Family-controlled Businesses Research Articles

Nexus between boardroom independence and firm financial performance: evidence from South Asian emerging market

This study empirically investigates the linkage between boardroom independence and the financial performance of non-financial firms in an emerging market featured by family-controlled businesses and concentrated ownership. The relationship is tested in a sample of 152 non-financial firms listed on the Pakistan Stock Exchange over a period from 2003 to 2018. Firms’ financial performance is measured through return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR), and Tobin’s Q (TQ), while boardroom independence is measured through the proportion of non-executive directors on the corporate board. Using the dynamic GMM approach to address the possibility of endogeneity, it was found that boardroom independence is significantly negatively related to the financial performance of the sample firms. This negative impact is due to the reason of close ties of outside independent directors (non-executive directors) with dominant shareholders and management in personal, financial, and social terms. A significant negative influence of the board size and CEO duality on firms’ financial performance was also observed. The present study will add to the existing literature on corporate governance and firm financial performance using firm-level manually collected data. Further, our findings will also help the policymakers by providing empirical insights for strengthening corporate governance mechanisms in emerging market economies, specifically in the context of Pakistan.

Exploring Gender Dynamics and Environmental Sustainability in Family Firms

In an ever-changing landscape, family businesses, characterized by their unique blend of tradition, familial bonds, and entrepreneurial spirit, stand as bastions of resilience and continuity, playing a pivotal role in economic growth and societal development. Indeed, family businesses account for 80 percent of all business enterprises worldwide, making them the prevalent form of conducting business. As these entities grapple with the imperative to remain economically viable while navigating the intricacies of the contemporary business landscape, the incorporation of sustainable practices into the organizational fabric takes centre stage. By actively seeking a harmonious and reciprocal relationship between financial objectives, social responsibility, and environmental accountability, family businesses can not only secure their own longevity but also contribute to a more equitable and sustainable global environment. This narrative becomes especially compelling at the intersection with gender. Exploring the intersection between gender and sustainability provides insights into how gender dynamics influence and are influenced by efforts to achieve sustainable development. Moreover, understanding and addressing this interplay is essential for devising holistic and effective strategies that promote social equity, economic prosperity, and environmental stewardship. It underscores the need for inclusive and gender-sensitive approaches in all aspects of sustainable development. Acknowledging the significance of this ongoing dialogue, this study delves into the intricate relationship between gender dynamics and the environmental dimension of sustainability within family businesses. Through a systematic literature review of empirical research, this work specifically aims to uncover the linkage between board gender diversity and corporate environmental performance. The findings indicate that gender-diverse boards improve environmental value creation, and women in leadership positions correlate positively with environmental disclosure in family-controlled businesses. Overall, a strong positive correlation emerges between the proportion of women directors on the board and the level of environmental sustainability. The findings of this study hold implications not only for family business practitioners but also for policymakers and academics interested in propelling gender equality and sustainability agendas, notably within the framework of the 2030 Agenda for Sustainable Development.

The impact of independent directors and family control on the dividend policy and capital structure: A family business strategy

The goal of this research is to determine how independent boards and family company controls affect capital structure and dividend policy. The nature of the independent board moderating variable on the impact of family company control on dividend and capital structure policies is also examined in this study. Twenty-six firms that were listed on the Indonesia Stock Exchange (IDX) between 2018 and 2022 are used in this study’s panel data. The findings indicate that although independent boards have a major positive influence on dividend policy and a negative impact on capital structure, family company control has a considerable negative impact on dividend policy. The independent board’s moderating effect can change how negatively the family firm controls the dividend policy. However, the independent variable board has a significant detrimental impact on the capital structure and moderates the impact of family company control. The dividend payout ratio is significantly positively impacted by firm size and growth potential. Long-term debt decreases as independent board representation increases in family-controlled businesses. The conclusions of this study, it only looks at how family control and independent commissioners affect capital structure and dividend policy; it ignores how different industries operate. It is probable that variations in capital structure and dividend policy among industries. The quantity of dividends and long term debt in the capital structure may therefore be calculated with the addition of industry categorization factors from future research.

