Family Shareholders Research Articles

Control risk premium: Dual‐class shares, family ownership, and minority investor returns

AbstractDespite exhibiting significant valuation discounts, dual‐class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low‐voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual‐class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual‐class firms in the Russell 3000. Interestingly, single‐class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual‐class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

Ownership Structure and Financial Sustainability of Saudi Listed Firms

This research assesses the impact of ownership structure on financial sustainability. Panel data from 102 Saudi non-financial listed firms covering 2013 to 2022 were analysed using OLS and fixed effects methods. Further, the GMM was employed to check for robustness. The research outcomes reveal the strong and positive effects of institutional ownership and family shareholding on financial sustainability. This positive impact implies that robust and stringent monitoring of family shareholding and institutional investors may neutralise managerial entrenchment, reduce agency costs and pave the way for financial sustainability. However, government ownership appears insignificant, while managerial ownership exerts a strong negative influence on financial sustainability. The negative effect suggests that managerial shareholding may be counterproductive to organisational efficiency. Importantly, the outcomes look consistent using several econometric models. Therefore, the research findings may further shape policymakers’ understanding of how the diverse monitoring strategies of ownership structure influence financial sustainability. Also, the results may serve as an incentive for managers and standard setters to support firms in embracing institutional and family shareholding. The presence of these shareholders may minimise agency conflicts and maximise firm value for sustainable profitability.

Nearby or faraway? Determinants of target selection in family firm acquisitions

We posit that, beyond the distinction between domestic and cross-border deals, family ownership configurations and board ownership determine whether family firms (FFs) prefer targets from closer or more distant markets, thus highlighting the crucial role of geographical distance when conducting acquisitions abroad. We further investigate whether target selection depends on firm performance relative to its aspirations. To test our hypotheses, we gather a comprehensive sample of 7297 acquisition deals, of which 3180 are cross-border transactions, undertaken by family and non-FFs from 30 European countries during the 2007–2015 period, with target firms located in 65 different countries. Our empirical strategy allows us to analyze FFs’ preference in terms of geographical distance when they decide to acquire a foreign company. The main findings suggest that FFs acquire targets from closer locations when there is a group of minority family shareholders or a higher level of board ownership. Meanwhile, FFs performing below their aspirations acquire more distant targets compared to other FFs. Our findings contribute to international business (IB) research by demonstrating that the distinction between domestic and foreign targets is not enough when investigating acquisitions, but the distance to the target firm is vital for a better understanding of cross-border deals.

Determinants of the performance of private equity backed SMEs: an empirical analysis at the European level

This paper extends previous research to investigate the determinants of the operating performance of small and medium-sized enterprises (SMEs) backed by private equity (PE). The paper is based on a sample of 208 unique private equity-backed firms operating at the European level. A multivariate linear regression model is estimated, in which the private equity-backed firms’ operating performance—as measured by ROA, Revenues/Total Assets, and EBIT/Total Assets—is a function of a variety of factors. These include whether or not the firm is an SME, the presence of family shareholders, and various features specific to the expertise of the private equity investor, as well as the industry, country, and years covered. The analysis is limited to private equity deals that occurred in the European Region between 2005 and 2017. According to the results, the effectiveness of private equity in improving the operating performance of target companies in the three years post-investment is impacted by whether or not the backed firm is an SME. This research paper aims to further existing publications on the link between the involvement of the private equity investor and the status of the backed firm as an SME.

Does debt moderate the impact of family commissioner boards on company performance in Indonesia?

This study aims to investigate the influence of family commissioner boards (FCBs) on the operational efficiency of companies in Indonesia that use debt as a control tool, which includes bank and non-bank debt. Using the two-step GMM-First Difference estimation method, the research sample consists of 121 family-owned companies using unbalanced panel data from 2009 to 2018. This investigation produces several significant findings. Firstly, the results of the analysis show that the presence of family representatives on the board of commissioners has a negative impact on overall company performance. These observations suggest that FCBs may prioritize the interests of family shareholders over minority shareholders, which indicates entrenchment behavior. Second, the analytical results reveal that debt plays a moderating role in the influence of FCB on company performance. Debt acts as a deterrent to entrenchment behavior, thereby improving firm performance. Third, the results of the analysis did not find significant differences in FCB entrenchment behavior between companies that have bank debt and companies that have non-bank debt. These findings have significant policy implications for regulatory bodies in Indonesia regarding the governance of family-owned companies. It is vital to establish a mechanism for appointing family members to the board of commissioners that protects the interests of all shareholders and promotes a fairer corporate landscape.

