Founding Family Research Articles

The pursuit of international opportunities in family firms: Generational differences and the role of knowledge‐based resources

Research Summary:We argue that willingness (attitude toward risk, return, and socioemotional wealth), ability (extent of control), and resource availability influence the internationalization of family firms. We hypothesize that the internationalization of family firms led by founding and later generation family members differs from the internationalization of nonfamily firms and from each other and that knowledge‐based resources moderate the relationship. Longitudinal analysis of 4,925 firm‐year observations of S&P 1500 manufacturing firms from 2002 to 2008 shows that compared to nonfamily firms, family firms run by founding (later generation) family members internationalize less (more). Knowledge resources increase (decrease) the internationalization of founder‐led (later generation) family firms. Overall, how family ownership influences firm behavior is likely to vary as much by its type as its amount.Managerial Summary:We explore the internationalization of family firms based on a sample of S&P 1500 manufacturing firms from 2002 to 2008. Compared to nonfamily firms, family firms run by founding family members internationalize less, and family firms run by later generation members internationalize more. However, as knowledge resources increase, the internationalization of founder‐led family firms increases, whereas the internationalization of firms led by later generation family members decreases. Therefore, our findings suggest that knowledge resources can facilitate or hamper international expansion in family firms, depending on the generation of family control. These findings underscore the role of goals, governance, and resources as important drivers of differences in internationalization between family and nonfamily firms, as well as of variations in internationalization among family firms.

Extended FTLD pedigree segregating a Belgian GRN-null mutation: neuropathological heterogeneity in one family

BackgroundIn this paper, we describe the clinical and neuropathological findings of nine members of the Belgian progranulin gene (GRN) founder family. In this family, the loss-of-function mutation IVS1 + 5G > C was identified in 2006. In 2007, a clinical description of the mutation carriers was published that revealed the clinical heterogeneity among IVS1 + 5G > C carriers. We report our comparison of our data with the published clinical and neuropathological characteristics of other GRN mutations as well as other frontotemporal lobar degeneration (FTLD) syndromes, and we present a review of the literature.MethodsFor each case, standardized sampling and staining were performed to identify proteinopathies, cerebrovascular disease, and hippocampal sclerosis.ResultsThe neuropathological substrate in the studied family was compatible in all cases with transactive response DNA-binding protein (TDP) proteinopathy type A, as expected. Additionally, most of the cases presented also with primary age-related tauopathy (PART) or mild Alzheimer’s disease (AD) neuropathological changes, and one case had extensive Lewy body pathology. An additional finding was the presence of cerebral small vessel changes in every patient in this family.ConclusionsOur data show not only that the IVS1 + 5G > C mutation has an exclusive association with FTLD-TDP type A proteinopathy but also that other proteinopathies can occur and should be looked for. Because the penetrance rate of the clinical phenotype of carriers of GRN mutations is age-dependent, further research is required to investigate the role of co-occurring age-related pathologies such as AD, PART, and cerebral small vessel disease.

Family firm internationalization: Heritage assets and the impact of bifurcation bias

Research Summary:We develop a new conceptual framework to uncover governance‐related determinants of family firms’ internationalization, building upon internalization theory. We assess how family firm governance features determine internationalization patterns on two key dimensions: location choice and operating mode. We focus on family governance characteristics that might drive suboptimal internationalization patterns and on removing such suboptimality. We conclude thatbifurcation bias, defined as thede factodifferential treatment of family orheritageassets versus nonfamily assets, represents a critical family firm‐specific barrier to achieving efficiency in international operations. In the short run, the key difference in international governance is between bifurcation‐biased family MNEs and all other types of MNEs. In the longer run, inefficient, bifurcation‐biased decision making will make place for comparatively more efficient governance.Managerial Summary:Family firms are susceptible tobifurcation bias—a default preferential treatment of family members and resource bundles that hold positive emotional meaning to the family, that is,heritage assets. Such preferential treatment contrasts with that afforded to professional, nonfamily managers and other resources, with which the founding family does not entertain a positive emotional connection. If left unremedied, bifurcation bias will lead to poor decisions in family‐owned multinationals that undertake international expansion, in terms of the choices of which markets to enter and how to enter these. These types of dysfunctional decisions will lead to a decline in competitiveness as compared to nonfamily multinationals. Family firms should, therefore, identify and actively prevent bifurcation bias by implementing the specific safeguarding strategies suggested in this study.