Politically connected business and real earnings management: the moderating role of family control and audit quality

PurposeThis study examines whether real earnings management (REM) choices are connected with the ownership structure of politically connected businesses (PCBs). The authors also discuss the moderating role of audit quality (AQ) and family control (FC) on the relationship between PCBs and REM.Design/methodology/approachThe authors' study sample comprises firms registered on the Pakistan Stock Exchange (PSE). The sample examines the financial data of the firms that remained listed for the last eight years, i.e. from 2011 to 2018, excluding nonfinance companies and firms with incomplete data. The authors test the hypothesis using feasible generalized least squares (FGLS) regression methods.FindingsThe authors find that PCBs show a high level of involvement in income-decreasing REM compared to nonPCBs due to lower litigation risk in REM. However, the authors' results also show that two monitoring mechanisms, AQ and FC, curb the opportunistic behavior of PCBs and reduce the intensity of REM in PCBs.Practical implicationsThe findings of the study are beneficial in decision-making for both internal and external stakeholders, such as creditors, shareholders and competitors. In countries like Pakistan, which fall in the category of emerging economies, PCBs show involvement in income-decreasing REM to change the accurate picture of financial information to attain personal goals, and investors in such countries have a low level of knowledge about earnings management strategies; thus, this study offers detailed knowledge and information to investors and shareholders about political connections and REM. This plays a crucial role for regulators in stiffening the rules and regulations to further assist in more secure financial reporting.Originality/valueThis study contributes to the literature by providing a nuanced understanding of the interplay between political connections, REM, FC and AQ in the business context. Second, family-controlled businesses often exhibit distinct characteristics and governance structures compared to nonfamily-controlled firms. Exploring the moderating role of FC in the following relationship could provide valuable insights into how family dynamics influence the financial reporting practices of PCBs. Third, AQ is a critical factor in ensuring financial reporting transparency. However, the interaction between AQ, political connections, and REM remains relatively unexplored. This study explains how audit oversight affects the earnings management behavior of PCBs.

Board Diversity in Selected Large Maltese Family-Controlled Businesses and its Implications on Corporate Governance

Board Diversity in Selected Large Maltese Family-Controlled Businesses and its Implications on Corporate Governance

The relationship between the structure of the board of directors and firm performance in family versus non-family firms

This paper investigates the impact of four characteristics of the board of directors (board size, board independence, leadership structure and board meetings) on firm performance (Tobin's q). Accordingly, four hypotheses have been developed. The analysis is based on data (objective variables) from 221 firms operating in three countries (Spain, Portugal and Italy) and differentiates between non-family-controlled businesses (NFCBs) and family-controlled businesses (FCBs). Considering the cross-sectional (three countries) and the time series (six years) nature of the data, we used a panel data estimation approach. Our findings show that, although corporate governance recommendations advocate larger, more independent and proactive boards, as well as structures that ensure the separation of the chairperson and CEO roles, these board features do not always result in more effective boards. Indeed, smaller, less independent and less active boards and dual leadership structures are tied to better performance by the FCBs in our sample as compared with the NFCBs.

The influence of corporate governance on the performance of family-controlled firms: exploring the effects of legal jurisdiction

PurposeThis study investigates effects of corporate governance on the financial performance of family-controlled firms and how these effects differ between common law and civil law jurisdictions.Design/methodology/approachThis study applies a number of corporate governance measures to the largest 243 publicly listed family-controlled businesses worldwide from 2009 to 2018. The corporate governance measures include board independence, board gender diversity, corporate governance index (CGI) and the percentage of family ownership.FindingsThe empirical evidence indicates that board independence improves financial performance; this positive effect is more pronounced in common law than civil law jurisdictions. Board gender diversity has a negative impact on financial performance under common law but a positive impact in civil law jurisdictions. Moreover, the CGI and family ownership structure are positively associated with financial performance, and no difference is found between the two jurisdiction types. In addition, family ownership negatively moderates CGI in civil law countries only.Originality/valueThis study provides new insight on the relevance of considering jurisdictional differences when examining the effect of corporate governance on performance. The study also addresses important concerns in family business research relating to unobserved heterogeneity and endogeneity. Implications of these for research and practice are discussed in the paper.

