Founding Family Firms Research Articles

Listed founding family firms and labor cost stickiness#

AbstractDoes founding family control affect labor cost stickiness? Theoretically, labor cost stickiness is a double‐sided sword: While it can be interpreted as long‐term commitment to employees, it increases operating leverage, reduces operating performance, and thus jeopardizes long‐term firm survival. Empirically, we find that—consistent with socioemotional wealth theory suggesting that founding family firms are more employee oriented—founding family firms exhibit greater labor costs stickiness. The pattern is more pronounced in industries with high labor turnover and high labor intensity. Furthermore, we find that abnormal high labor cost stickiness in family firms reduces profitability and non‐labor investments.

PERILAKU DAN PENGARUH PENDIRI TERHADAP INFORMATIVITAS HARGA SAHAM: PERUSAHAAN PUBLIK KELUARGA DI INDONESIA

This study examines the relationship between founder as controller, age of founder, and dispersion of control on the informativeness of company stock prices. We argue that behavioral heterogeneity exists in family firms that are still majority owned and controlled by the founder. Using unbalanced panel data from 262 observations, first, this research finds support for the hypothesis that there is a convex relationship between founder voting rights and the informativeness of company stock prices. Second, older founders demonstrate more stewardship behavior than younger founders. Finally, high power dispersion in founding family firms creates agency conflicts between family owners that decrease the informativeness of firm stock prices. This finding is consistent with previous family business literature which reports that mixed behavior among family members can influence the informativeness of family company share prices.
 
 Keywords: Family Companies, Behavior Of Company Founders, Ownership Of Founders, Age Of Founders, Stock Price Informativeness

Firm location quality, founding family firms, and management team expertise

Firm location quality, founding family firms, and management team expertise

Founding Family Firms and Labor Cost Stickiness

Founding Family Firms and Labor Cost Stickiness

Are family firms really reluctant to innovate? Evidence from IPOs

PurposeThe aim of this paper is to explore the family firms' propensity to undertake R&D investments after going public, showing how it varies due to the ownership structure.Design/methodology/approachThe analysis is based on a sample of 132 French and Italian family and nonfamily IPOs in the period 2013–2018.FindingsThe empirical findings show a positive relationship between the quantity of post-IPO shares retained by family owners and R&D investments. Furthermore, the abovementioned relationship is negatively affected by the generational stage and positively by the presence of a lone founder.Practical implicationsOutside investors of family firms may be assured in buying shares of founding family firms after going public because they are stimulated to undertake R&D investments and therefore create overall value in the long term. Furthermore, external managers of lone-founder and first-generation family firms can adopt innovation investments without fear of being replaced as a consequence of a hostile takeover. Lastly, private equity should support later generation family IPOs, providing them with capital and managerial skills in order to generate value for shareholders.Originality/valuePast studies have mostly shown family firms' reluctance to undertake R&D investments; however, scholars have focused on private or public family firms, ruling out the analysis of family firms' innovation behaviour within the setting of an IPO. To the best of the author's knowledge, this study represents the first empirical attempt to investigate the relationship between family firms and post-IPO innovation investments, when the capital infusion relaxes the financial constraints of family firms.

Founding Family Firms in Rural Regions: Implications for Economic Growth

This research investigates the impact that founding family firms in rural communities has on longer term economic growth within those communities. Prior research has clearly established the many benefits that family businesses can have for communities and we build upon that prior research to unearth a deeper and more nuanced explanation about how those benefits emerge, in what contexts, and other factors that are likely to play a role. Specifically, we look at the impact of founding family firms in more rural communities as well the role that familiness and firm size are likely to have in influencing the relationship between family firms and economic growth.

They Shun to Explore, But Still Survive – (Non-) Founding Family Firms and Explorative Orientation

Balancing exploration and exploitation is proposed to lead to short-term success, while securing long-term survival. Similarly, family firms are indicated to perform equally well in the short-term and are better survivors over time, compared to non-family firms. One might expect that family firms are very good in balancing exploration and exploitation. However, their strong tendency toward family control and risk-aversion imply a predominance of exploitation. We hypothesize and test the effect of family influence in general, and founding and non-founding family influence in particular, on a firm’s relative exploration orientation. By examining S&P 500 companies, we discover family influence to have a negative impact on a firm's relative exploration orientation. We further show that this relationship is particularly relevant for the relationship between founding family influence and relative exploration orientation. While we find argumentative reasons and empirical evidence that non-founding family influence has a negative impact on relative exploration orientation likewise, the results appear less robust to changes in operationalization. We seek to elucidate the so far underexplored field of family firms in terms of exploration and exploitation.