Environmental performance and corporate tax avoidance: Greenwashing policy or eco-responsibility? The moderating role of ownership structure

This study examines the impact of environmental performance on tax avoidance separately and then moderated by institutional and family ownership. Based on a sample of 222 French firms from 2009 to 2021, the results show that environmental performance is positively associated with tax avoidance. Moreover, the study reveals that this relationship is significantly moderated by institutional and family ownership. Specifically, institutional investors and family shareholders separately amplify the positive impact of environmental performance on tax avoidance. The research also presents further evidence indicating that all three dimensions of environmental performance—resource consumption, emissions, and eco-innovation—are positively linked to tax avoidance. Notably, this effect becomes prominent post the Paris Agreement. Even when accounting for the impact of major financial crises such as the Great Financial Crisis and the COVID-19 pandemic, the findings remain consistent. These results maintain their robustness when alternative measures of tax avoidance are considered. Overall, this study provides valuable insights with implications for regulators, authorities, and investors.

Family Firms’ Shareholder Structure and International Acquisitions: A Differentiated Socioemotional Wealth Approach

From a mixed gamble perspective, we contend that family firms (FFs) with different family shareholder structures are confronted with different trade-offs among current and prospective financial and socioemotional wealth (SEW), leading to differences in their international acquisition choices. We also explore the moderating role of family leadership and performance aspirations. Our findings show that FFs with a dominant family owner are more likely to pursue international acquisitions, especially when FFs are led by a family CEO or when they experience below-target performance, as in such cases, they prioritize prospective financial and SEW gains, thereby sacrificing current SEW and financial wealth.

CEO overconfidence and tax avoidance: role of institutional and family ownership

PurposeThis study aims to investigate the effect of overconfident chief executive officers (CEOs) on corporate tax avoidance and whether this relationship is affected by institutional and family ownership.Design/methodology/approachUsing a sample of French-listed firms from 2009 to 2021, the authors find that firms managed by overconfident CEOs engage in more tax avoidance practice.FindingsThe authors further find that institutions and families are likely to discourage tax avoidance practices, paying close attention to their long-term horizons and reputational concerns. Overall, the authors' findings shed light on the monitoring role of institutional and family shareholders in restraining the effect of CEO behavioral bias on companies' tax avoidance.Originality/valueTo the authors' knowledge, no study has investigated the impact of managerial overconfidence on the tax behavior of French firms. The authors also extend the growing literature regarding managerial effects by providing new evidence that French firms held by concentrated institutional and family ownership curtail CEO overconfidence behavior toward corporate tax avoidance practices.

Shareholder activism in listed family firms: Exploring the effectiveness of say‐on‐pay on CEO compensation

AbstractThe widespread critical evidence surrounding executive compensation of listed corporations has boosted shareholder activism in recent decades. The say‐on‐pay (SOP) mechanism—a vote in which shareholders express their (dis)agreement with executive pay designs—is one of the corporate governance mechanisms that has led to this activism among listed firms. Merging agency and socioemotional wealth (SEW) arguments, this paper analyzes how effective SOP voting results are among listed family firms in terms of CEO compensation efficiency and equity. Using a sample of UK listed firms from 2011 to 2018, our results show that SOP effectiveness is positively influenced by family ownership and is strongly moderated by family involvement in management and in governance as well as by family generation. Our findings stress the strong family effect and the ethical perceptions of family shareholders on SOP voting, showing how family participation in the firm encourages fairer and more aligned CEO compensation packages. SOP institutional and practical implications oriented to preserve shareholder value and family wealth are finally outlined.