Non-family shareholder governance and corporate risk-taking: Evidence from Chinese family-controlled businesses

Increasing corporate risk-taking is crucial for family businesses that tend to be averse to the loss of socioemotional wealth. This study expands research on non-family shareholder governance by exploring the role of non-family shareholders in influencing the strategic decisions of family businesses. We find that the ownership structure and board participation associated with non-family shareholder governance can enhance corporate risk-taking by weakening family control and strengthening inheritance intention. Furthermore, family style and institutional efficiency can optimize the impact of the mechanisms of non-family shareholder governance and corporate risk-taking. Non-family ownership and directors appointed by non-family shareholders exert a cross effect. Compared with non-family ownership, non-family shareholders who are free to participate in corporate governance through ownership and the appointment of directors can better help family businesses improve their corporate risk-taking. Compared with foreign shareholders and institutional investors, the heterogeneous checks and balances of state and private shareholders can effectively enhance corporate risk-taking. Corporate risk-taking can strengthen the long-term orientation of family businesses. This positive relationship is more significant when the level of non-family shareholder governance is higher than when it is lower. Our conclusions broaden the understanding of the corporate risk-taking behavior of family businesses from the perspective of non-family shareholder governance. As such, they shed light on how to enhance the long-term orientation of family businesses.

Family Business and Transaction Exposure

This study provides additional evidence and insight into theories on transaction exposure as it empirically examines the magnitude of transaction exposure in Kuwait, a developing country. Specifically, it investigates factors that might influence Kuwaiti firms’ responses to their transaction exposure and how being a family business or part of a family business group could play a mediating role in this response. Through conducting a questionnaire survey with the largest 147 industrial and commercial Kuwait firms, the results of a multinomial logistic regression indicate that theories on financial hedging seem to be inapplicable in the Kuwaiti case. However, these theories provide only partial explanations for management behavior in response to the transaction exposure of Kuwaiti companies. Findings show that a firm being part of a family business group is significantly correlated with its level of hedging, suggesting that firms that are members of a family group of businesses are expected to hedge at a higher level. This points to other theories, such as institutional theory, as playing greater roles in explaining the transaction exposure behaviors of firms in developing countries, and also suggests that family-controlled businesses are expected to engage in more innovative financial strategies and hedge at a higher level. The research findings imply that Kuwaiti firms need to be more aware of their transaction exposure and pay more attention to the related issues. Training programs in risk-management strategies should be provided to decision makers to help them evaluate the hedging strategies they employ. This study shows how different behaviors toward risk exist between firms that operate in developed and developing countries, including the effect of being part of a family business resulting in firms engaging in more innovative financial strategies when dealing with risk.

Family Controlled Businesses in India: A Shareholding Pattern based definition

While the subject of family-controlled businesses, including their evolution and comparative performance, has been the topic of academic scrutiny in multiple contexts abroad, there have been almost no empirical studies on this topic in the Indian context. This is surprising given the perceived historical relevance of, and prevalence of, family-controlled businesses in India. Although a few inconsistencies do exist, a generally acceptable definition of a 'family-controlled business' can be determined in international studies. However, those definitions have not been examined in the Indian context and may not apply to Indian firms - a situation which this paper examines based on a study of shareholding patterns in a sample of 362 Indian firms over a ten-year period. Further, the paper attempts to determine an appropriate definition for a family-controlled business in India.

Family-controlled businesses in India: a shareholding pattern-based definition

Family-controlled businesses in India: a shareholding pattern-based definition

Financial reporting quality, family ownership, and investment efficiency

PurposeThe purpose of this paper is to empirically investigate the impact of two monitoring mechanisms: family ownership (FO) and financial reporting quality (FRQ) on investment efficiency (IE) over the period of 2007–2014 for listed firms on the Pakistan Stock Exchange.Design/methodology/approachThe authors employ two-dimensional pooled OLS cluster at the firm and year level, two-stage least square regression and feasible generalized lease square regression regression methods.FindingsThe findings suggest that higher FRQ and FO are associated with higher IE. Further, the authors report that higher FRQ and FO mitigate over- and under-investment. The impact of FRQ on IE is stronger (weaker) for family-controlled businesses. The results for these particular estimates are robust for alternative estimation techniques and measures of FRQ and FO.Originality/valueThe study draws on both agency and behavioral agency theories and therefore contributes to the literature in the following ways. First, the authors examine a relationship between FRQ and IE. Second, the authors test the impact of FO on IE. Third, the authors test the moderating impact of FO on the relationship between FRQ and the IE of family and non-family firms in relatively less regulated emerging market.