Founding family and auditor choice: Evidence from Taiwan

AbstractManuscript TypeEmpiricalResearch Question/IssueFrom an agency perspective, we investigate whether family ownership and control configurations are systematically associated with a firm's choice of auditor. Our analysis focuses on three different characteristics of family ownership and control: family ownership (cash flow rights), disparity between cash flow and voting rights held by family owners (cash–vote divergence), and the family identities of CEOs.Research Findings/InsightsOur findings suggest that different family ownership and control configurations lead to different agency effects. The alignment effect prevails in family firms with greater family ownership, founder CEOs, and professional CEOs, whereas the entrenchment effect prevails when there is greater cash–vote divergence. Despite the presence of two distinct types of agency effects, regardless of differences in family ownership and control configurations, none of these firms is inclined to appoint higher‐quality auditors.Theoretical/Academic ImplicationsThis study advances our understanding of the varied agency effects arising from family ownership, cash–vote divergence, and the family identities of CEOs, as well as the impact of family ownership and control features on auditor choice. Our empirical evidence provides a unique insight, showing that higher‐quality auditors do not tend to be appointed in firms where family alignment with outside investors is relatively strong, as this lowers demand for such auditors. In addition, although family entrenchment may create greater outside investor demand for higher‐quality auditors, such demand is difficult to realize.Practitioner/Policy ImplicationsAuditors are an important external governance mechanism. This study offers insights for policymakers, family owners, auditors, and other capital market participants, with regard to the varied effects of different family ownership and control features on auditor choice.

Family-Owned Firms and Stock Returns: Evidence from the Chinese Stock Market

We examine stock return performance of Chinese family-firms vs. Nonfamily-firms, and the impact on family-firm returns of firm size, having a founder as CEO, and levels of family ownership. We model returns with the Capital Asset Pricing Model (CAPM), the Fama-French 3-factor model, and a new 5-factor model we modified from Miralles-Marcelo, Miralles-Quirós, which adds factors for debt and illiquidity. In previous studies, though the prevalence is for family-firm outperformance, the results have been mixed. Using CAPM or the Fama-French 3-factor model, we find that family-firms outperform nonfamily-firms, but with the 5-factor model that outperformance vanishes, and this is robust to controlling for the GFC. For the founder CEO, firm size and family ownership considerations, again previous research has been mixed. With CAPM and Fama-French 3-factor models, we find that founder CEOs outperform nonfounder, large firms outperform small firms, and higher family ownership outperforms lower ownership. However, with the 5-factor model, only size remains as having significant impact. This study helps to reconcile conflicting results in previous research.

Two-Sided Familism and Life Expectancy: A Theory of Dynastic Management

Over the last two centuries, impressive progress in has led to great increases in life expectancy at all ages. The impact of the health transition on the governance pattern of family firms has never been formally investigated. To probe how firm governance adapts to rising human life expectancy, I present an overlapping generation model, in which a firm is sequentially owned by the heirs of founding family according to birth order. The family owner chooses between designating the heirs as family managers and recruiting some unrelated professionals, and each heir chooses between working for the family owner and working for an unrelated employer. It turns out, as people live longer, the family owner and the heirs are less likely to match together, which results in the decline (rise) of dynastic (professional) management.

Family Involvement in Higher Education Institutions: A Matter of Governance

Non-profit higher education institutions (HEIs)’ donors want to insure that their money is used correctly. The agency tensions in non-profit organizations, and specifically in HEIs, can lead to family involvement when families are the donors in the early stage of these organizations. The presence of the founding family can generate benefits like a long-term focus and the avoidance of managerial myopia, the preservation of the foundational goals and mission, and a mitigation of some agency problems depending on the stage of the organization. But family control can also lead to rent-seeking behavior, shifting resources to favor some family members and related parties, and expropriating HEI stakeholders such as students, parents, and faculty, among others. This paper contributes to the corporate governance literature, and specifically to the university governance literature, by highlighting the relevance of good governance provisions, mechanisms and practices in HEIs when the founding-donor family has some level of involvement.

Family Governance Signals and Heterogeneous Preferences of Investors

ABSTRACTThe authors explore if investors use signals of founding family governance (ownership, involvement in management, board representation) when making investment choices in an experimental setting. The authors link the literature on heterogeneous preferences of investors to signaling theory, and apply it in the context of founding family governance by exploring the presence of investor clusters with varying utility functions with respect to founding family governance. The authors show that nonprofessional investors use these signals in their investment choices. Latent class analysis identifies 3 distinct clusters within our sample that have conflicting utility curves with respect to founding family governance.

Founding family effects on business group growth: Longitudinal evidence from Turkey (1925–2012)

Drawing from the family business perspective, this study provides insights into how the heterogeneity arising from founding family structures explains why particular business groups grow extensively, while others faced with similar external market conditions do not, and how the effects of founding family structure change over time. We test our hypotheses by using a unique, hand-collected, and extensive panel dataset which contains information of the full demographic history of founding families and all public and private companies founded/acquired or divested over the 1925–2012 period for 51 business groups in Turkey. Consistent with our hypotheses, our findings show that family size is a major positive determinant of the number of affiliated firms and the group scope. This effect is more strongly driven by sons compared to daughters. Business groups also grow more extensively when the first-born child is male. These family effects are stronger in the early developmental period of the business groups.