The role of family businesses and active family members in environmental performance

There is a growing concern about environmental issues, particularly carbon emissions, in many countries. Indonesia, with its huge population, also suffers from excessive carbon emissions. This study aims to investigate the effect of family businesses on environmental performance, specifically carbon emission disclosure. This study also explores the role of the family supervisory board and management on the quality of carbon emission disclosure. The study employed 62 non-financial family-listed firms in 2017–2019 (186 observations). The analysis found a positive and significant relationship between family enterprises and the disclosure of carbon emissions, implying that family firms expose more information about their carbon emissions. It also revealed a significant positive association between the family supervisory board and carbon emission performance, suggesting that having family members on the supervisory board aligns with policies for reducing and maintaining accountability for carbon emissions. In summary, the findings suggest that family enterprises prefer to exercise their indirect control by holding a position on the supervisory board and owning a substantial percentage of the company’s stock corresponding to their socio-emotional wealth agenda. Additionally, there is a non-linear association between family firms and the disclosure of carbon emissions. Carbon emission performance decreases as family share ownership rises to 53.1% but increases when family equity exceeds this cut-off point. Finally, family shareholders in non-polluted firms report higher quality of carbon emission disclosure.

To what extent does share ownership affect informative earnings management? Evidence from Indonesian manufacturing sector

Inconsistent findings regarding the relationship between share ownership and earnings management, specifically in terms of informative and opportunistic practices, have been observed in previous studies. To address this gap, the present research aims to investigate the impact of institutional, governmental, and family ownership on informative earnings management. The sample comprises 615 manufacturing firm-year observations listed on the Indonesian Stock Exchange. Earnings management is assessed by examining discretionary accruals, which are further categorized into informative and opportunistic acts based on earnings growth. Logistic regression analysis is employed to analyze the data. The results indicate that both institutional and family ownership have a positive effect on informative earnings management. This suggests that institutional and family shareholders play influential roles in monitoring managerial behavior, particularly in encouraging informative earnings management practices rather than opportunistic ones. Conversely, governmental ownership does not have a significant effect on earnings management. This finding suggests that government shareholders may have lesser interest in evaluating managerial performance based on earnings and instead prioritize political and social considerations. Overall, this study contributes to the existing literature by shedding light on the distinct influences of different types of share ownership on earnings management practices, particularly in terms of their impact on informative earnings management.

Are political connections a curse for banks of the MENA region? The moderating effect of ownership structure

PurposeThis study examines the effect of political connections on the performance of banks in the MENA region separately and then moderated by family, institutional and state ownership.Design/methodology/approachA hierarchical regression method was used for a sample of 111 banks operating in 10 MENA countries observed from 2009 to 2019.FindingsThe results indicate significant negative relationships between political connections and bank performance. Furthermore, institutional and family ownership moderates this relationship; institutional investors and family shareholders attenuate separately the negative impact of political connections on bank performance. Moreover, state ownership positively moderates this relationship; states as shareholders accentuate the negative relationship between political connections and bank performance. Splitting our sample according to bank-specific features (banks in authoritarian regimes versus hybrid regimes, Islamic banks versus conventional banks) confirms our findings. Our results are robust to an alternative measure of bank performance.Research limitations/implicationsBanks operating in the MENA region have to be aware of the consequence of political connections. In addition, they have to take into account the role of ownership structure when they seek to attenuate the harmful effect of political connections.Originality/valueThis paper offers an in-depth understanding of the impact of political connections on bank performance by drawing from two institutional logics: resource dependence logic and agency logic. Some recommendations on the importance of changing the existing ownership structure are highlighted, encouraging some investors to take part in the capital of banks in this region.

COVID-19 health crisis and family business performance: the moderating effect of family leadership