Determinant Factors of Founding-Family Firms’ Performance in Indonesia

This research aims to examine the factors that moderate the effect of founding-family firms on performance. Moderating variables include firm reputation, risk-taking behavior, agency costs of managers-shareholders, and agency costs of majority-minority shareholders. Firms’ performance includes accounting-based and market-based performance. This research uses 412 manufacturing firm-years listed on the Indonesian Stock Exchange as the research sample. The hypotheses test uses a random-effect regression as a main test and a common-effect regression tests as an alternative test. Based on data analysis, firm reputation, risk-taking behavior, agency costs of mangers-shareholders, and agency costs of majority-minority shareholders moderates the effect of the founding family on performance. It indicates that founding-family firms can achieve higher performance if they promote higher firm reputation, lower risk-taking behavior, and lower agency costs. This research fills the previous findings gap of performance in the founding-family firms. This research captures when founding-family firms can improve performance or experience performance reduction. To the best of the author's knowledge, this research is also the first research that provides a comprehensive picture of determinant factors of founding-family firms' in Indonesia.

Managerial ability in founding-family firms: evidence from Indonesia

PurposeThe purpose of this paper is to examine the effect of founding-family firms on managerial ability.Design/methodology/approachFounding-family firms are determined by founder and/or family involvement as block holder and as in the firm board. Managerial ability is estimated by data envelopment analysis. Research samples consist of 412 manufacturing firm-years listed in the Indonesian Stock Exchange. Analysis data use random-effect regression as the main analysis and Huber-White regression as an alternative analysis.FindingsThis research finds that founding-family firms have a negative effect on managerial ability. Further, the result shows that lower managerial ability occurred when founding-family firms led by founder and professional CEOs, when other family members involved in the ownership and the board have higher family ownership. It indicates that founding-family firms concern more about family interest, such as family reputation, rather than business needs and best management practice.Research limitations/implicationsLimitation of this research does not occur if the founding-family firms are managed by first, second, third, etc., family generation. Future research expected to consider family generation in founding-family firms management.Practical implicationsThis research can be used by founding-family firms in Indonesia as consideration of management policy formulation that can improve managerial ability.Originality/valueThis research provides new evidence if founding-family firms promote lower managerial ability in emerging market such Indonesian market where family businesses are the root of private businesses which have a major contribution to economics.

Does Firm Location Affect Management Team Size and Reputation? Evidence from Taiwan*☆

AbstractThis study explores the effect of the location of a firm’s headquarters on the firm’s management team size and reputation (MS&R) in a geographically small country (i.e., Taiwan) with numerous founding family firms. The results show that firm location quality positively relates to MS&R, and the association becomes weaker when firm profitability is higher or the founding family is present in the firm. Furthermore, the effect of firm location quality on management team reputation (team size) becomes stronger (weaker) when the CEO position is held by the founding family. Finally, the results are robust when considering endogeneity issues and other model settings.

Family ownership and earnings quality of Thai firms

PurposeThe purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.Design/methodology/approachThis is an empirical archival research.FindingsThe authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.Research limitations/implicationsThe authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.Practical implicationsThe study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.Social implicationsThe society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.Originality/valueThis if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

The Roles of Political and Business Ties in Governance Effectiveness of Founding Family Firms

The relationship between managerial ties and firm performance has gained attention in the organization and management literature. Most studies that have examined the relationship between managerial ties and firm performance have reported inconsistent results, probably due to the omission of the moderating role of family ownership. Managerial ties include both business ties and political ties. Business ties refer to ties with other business, and political ties refer to ties with the government. Based on socioemotional wealth (SEW), social capital, resource-based view (RBV) and agency theory, this study investigates how founding family ownership moderates the influence of business and political ties on the return on assets (ROA) of 175 public firms in Taiwan from 2013–2015. This study finds that business ties have a greater impact on the performance of family-owned firms than nonfamily- owned firms. However, the negative impact of political ties on firm performance is greater for family-owned firms than nonfamily firms. Overall, these results provide an interesting implication: Although developing business ties is still a useful strategy for Taiwanese family firms, political ties are less important than in other countries. Therefore, business ties ensure health and well- being of overall family that can be more probability to contribute the betterment of society.

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.

Family firm local involvement and the Local Home Bias phenomenon

Research has documented that most of retail and institutional investors exhibit a strong preference for stocks issued by nearby listed firms (i.e. Local Home Bias). This phenomenon shapes corporate market value and the cost of funding. In this paper, we investigate whether the Local Home Bias is enhanced in family firms as a consequence of their symbiotic connection with the local community. Using a dataset of 2,951 Italian firm-year observations (1,481 are family firms) over the period 1999–2011, we find that Local Home Bias is not a widespread phenomenon and mainly occurs in founding family firms where the founder serves as CEO. The Local Home Bias is absent in non-family firms or in family firms where the owner has acquired control through a market transaction. Overall, results suggest that locally committed family firms trigger investor preference for local stocks and, in doing so, exploit the dedicated local clientele which shrinks the cost of funding. Ultimately, we argue the social contributions of family firms to the local community could even have opportunistic traits and a non-trivial economic effect.