Women leaders and firm performance in family businesses: An examination of financial and nonfinancial outcomes

This study examines how the inclusion of women leaders in upper levels of management is associated with organizational performance in family-controlled businesses. Although the idea that gender diversity is beneficial for business has gained popularity, the business case remains equivocal and scholars are being urged to offer renewed and more nuanced support for when and how women in senior leadership roles may affect organizational outcomes. In response to these calls, we distinguish between financial and nonfinancial performance outcomes, comparing family and nonfamily businesses. Based on a framework that combines the upper echelon and double standards of competence theories, we examine the relationship between female leadership and firm performance, using panel data of large public firms from the S&P 500 over a five-year period. Our findings indicate that female-led organizations (i.e., those with a female CEO and/or CFO) outperform male-led organizations in terms of nonfinancial performance across family and nonfamily businesses. However, in financial terms, we find a statistically significant and positive relationship between female leaders and firm performance only in nonfamily businesses. Our main theoretical contribution is to suggest that the upper echelon and double standards of competence theories may not apply in family businesses in the same way as they do in nonfamily businesses, due to limitations to managerial discretion in the former. Our study has implications for practitioners, especially for owners of and advisors to family businesses.

Family-controlled businesses and management control: the framing of “shareholder-oriented” practices

Family-controlled businesses (FCBs) are the dominant forms of business in most market-oriented economies and the driving sources behind global economic growth. Despite their relevance worldwide, the role of financial management practices has remained understudied although there are indications that these practices play a critical influence in the survivability, growth and successful succession of family businesses. Drawing on recent developments in institutional theory and the concepts of framing and frame alignment, we investigate how shareholder-oriented management controls (MCs) are adapted in a FCB case over a 15-year period. To analyze the features that drive family agent in supporting a frame alignment, we build our analysis on previous literature in family firms. We investigate the processes involved in the adoption and implementation of adapted shareholder-oriented MCs in this FCB characterized by permanence of the owners and top managers where these actors are following changes based on a new set of shareholder-oriented ideas. This case study research allows more fine-grained observations and theorizations in a protracted institutional context. It is interesting because it shows how a family organization tries to align its MC during a third generation company life. In particular, we contribute to analyze how such alignment processes lead to implement adapted financial MC practices, how different features of FCBs can influence MC practices, and the role of a family member as an institutional change agent aimed to discover a new frame that mobilizes organizational action.

CRITICAL REVIEW ON THE EXISTENCE OF TRANSGENERATIONAL ENTREPRENEURSHIP IN TOURISM BUSINESSES: CURRENT TREND AND INTEREST

Tourism, one of Malaysia’s fastest growing economic sector, has created many business opportunities, the majority of which are family-controlled businesses. New ventures are started by founders who will eventually invite their relatives, especially as successors for their businesses. Nowadays, a successful family business is not determined by traditional methods alone such as profit, assets, or capital, but also take into account survivability or entrepreneurship transmission between generations. Unfortunately, entrepreneurship researchers have not fully embraced tourism because of the prevailing assumption that tourism is a just regular business. Both tourism and transgenerational entreprenership fields employ empirical studies to justify their idiosyncrasies but remain separate from each other. If studied together, it would lead to better understanding of both fields and would even spark the curiosity of researchers to investigate family relationships in conglomerate tourism businesses. Further research into this mixture of fields will also provide a conceptual economic model for tourism destination development bodies that will enhance and promote local community entrepreneurship.