A Piece of the Pie? The Effects of Familial Control Enhancements on the Use of Broad‐Based Employee Ownership Programs in Family Firms

While family firms tend to be highly committed to their employees, scholars contend that founding family owners are likely hesitant when it comes to sharing ownership broadly with nonfamily employees. Taking a heterogeneous view of family firms, this study investigates the implications of different familial control‐enhancing mechanisms on the use of broad‐based employee ownership programs (BEOPs) among publicly‐traded family firms. Based on a five‐year panel data set of S&P 500 family firms, the findings indicate that certain control‐enhancing mechanisms can cause family owners to frame their decision to use BEOPs differently. Essentially, family firms with family CEOs, regardless of whether the CEO is a founder or descendant, have a decreased likelihood of using BEOPs in spite of the direct control that family owners have over the firm's operations. Conversely, when family owners hold dual‐class shares, which enhance shareholder voting power, family firms are more likely to use BEOPs. Furthermore, the likelihood of family firms with family CEOs using BEOPs increases when the family holds dual‐class shares. Moreover, there is no significant difference between founder and descendant CEOs, as both are less resistant to using BEOPs when a dual‐class share structure is in place. These findings have implications for HR practitioners working in family firms given the influence that family owners can have on the firm's HR activities, namely BEOPs.

When Do Family Owners Mitigate Managerial Entrenchment? The Impact of Power

By considering the contingent effect of the power of family owners, we investigate the impacts of the founding family on managerial entrenchment from the perspectives of agency theory and theory of...

Dominant Logics and Strategic Renewal: The Case of Family Firms

This paper studies the relationship between dominant logics and strategic renewal in the case of family firms. Drawing on the upper echelons theory, we conceive the social context of family firms, i.e., number of family directors and founder directors, as proxies for different dominant logics in board of directors. We argue that these two types of board composition lead to contradictory effects on strategic renewal in family firms. We also test the moderating effect of national culture, i.e., uncertainty avoidance and long-term orientation, on these relationships. Our findings show evidence of conflicting dominant logics working to influence strategic renewal under distinctive national cultural conditions.

Founding Family Ownership and Myopic R&D Investment Behavior

This study examines whether founding family ownership mitigates or exacerbates myopic R&D investment behavior. The prior literature suggests that managers are more likely to engage in earnings management—such as myopic R&D reduction—when firms are facing problematic situations, such as (a) a small earnings decline or loss and/or (b) a debt covenant violation. Employing a sample of R&D-intensive firms in Taiwan, we find that founding family ownership mitigates myopic R&D investment behavior in both problematic situations. These findings are consistent with the “Family Identity” dimension of socioemotional wealth (SEW) theory in which family firms have substantial incentives to protect the family’s reputation and to avoid actions that reduce long-run firm value. In supplementary analyses, we find that family firms continue to avoid myopic R&D reduction under these two situations even when they have limited opportunities to engage in accrual-based earnings management. Furthermore, family CEOs are shown to be responsible for mitigating the tendencies of firms to engage in myopic R&D investment behavior, and the mitigating impact on myopic R&D investment behavior is found only in family firms without control-enhancing mechanisms such as voting–cash flow rights divergence. Our findings are not driven by blockholder effects because our results remain robust after controlling for the presence of institutional investors and nonfamily insiders.

Comprehensive phenotypic description of the Belgian GRN founder family and genetic onset age modifiers (P1.085)

Comprehensive phenotypic description of the Belgian GRN founder family and genetic onset age modifiers (P1.085)

The Role of Founder and Other Family Participation on US Private Foundation Efficiency

Founders make significant financial contributions in creating US private foundations. Therefore, we hypothesize that founders monitor foundation operations and predict a positive relation between founder participation and foundation efficiency. In contrast, we propose competing hypotheses in examining the relation between other family member participation and foundation efficiency. Other family member participation has the potential to enhance foundation efficiency if founders are able to transfer their philanthropic values to their progeny. However, other family participation also has the potential to diminish foundation efficiency if the founders’ withdrawal leaves their foundations without true principals to monitor managerial actions. We find that both founder and other family participation are positively associated with foundation efficiency. We also provide limited evidence that the positive association between founding family participation and foundation efficiency is transferred to second generation family members, but is not transferred to subsequent generations.

