, we find that family firms are less likely to achieve high growth compared to non-family firms; having a family CEO further reduces this likelihood. Instead, at higher (vs lower) levels of family ownership, the probability of family firms achieving high growth increases. Furthermore, the availability of high- and low-discretion slack resources influences these relationships. Our study advances current understanding of high growth in general, and family firms in particular.

Family involvement and proactive tax management behaviour in private family SMEs

PurposeThis paper investigates whether board composition, a family chief executive officer (CEO) and the firm's managerial capabilities affect proactive tax management in family small and medium-sized enterprises (SMEs). The main statement is that the professionalisation of corporate government and management practices explains the difference in tax avoidance behaviour in closely held family SMEs.Design/methodology/approachUsing the 2012 Spanish thin-capitalisation rule as a quasi-experiment, the authors estimate panel regressions with firm fixed effects and robust standard errors. This model represents a triple difference-in-differences combined with propensity score matching (PSM-DID).FindingsAnalysis shows that having a high proportion of non-family board members and a high endowment of managerial capabilities lead to tax liability optimisation in family SMEs. Conversely, familial boards and family SMEs with low managerial capabilities lack enough expertise to weigh the costs of tax avoidance over the benefits, resulting in a reluctance to engage in tax optimisation behaviours. Alike, results show no significant relation between CEO's family affiliation and tax management behaviour.Practical implicationsWhen implementing fiscal policies, the specific needs of family SMEs should be considered, and how these needs interact with corporate governance and managerial mechanisms. Moreover, policymakers need a deeper understanding of family SMEs in order to develop policies appropriate to their characteristics. A more comprehensive knowledge of how family firm heterogeneity affects corporate decisions, such as indebtedness and fiscal decisions, may improve public policies.Originality/valueThis study addresses the issue of tax behaviour in family SMEs in a particular event that implies a specific logic to weigh the pros and cons of each alternative: reducing debt or paying more taxes. This study’s conclusions are based on a model that deals with potential endogeneity problems, which avoids bias in the findings.

Impact of family ownership, management, and generations on IPO underpricing and long-run performance

This paper examines the impact of family ownership, management, and generations on IPO underpricing and the long-run performance of publicly listed firms in Indonesia from 2004 to 2015. This study is based on agency theory, which discusses the relationship between shareholders and management, as well as controlling and non-controlling shareholders. Study results show that IPO underpricing was 28% higher for family firms than non-family firms. Among family firms, a family member’s presence as a Chief Executive Officer (CEO) significantly reduced the level of IPO underpricing. A negative relationship between family CEO and IPO underpricing was only observed if a CEO at the time of IPO was the founder instead of family descendants. A long-run return of family-firm IPOs was more likely to underperform their non-family-firm counterparts. The findings in the primary market suggest that investors predict bigger issues of agency conflicts between controlling and non-controlling shareholders in family firms than the issues of agency conflicts between shareholders and management in non-family firms. Since investors consider family-firm IPOs to be riskier than non-family firms, they demand a higher level of IPO underpricing to compensate for such risks. The results in the secondary market confirm the findings in the primary market.

Family CEOs, Acquisition Premiums, and Stock Market Performance of Domestic Acquisitions

Our study suggests an important but often overlooked explanation for why so many acquirers pay high acquisition premiums for their acquisition targets, and who is more to blame for the winner’s curse. We propose an ownership bias theory of acquisition premiums to test the idea that many acquisitions are overpaid because loss-averse family chief executive officers (CEOs) of both acquiring and target companies are particularly prone to ownership biases widely known as pseudo-endowment and endowment effects, respectively. Adopting a bonding perspective, we also predict that bidder shareholders are likely to react more negatively to overpaid acquisitions of non-family CEOs than to those of family CEOs. We find strong evidence in support of these hypotheses from an analysis of a sample of 1,344 domestic acquisitions that involve 588 acquiring firms and 719 target firms in China from 1998 to 2019.