PurposeIn the context of the coronavirus disease 2019 (COVID-19) crisis, this article aims to analyze the resilience of family businesses in a developing country like Cameroon. As such, this study seeks to fill two gaps in the literature: first, by comparing the financial and social performance of family companies with those of non-family companies not listed on the stock exchange, and second, by comparing performance across family-run companies, according to the companies' mode of leadership in Cameroon, a developing country affected by COVID-19 like the rest of the world.Design/methodology/approachBased on the literature review, the authors developed empirical models to identify the variables which influence the financial and social dimensions of business performance. These models were tested with multilinear regressions, using data collected from questionnaires distributed to 466 firms, of which 212 were family firms and 254 non-family firms. The authors completed our analyses with mean comparison tests to demonstrate whether our results are significantly different between family and non-family firms.FindingsThe authors' multiple regressions and tests produced two main results – the financial and social performance of all Cameroonian firms declined sharply during the crisis, and with the firms' financial performance hit hardest, family firms have been more resilient to the crisis in terms of financial and social performance than non-family firms. The weak governance and social protection system, as well as an inefficient legal system, do not seem to negatively affect the performance of these Cameroonian firms – the effects of the COVID-19 pandemic on the performance of family firms were better managed in firms where family members are actively involved in management or control through family members' strong representation on the board of directors (BD).Research limitations/implicationsThe two main limitations of this study concern the governance of these companies included and the failure to take the characteristics of the manager into account. Investigating other governance variables, such as the composition of the BD or the participation of employees in the capital, would enable us to refine the authors' interpretations of the companies' financial and social performance. Another limitation is the fact that the characteristics of the manager were not considered, especially when the manager is a family member. Exploring this variable would make studying the generational aspect of family businesses possible.Practical implicationsFamily companies are more resilient to crisis because of the companies' long-term focus, which also encourages the companies to maintain the companies' social policy and to avoid redundancies as far as possible. Weak systems of governance and social protection, as well as an ineffective legal system, do not negatively affect the performance of Cameroonian family companies. The results also suggest that family shareholders should become more involved in the management and control of family's firms to make the firms financially and socially resilient and in so doing drastically reduce the impact of crises.Social implicationsThis study shows, in particular, how family firms are more socially resilient than other firms in times of crisis (by resorting less often to redundancies). Family firms should, therefore, arguably benefit the most from public support during crises.Originality/valueThe authors' research makes two main contributions to the literature on family businesses. The results first of all show that Cameroonian family firms have thus far performed better financially and socially during the COVID-19 period than non-family firms. Second, this research focuses on differences in performance based on family business management types during this specific crisis period. The results suggest that the most resilient family firms, in terms of performance, are those in which the family is involved in the management or control of the BD.

Do shareholders really matter for firm performance? Evidence from the ownership characteristics of Italian listed companies

This paper studies the impact of the features of the shareholder base on the performance of a large sample of Italian listed firms between 2007 and 2019, both within and across firms. We expand the empirical evidence on the relation between shareholder type and different dimensions of firm performance by dividing shareholders into six categories, and further differentiating between domestic and foreign investors. We provide extensive evidence on the relation between firm performance and different types of shareholders, showing how diverse performance metrics are correlated with the voting rights of specific types of shareholders. Consistent with previous studies, the picture that emerges from our analysis shows that the ownership structure of Italian listed companies is characterized by a high degree of concentration. In this context, we find that ownership concentration or the presence of a controlling shareholder is in general associated with better performance. Moreover, a positive relation exists between diverse firm performance metrics and the voting rights of family shareholders, founders and foreign investors, while government ownership is detrimental in the short-term.

BIBLIOMETRIC ANALYSIS OF THE RELATIONSHIP BETWEEN FAMILY OWNERSHIP, FAMILY GOVERNANCE, CLAN GOVERNANCE, AND TRIBAL GOVERNANCE: A FUTURE RESEARCH AGENDA

This article aims to fill the gap in the literature related to clan and tribal governance which has not been studied much, by looking at previous literature studies and linking to literature studies discussing family ownership, family business, and family governance based on searches in Scopus reputable journals assisted with tools Publish or Pearish, VOSviewer, and Blibliomagika software that is linked and developed for future research topics. Using a literature review, assisted by Publish or Pearish (POP) software, VOSviewer To estimate the model and analyze data collected from the Scopus database. The data is then broken down based on the annual document, subject area, search keywords, authors, published journals, affiliations, the country of origin of the publication, and clarifying the future research agenda. The results of the study show that the terms clan, tribal and family governance have not been disclosed much in previous research even though these topics can be studied more broadly than the concepts of family ownership and family business. From this concept, it can be directed and connected to the concept of entrepreneurship, SMEs family, CSR, financial reporting, family shareholders, cash flow, non-family firms, and many more. The practical implications of the results of this research are to fill the gap in the literature on clan/tribal governance, which is still interesting to develop. The originality of the study provides clarity on the relationship between family ownership, family business, and its developments that lead to family governance.