Founding Family Firms, CEO Incentive Pay, and Dual Agency Problems

This paper contributes to the literature on agency theory by examining relations between family involvement and CEO compensation. Using a panel of 362 small U.S. listed firms, we analyze how founding families influence firm performance through option portfolio price sensitivity. Consistent with the dual agency framework, we find that family firms have lower CEO incentive pay, which is further reduced by higher executive ownership. Interestingly, such incentive pay offsets the positive impact that families have on firm valuation. Collectively, our results show that, compared with nonfamily firms, lower incentive pay adopted by family firms due to lower agency costs mitigates the direct effect of family involvement on firm performance. Once accounting for CEO incentive pay, we do not observe performance differences between family and nonfamily firms.

Local Home Bias, Family Firm Local Involvement and Performance

Research has documented that most of retail and institutional investors exhibit a strong preference for stocks issued by nearby listed firms (i.e. Local Home Bias). This phenomenon shapes corporate market value and the cost of funding. In this paper, we investigate whether the Local Home Bias is enhanced in family firms as a consequence of their symbiotic connection with the local community. Using a dataset of 2,951 Italian firm-year observations (1,481 are family firms) over the period 1999-2011, we find that Local Home Bias is not a widespread phenomenon and mainly occurs in founding family firms where the founder serves as CEO. The Local Home Bias is absent in non-family firms or in family firms where the owner has acquired control through a market transaction. Overall, results suggest that locally committed family firms trigger investor preference for local stocks and, in doing so, exploit the dedicated local clientele which shrinks the cost of funding. Ultimately, we argue the social contributions of family firms to the local community could even have opportunistic traits and a non-trivial economic effect.

Pay-out policies in founding family firms

This article analyses founding family influence on pay-out policies for Swiss listed firms over the period 2003–2010. We hypothesise that family firms have different incentives and characteristics that affect pay-out decisions and propose three possible explanations: agency theory, reputation building and family income needs. Our results show that founding family firms display significantly higher dividend pay-outs relative to companies with other ownership structures. We also examine specific family characteristics and document that a family's stake, active involvement and generation play an important role in determining pay-out policies. Our findings appear to be consistent with the family income hypothesis and to some extent with reputational concerns.

Founding Family Firms and Bank Loan Contracts

Given the economic importance of bank loan financing worldwide, we empirically investigate the role of founding family ownership in bank loan contracts after controlling other governance practices via individual bank loan contracts in Taiwan. We first find that founding family firms can enjoy favorable loan contracts in terms of loan spread. Second, we find that these favors tend to decrease or even disappear when founding families are more likely to expropriate other investors or when the information asymmetry between the borrower and the bank is not severe. Third, we document that the favorable spread effect of founding family firms enlarge for firms with greater credit risk, or during periods of financial crisis.

The effect of industry characteristics on the control longevity of founding-family firms

This article examines the effect of industry characteristics on the control longevity of founding-family firms. Using a sample from listed firms in the United States, the article shows that founding-family firms in industries jointly characterised by cyclicality, capital intensity and growth have a shorter control span than founding-family firms in other industries. The article also reveals that the lifespan of non-founding-family firms is less sensitive to the same industry characteristics. These findings provide evidence that the “pecking order” theory of financing choice may not hold true for founding-family firms in industries with these characteristics. The article also contains implications and guidance for owners of founding-family firms in both developed and emerging market economies, concluding that it may be strategically important to plan to mitigate negative control longevity effects in advance by diversifying businesses into industries that are less cyclical or counter cyclical, less capital intensive and less affected by industry growth demands.

The dynamics of voting ownership in lone-founder, family-founder, and heir firms

We examine ownership dynamics in listed founding-family firms over the period 1996–2008. In order to enlarge the understanding of persistence of ownership influence, we analyze determinants of change in the light of family-firm heterogeneity. We detect ownership decreases and increases, alike. A Large Drop of ownership (at least −2.5%) occurs 4 times as often as a Large Increase. The mean negative change is −3.1% (median 0.0%), positive changes average 0.6% (median 0.0%). Foremost, owner identity characteristics and management board participation of individual blockholders explain the likelihood of ownership dynamics. Specifically, Lone Founder Firms show the most dynamical ownership structures in all regression scenarios. Heir Firms have the most robust ownership structure and are – on average – majority controlled by a family. They are less likely to reduce their ownership influence. Family Founder Firms are only changing ownership when the family forgoes to comply with the blocking minority of 25% plus one share further. We interpret all results in the light of identity, agency, stewardship, and financial theory. Thereby, an unbalanced panel (2529 firm years) of founding-family firms listed in the German CDAX market index at Frankfurt Stock Exchange (FSE) represents the empirical foundation.