CEO succession game in family firms: Owners vs. advisors

ABSTRACT Succession in family firms is an extremely difficult and complex event in which advisors are often involved or sought. Advisors, especially business consultants, frequently play an important role in shaping and guiding such complex strategic processes. Nevertheless, it is not clear whether and to what extent the involvement of advisors, especially business consultants, in family firm succession impact the outcome of succession planning processes, such as the choice of the next chief executive officer (CEO). We explore whether family-owner socioemotional wealth, measured through their level of commitment to the firm, influences the preference for a family CEO versus a nonfamily CEO and acceptance of the advisor role in the succession planning process. We test the research questions on a sample of family firms located in the United States.

Family Ownership and Accrual-Based Earnings Management: Evidence from Tunisia

The aim of this paper is to investigate the effect of family shareholding and chief executive officer (CEO) characteristics on earnings management. We use panel data for a sample of 37 Tunisian non-financial listed firms over the period 2007–2017. We contribute to the literature on corporate governance in family firms by testing the effect of the presence of a family or a founder CEO on earnings management in Tunisia. Our results show that the family ownership and the presence of a family CEO (either founder or not) are positively and significantly associated with earnings management practices. These findings suggest that families’ dominance with a significant equity stake and a CEO position under control leads to an entrenchment effect resulting in poor earnings reporting quality.

The family CEO’s effect on succession planning: founder status, difficulties with letting go and gender differences

PurposeThe purpose of this paper is to investigate several antecedents of succession planning in family firms: founder status, the family chief executive officer (CEO)’s inability to let go and the family CEO’s gender.Design/methodology/approachThis study conducts moderated mediation analysis on a sample of 259 family firms.FindingsThe results show that family firms led by founders show lower succession planning levels than family firms led by descendant family CEOs. This effect is mediated by the family CEO’s inability to let go. Furthermore, the influence of the emotion of being unable to let go on succession planning is dependent on the family CEO’s gender. This influence is smaller when the family CEO is female than when the family CEO is male.Originality/valueThe study introduces the family CEO’s inability to let go as a mediator in the founder-succession planning relationship. The results add empirical evidence to the debate about gender influences in family firms. By showing that emotions have a different outcome concerning succession planning depending on the family CEO’s gender, this study enriches gender research. The study also contributes to the family business field by introducing relational theory as a valuable theoretical framework to include gender in succession research.

Earnings management around founder CEO reappointments and successions in family firms

AbstractThis paper studies reappointment of a chief executive officer (CEO) and succession events in listed family firms with an incumbent family CEO. We explore whether family firms with a founder CEO are more likely to engage in earnings management preevent than other family firms. We find evidence of preevent upward earnings management for firms that reappoint their founder CEO but no for other family firms. These findings suggest that the costs and benefits from earnings management change around founder CEO reappointments in family firms. Investors, auditors, policymakers and regulators should be aware of the temptation of founder CEOs to inflate earnings preceding their reappointment.

Behavior Towards R&D Investment of Family Firms CEOs: The Role of Psychological Attribute.

IntroductionThis study aims to explore the effects of the behavior of chief executive officers (CEOs) within family firms on investment in research and development (R&D). We also investigate the effect of CEOs’ psychological attributes of overconfidence on R&D investment and the moderating effect between the types of CEOs and R&D investment.MethodsWe obtained data on Chinese A-share firms from China Stock Exchange and Accounting Research from 2010 to 2018 for analysis. Then, we used the ordinary least squares model for regression results; moreover, the Tobit regression, GMM and firm fixed effect model are applied to check the robustness of the results.ResultsFamily CEOs with actual control rights are more open to R&D investment, whereas those without actual control rights exhibit negative behavior. The study found that non-family CEOs exhibit insignificant results and negative predicted signs toward R&D investment. Moreover, the results show that overconfident CEOs are more inclined to amplify innovation. Furthermore, results on the moderating effects of CEO psychological attribute of overconfidence indicate that the CEO overconfidence mitigates the negative relationship between family CEOs with actual control rights and R&D investment. However, no moderating effect is found between family CEOs without actual control and R&D investment. The CEO psychological attribute behavior is positive between non-family CEOs and R&D investment.DiscussionThis novel study explores the behavioral effect of different types of family firm CEOs on R&D investment. This study will assist corporate board members to make more informed decisions about retaining (or bringing back) family CEOs (with or without actual control rights) or hiring non-family CEOs.