CRITICAL REVIEW ON THE EXISTENCE OF TRANSGENERATIONAL ENTREPRENEURSHIP IN TOURISM BUSINESSES: CURRENT TREND AND INTEREST

Tourism, one of Malaysia’s fastest growing economic sector, has created many business opportunities, the majority of which are family-controlled businesses. New ventures are started by founders who will eventually invite their relatives, especially as successors for their businesses. Nowadays, a successful family business is not determined by traditional methods alone such as profit, assets, or capital, but also take into account survivability or entrepreneurship transmission between generations. Unfortunately, entrepreneurship researchers have not fully embraced tourism because of the prevailing assumption that tourism is a just regular business. Both tourism and transgenerational entreprenership fields employ empirical studies to justify their idiosyncrasies but remain separate from each other. If studied together, it would lead to better understanding of both fields and would even spark the curiosity of researchers to investigate family relationships in conglomerate tourism businesses. Further research into this mixture of fields will also provide a conceptual economic model for tourism destination development bodies that will enhance and promote local community entrepreneurship.

The effect of family business professionalization on dividend payout

PurposeThe topic of dividend policies of private family-controlled firms has aroused the interest of corporate finance and governance scholars and practitioners alike. However, a lot of questions concerning the dividends in privately held family firms remain unanswered. The purpose of this paper is to examine whether a private family firm’s dividend payout is influenced by its degree of professionalization.Design/methodology/approachThe hypotheses are tested on a sample of 492 small to medium-sized Belgian family-controlled businesses with Tobit regression models.FindingsThe results show that professionalized family-controlled firms pay higher dividends to their shareholders than do less-professionalized firms. In particular, the use of financial control systems, non-family involvement in governance systems, and the use of human resource control systems have a positive significant impact on the average level of dividend payout.Practical implicationsThis study may be of interest to family business consultants and (potential) investors, as the results contradict the assumption that family businesses (especially those privately held) will always have a no or low dividend policy.Originality/valueInvestigating dividend payout in the context of other components than family ownership (in this case, professionalization) can broaden our understanding of dividend payout.

Qualified Institutional Placements - An Exploratory Study in the Indian Context

Qualified Institutional Placement (QIP) was introduced in India in 2006 to make it easier and faster for companies to raise equity directly from However, there are very few studies looking at the market reaction of QIPs in India. When a company goes for a QIP, it also has the choice of offering shares through a rights issue to existing shareholders. A rights issue would not dilute the stake of existing owners. Given the prevalence to family controlled businesses in India, this would be a good route to raise capital and avoid stake dilution. In this context we tried to examine what determines a company goes for a QIP or a rights issue. To address this question, we look at the role of firm characteristics like promoter’s holdings, proxies for information asymmetry, and other variables in determining the choice between a rights issue vs. a QIP. This paper would add to the existing body of knowledge on private placements, and provide deeper insights on why companies might prefer a QIP over other types of seasoned equity offerings.

Socioemotional Wealth, Generations and Venture Capital Involvement in Family-Controlled Businesses

In this paper we analyze how the will to protect socioemotional wealth affects venture capital (VC) involvement in family-controlled businesses (FCBs). We find that first generation FCBs receiving VC show significantly lower productivity growth than other investees prior to the initial VC investment. We argue that the higher reluctance to lose control in first generation FCBs explains why only those that are not performing well are willing to accept an external investor as new shareholder. We also find, however, that the impact of VC financing on productivity growth is higher in first generation FCBs than in other investees. Since managers’ entrepreneurial orientation decreases over time, the effect of VC involvement is more limited in second or following generation FCBs.

Family‐controlled businesses and shareholder value

PurposeThe paper aims to extend the understanding of the value of quoted family‐controlled businesses (FCBs) and fill gaps in existing research by comparing the performance of such businesses with comparable non‐FCBs.Design/methodology/approachThe research approach adopted compared the share price performance of nine quoted FCBs with nine comparable non‐FCBs, utilising a range of variables designed to consider performance from a shareholder value perspective.FindingsOn the basis of the sample, the paper provides insights on the extent of the shareholder value that FCBs provide, indicating that this may be greater than for non‐FCBs.Research limitations/implicationsThe sample size could be considered a limitation – however, it could be considered that the subdivision by size and industry group mitigates against distortions.Practical implicationsThe paper has practical implications for investors in considering the ownership dynamics of businesses.Originality/valueThe paper contributes to the gap in existing research on FCBs and the notion of family capital.