Family firms’ resilience during the COVID-19 pandemic: Evidence from French firms

The purpose of this paper was to comprehend what are the characteristics that allow companies to be more resilient to cope with the crisis caused by the COVID-19 pandemic. More specifically, we explore the relationship between families’ involvement in corporate ownership and leadership and financial performance. Using a sample of 226 French-listed firms during the period from January 24 to April 27, 2020, we found that firms controlled by family shareholders showed higher stock market performance than their non-family in the pandemic period. This finding is stronger in the case of the first family firms’ generation where the founder still holds the position of executive chef, president or general manager. Contrary to our expectations, family firms perform better when led by a professional chief executive officer (CEO). Overall, our results add to previous research by illustrating how family ties influence a firm’s response to external shocks.

Corporate diversification and debt financing: Do family shareholders protect their control rights?

AbstractThe study explored the relationship between corporate diversification and the debt choice of listed 712 Malaysian family firms for the period from 2016 to 2020. Tobit regression results revealed that industrial diversified firms preferred debt financing, while geographically diversified firms rejected debt. With family control, firms that conducted both types of diversification activities rejected debt financing. Further, for the case of maturity structure of debt, family firms engaged in diversification activities tend to borrow short‐term debt, thereby reducing their ownership's risk of dilution and boosting their short‐term market goals by improving the creditors' short‐term monitoring function. Policy implications are discussed.

Dynamics of corporate governance mechanisms - family firms’ performance relationship- a meta-analytic review

The corporate board is considered an effective corporate governance mechanism (CGM) of family firms (FF), playing a critical monitoring role and enhancing FF performance. FF and corporate governance (CG) literature, however, shows mixed opinions about the relationship between various board attributes and its impact on FF performance. FFs are, in general, quite different from non-FFs in their ownership structures, family shareholders’ involvement and control on the board, and the implications of the agency problem. Therefore, the association between governance mechanisms (in the form of board attributes) and FF performance is not null. The present study aims to provide a clearer understanding of the relationships between board attributes and FF performance by performing a meta-analysis of 47 recent empirical publications in varying contextual settings. Although results indicated that several board attributes have significant relationships with FF performance, variations in their strength and direction were reported in two contextual settings: country culture and the legal origin of the firm. Our results provide deeper insights into effective CG for FFs and concrete suggestions for equipping the board with suitable attributes to enhance firm performance. This study explains why managers should consider contextual settings when making decisions about an FFs’ board structure.

How Family and Business Group Controlling Shareholders Affect CEO Power Differently

This study examines the effects of family and business group controlling shareholders on CEO power. We draw on the literature on comparative corporate governance to maintain that families and business groups shareholders have distinctive preferences for CEO power. Specifically, family shareholders prefer to have a CEO with a clearer, stronger image as such an image is commensurate with their expectations for corporate leaders. Alternatively, business group shareholders tend to grant a CEO with less direct influence on a firm as the group emphasizes economic goals. These distinctive views prompt boards to grant varying power to their CEOs. We furthermore argue that the effects of families and business groups on CEO power would be altered by certain contingencies. Results based on a sample of public firms in Taiwan support our predictions. Implications for theories are discussed.

Ownership Structure, Tax Risk, and Tax Avoidance in Indonesia Manufacturing Companies 2016-2020

There has not been much research on how management uses tax risk to engage in aggressive tax avoidance in an uncertain business environment. This research aims to see how family and institutional ownership influence the relationship between tax risk and tax avoidance as moderating proxies. The study was conducted on manufacturing companies listed on Indonesia Stock Exchange between 2016 and 2020. Thirty-six companies were selected as the sample using the purposive sampling method. This quantitative research used Ordinary Least Square. The results show that family ownership can strengthen the relationship between tax risk and tax avoidance, while institutional ownership fails to moderate. Family shareholders significantly influence company management when selecting how to utilize the tax risk connected with each business strategy. Family shareholders prioritize the protection of the company’s image over maximizing profits with high risk.
 Keywords: tax avoidance, tax risk, family ownership, institutional ownership, resource based-view theory