The Effects of Family Firm CEO Traditionality on Successor Choice: The Moderating Role of Socioemotional Wealth

Drawing on upper echelons theory, this study examines how the traditionality of family chief executive officers (CEOs) influences the selection of their successors, and how this relationship is moderated by two dimensions of socioemotional wealth. Recognizing the central role of CEOs in determining successors, we show that a family CEO’s cultural values regarding traditionality have a significant positive effect on the probability that a family member is chosen as successor. We find that this relationship is strengthened by the family members’ identification with the firm and weakened by the family members’ sense of dynasty. Our contributions to theory and practice are discussed.

CEO career horizons and earnings quality in family firms

PurposeThe present study examines the effect of the chief executive officer (CEO) career horizon (CH) problem on earnings quality (ERN) for selected family-controlled firms known to have a unique operational goal.Design/methodology/approachThe generalised method of moment linear regression model was used on a sample of family-controlled firms in Malaysia from 2005 to 2016.FindingsThe study found a negative relationship between CH and ERN, measured by earnings persistence and earnings predictability. However, in the earnings predictability model, the reverse was found to be the case after interacting CH with CEO family affiliation, CEO experience and CEO equity. However, the use of a reputable auditor could not mitigate the CH problem. Also, the study obtained a closely related result in the earnings persistence model. The result aligns with the socio-emotional wealth (SEW) theory, which states that the goals of family-controlled firms go beyond financial objectives to include other non-financial objectives, and hence, their commitment to perpetuating their dynasty encourages them to preserve the quality of their earnings.Originality/valueExisting studies on family firms and ERN have treated family firms as homogeneous entities by comparing family and non-family firms, using the underlying theoretical justification of the agency theory. However, this study departs from the agency theory, by considering those factors (i.e. the extent of CEO alignment with family owners and the choice of auditor), using the SEW theory, which establishes the differences among family firms. This work builds on that of Chen et al., (2018) and Ali and Zhang (2015), which suggested that corporate governance can mitigate the CH problem. Therefore, the strength of a CEO's attachment to the family firm (measured by CEO equity ownership and CEO affiliation to family members in family firms) and the choice of the auditor can explain the variation in the effect of the CH problem in family firms.

Organizational antecedents of firms’ adoption of strategic human resource practices: Toward a reconciliation of CEO perceptions and family influence

There is lively debate in the literature about the effects of family influence on employment practices. Particularly, little empirical research explores the role of family influence in driving a firm’s adoption of specific strategic human resource practices such as high-performance work systems. Drawing from the tenets of the resource-based and stewardship theories, this study examines the relationship between chief executive officers’ perceived human resource capability and firm adoption of high-performance work systems in family business, and the joint moderating effect of family management and ownership on the above linkage. Our analysis uses chief executive officer–human resource manager matched samples of 145 Taiwanese publicly listed firms, the results show that chief executive officers perceived human resource capability is significantly and positively associated with the adoption of high-performance work systems. Moreover, this relationship is found to be the strongest when the family assumes leadership in management (i.e. the firm has a family chief executive officer) and family ownership is high.

Family firms and the stock market performance of acquisitions and divestitures

Research SummaryThis paper explores the stock market performance of acquisitions and divestitures where both, one, or neither of the companies in the transaction are family firms. We find that acquirer shareholder returns are highest when family firms buy businesses from non‐family firm divesters, especially when family chief executive officer (CEO) acquirers buy businesses from non‐family CEO divesters. Additionally, divester shareholder returns are highest when family firms sell businesses to non‐family firm acquirers, especially when family CEO divesters sell businesses to non‐family CEO acquirers. These findings reveal that it is important to consider the characteristics of both the acquiring and divesting firms when analyzing acquisition and divestiture performance, and that the expected gains to family firm acquisitions and divestitures are driven by transactions in which the counterparties are non‐family firms.Managerial SummaryThis paper explores how investors react to acquisitions and divestitures where both, one, or neither of the companies in the deal are family firms. The stock market performance of acquiring firms is highest when family firms buy businesses from non‐family firms, relative to the other three possible combinations of family and non‐family firm acquirers and divesters. Likewise, the stock market performance of divesting firms is highest when family firms sell businesses to non‐family firms, again relative to the other three possible combinations of family and non‐family acquirers and divesters. These findings suggest that investors take into consideration the identities of both the acquiring and divesting firms when evaluating acquisitions and divestitures, and that this has significant implications for the expected performance gains of these transactions.