Corporate Governance and Performance in Hong Kong Founded Family Firms: Evidence From the Hang Seng Composite Industry Index

Background of Problem: This research investigates the corporate governance and performance between founding family firms and non-founding family firms in Hong Kong, and the performance inside founding family firms under three different management status. Agency costs will be generated by the divergence between CEO interest and those of the outside shareholders if the owner-manager sells equity claims on the corporation. There are two different mainstreams of views regarding relationships between ownership and performance in family business: negative and positive effect generated from family ownership and control. To what extents the two different views are relevant to Hong Kong family firms are still unclear. Research Method and Data: By focusing on Hong Kong business, this research seeks to study 75 Hong Kong listed companies in HSCII for 5 years, yielding 347 observations, using archival data. The empirical result suggests that the founding family firms in Hong Kong may not outperform nonfamily firms, and the founding family firms with founders as CEOs are one of best performers among founding family firms. This research not only studies the performance behaviours of Hong Kong founding/non-founding family business and inside founding family business, but also sets a foundation for further research. This research gives insights for entrepreneurs to manage their businesses and plan the succession of founding family business in Hong Kong. This research into corporate governance is different to that of countries such as USA, Taiwan, and Mainland China. The founding family firms in Hong Kong may not outperform the nonfamily firms and the founding family firms with the founder as CEO is one of the best management techniques inside founding family firms. This research shows agency costs inside founding family firms affects performance and succession of family firms, as descendants may not be the best successors for firm value maximization, and business continuity. Owners of Hong Kong founding family business should pay more attention on business governance and succussion planning.

Founding Family Ownership, Stock Market Returns, and Agency Problems

This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors. Family firms generate an annual abnormal return of 2.8% to 7.1%. We also document that family firms potentially having more agency problems earn higher abnormal returns. Our evidence suggests that outside investors receive a premium for holding shares of these firms as they are exposed to the specific agency problems present in family firms.

The Dual Class Premium: A Family Affair

Critics advocate eliminating dual class shares. We find that founding families control 89% of dual class firms, potentially confounding economic inferences regarding these structures. Using industry, market and Fama-French excess returns, we find a buy-and-hold strategy of dual class family firms, annually makes an additional 350 basis points over the benchmark. Institutional owners garner a disparate portion of these excess returns by holding over 87% of their floated shares. These investors demand a premium for holding dual-class family firms, suggesting a market-driven resolution to concerns about limited voting shares. In contrast, non-family dual class firms possess high stock valuations and insignificant excess returns. Overall, our analysis suggests that investors exhibit substantial concerns over family control rather than dual class structures.

Nonextensive condensation in reinforced branching processes

We study a class of branching processes in which a population consists of immortal individuals equipped with a fitness value. Individuals produce offspring with a rate given by their fitness, and offspring may either belong to the same family, sharing the fitness of their parent, or be founders of new families, with a fitness sampled from a fitness distribution $\mu$. Examples that can be embedded in this class are stochastic house-of-cards models, urn models with reinforcement and the preferential attachment tree of Bianconi and Barabasi. Our focus is on the case when the fitness distribution $\mu$ has bounded support and regularly varying tail at the essential supremum. In this case, there exists a condensation phase, in which asymptotically a proportion of mass in the empirical fitness distribution of the overall population condenses in the maximal fitness value. Our main results describe the asymptotic behaviour of the size and fitness of the largest family at a given time. In particular, we show that as time goes to infinity the size of the largest family is always negligible compared to the overall population size. This implies that condensation, when it arises, is nonextensive and emerges as a collective effort of several families none of which can create a condensate on its own. Our result disproves claims made in the physics literature in the context of preferential attachment trees.

Response by Crotti et al to Letter Regarding Article, “Genetic Modifiers for the Long-QT Syndrome: How Important Is the Role of Variants in the 3′ Untranslated Region of KCNQ1?”

We welcome the opportunity to respond to the expected comments by Amin et al regarding our article on the modifying role of 3′ untranslated region (3′UTR) single-nucleotide polymorphisms (SNPs) in type 1 long-QT syndrome patients.1 In the original cohort studied by Amin et al,2 the analysis of 3 small families supported the modifying role of 3′UTR SNPs. Amin et al now propose, as a possible reason for the different results, the predominance of haploinsufficient type 1 long-QT syndrome–causative mutations in our population. However, in our 3 founder families, 2 ( KCNQ1 A341V and also KCNQ1 IVS7-2A>G) of the 3 mutations have a dominant-negative effect,3,4 and only 1 ( KCNQ1 -G589D) reduces the ability of the mutated proteins to form functional tetramers leading to haploinsufficiency.5 This is exactly the same pattern of their 3 families: 2 have a dominant-negative effect …