Family Leadership and Small to Medium Sized Enterprises Research and Development Investments

Family businesses are the most widespread and ancient of all economic entities, and the vast majority of small to medium-sized enterprises (SMEs) in every country re family owned. In consequence, their innovation and productivity are critical to economic growth. However, current academic research tends to focus on large, high-profile corporations, with few studies of SMEs. Further, the relationship between family leadership and SMEs’ innovation capability has been likewise neglected. This study aims to investigate the effects of family leadership on an enterprise’s investment in innovation within the context of small firms based on the European Firms in a Global Economy (EFIGE) survey data and relavent literature. By utilizing the ordinary least squares (OLS) model with several robust checks, the empirical results indicate that innovation investment behavior is more complex and multifaceted with respect to family leadership and firm size. On the one hand, family Chief Executive Officers (CEOs) generally exhibit a greater performance in innovation than non-family CEOs. On the other, family leaders in small firms do conduct less innovation investment.

CEO Monitoring and Board Effectiveness: Resolving the CEO Compensation Issue

This study examines the impact of board governance mechanisms on the pay of Chief Executive Officers (CEOs) using a sample of major French listed companies for the 2009–2011 period. The results show that CEO pay is negatively associated with the presence of a family CEO and positively associated with board size, busy directors, board meetings, and compensation committee independence. We provide further evidence that CEO compensation increases with firm size, and both present and past performance. Our study casts doubt on the effectiveness of formal board attributes in constraining CEO compensation.

The Effect of Board Capital and CEO Power on Corporate Social Responsibility Disclosures

This study examines the effect of directors’ human and social capital (i.e. board capital) on the level of corporate social responsibility (CSR) disclosures by drawing on insights from a resource-based view. It also investigates the effect of chief executive officer (CEO) power on this relationship. Data were obtained from annual reports of companies listed on the Dhaka Stock Exchange in Bangladesh from 2005 to 2013. We employ outside directors’ experiences and expertise as a proxy for board capital and measure CEO power using a ‘power index’ that comprises CEO duality, ownership, tenure and family CEO status. Results show that board capital is positively associated with CSR disclosure levels; however, CEO power is negatively associated with CSR disclosures and reduces the effect of board capital on CSR disclosures. Thus, we conclude that although board capital can improve CSR practices, CEO power can also inhibit these practices.

Erratum to: Independent directors, large shareholders and firm performance: the generational stage of family businesses and the socioemotional wealth approach

The effectiveness of independent directors is empirically addressed in the Southern European context using a sample of 221 publicly traded firms during the 2001–2007 period. Drawing on the socioemotional wealth approach, we focus on family control and influence to test whether there are significant differences in the effect of independent directors on the firm’s performance among non-family businesses (NFBs) that have a non-family large shareholder, and family businesses (FBs). In doing so, we consider the heterogeneity of FBs by testing whether the FB’s life cycle moderates the effectiveness of independent directors. To that end, we differentiate among founder lead family businesses and non-founder lead family businesses. Moreover, we test whether dual leadership structures, in particular when the family chief executive officer is also the chairperson of the board, moderates the effectiveness of independent directors. A cross-country and panel data design was used, taking into account the endogeneity problem arising in studies of corporate governance. The results show that the contribution of independent directors to a firm’s performance differs for NFBs and FBs. Moreover, findings confirm that in FBs, contribution is moderated by the generational stage of the FB and by the leadership structure of the firm.