Lone Founder Firms Research Articles

Using machine learning to identify and measure the family influence on companies

Many studies have focused on family firms. Yet, grasping the nature of these organizations remains challenging because firms’ familiness can take many forms, which are hard to trace with traditional data. We use ChatGPT – an application of machine learning – to try to unravel the complex and intangible influence of families on firms in large datasets. Whereas it often classifies family firms consistently with equity criteria, ChatGPT appears able to gauge families’ legacy and values. Hence, it detects more family firms in countries where families have a strong influence on firms even without large equity stakes. Also, ChatGPT often treats lone-founder firms as non-family firms, whereas it assigns a higher family score to firms that are eponymous, heir-led, and with multiple family directors. Finally, classifying family firms using ChatGPT provides financially relevant information to investors.

The Initiation of Family Succession in Lone-founder Firms and Multiple Audience Reaction

The Initiation of Family Succession in Lone-founder Firms and Multiple Audience Reaction

Estranged Bedfellows: Familiar Appointment and Non-family TMT Turnover in Lone-founder Firms

Estranged Bedfellows: Familiar Appointment and Non-family TMT Turnover in Lone-founder Firms

Does Entrepreneurial Orientation Help or Hurt Lone-Founder Firms in Times of Crisis?

We investigate whether lone-founder firms respond differently to systemic economic crises than family-controlled firms and non-family firms. We theorize that lone founders self-identify as entrepreneurs and are prone to pursuing an entrepreneurial orientation more than the leaders of other types of firms during times of crisis. Using a global dataset of publicly listed firms, we find that lone-founder firms set themselves apart by reducing their R&D intensity less than the other firm types during systemic crisis years, even though they are impacted as severely by the crisis as the other types of firms. This effect, however, only holds for eponymous lone-founder firms, whose leadership’s entrepreneurial self-identification with the firm is strongest. Stronger board vigilance by independent directors stimulates lone founders to preserve R&D intensity in times of crisis. We also find that lone-founder firms are more resilient after the crisis, but less resilient when these firms are eponymous, suggesting that the appetite for long-term risk-bearing investments of the latter can be excessive. These results demonstrate the conditions under which the entrepreneurial orientation of lone-founder firms helps or hurts in times of crisis.

Abandoning The Ship? The Familization of Lone-Founder Firms and Its Impact on TMT Turnover

Borrowing insights from the institutional logic perspective on hybrid organization, we theorize the introduction of family logics into lone-founder firms driven by incumbent entrepreneurial logics as a familization process. Using a sample of Chinese listed firms, we explored how this familization process affects the reactions of internal audiences and linked this internal dynamic with organization- and field-level contingencies. Our results indicate that TMT turnover rates increase when firms experience the familization process, but organizations’ financial slack and entrepreneurial narrative can help the hybrids to mitigate the adverse impacts of familization. In addition, we find that field-level legitimacy of the hybridity can condition the effectiveness of firms change management capacities, such that when the legitimacy of hybrids is high in a given field, the moderation effects of the financial slack decrease while the moderation effects of entrepreneurial narrative increase.

Lone-founder firms in China: Replicating Miller et al. (2007) in a different context

We replicate, in the Chinese context, a study undertaken in 2007 by Miller, Le Breton-Miller, Lester, and Cannella (MLLC), which examined the performance differences among lone-founder firms, family firms, and nonfamily firms in the U.S. Our goal was to test the generalizability of MLLC’s findings, as well as uncover contextual nuances that might exist in a markedly different institutional context that also includes state-owned enterprises. Our results corroborate MLLC’s finding that lone-founder firms outperform other types of firms. We also find that when family ownership is at lower levels, family firms and nonfamily firms seem to have similar performance; however, family firms have a performance advantage at higher levels of family ownership. Finally, we find that state-owned enterprises are outperformed by lone-founder, family and nonfamily firms. Our study highlights the importance of distinguishing among different types of nonfamily firms, between family and lone-founder firms, and among family firms with different levels of family ownership. We discuss the implications of our findings and offer suggestions for future research in family business.

Managing Institutional Logic Hybridization Process: A Strategy-Timing Contingency Approach

Hybrid organization research is witnessing prosperity. However, we know little about hybrid organizations that are “made”, namely, those transited from original single-logic to dual/multiple-logic forms through logic hybridization. As an example, we focus on the “familization” transition of lone-founder firms, during which single market-logic organizations integrate family logic and evolve to market-family hybridity, and examine buffering approaches to manage organizational destabilizations in this transition. We find financial slack and founder reputation, representing for unfitness- and discontinuity-buffering strategies respectively, could loosen the positive relation between familization transition and TMT turnover rate (i.e., organizational destabilization). Meanwhile, as field-level density of market-family hybridity (i.e., family ownership) evolves dramatically during our observation window, the relative effectiveness of the two buffering strategies also varies. On industry level, following family ownership density grows, the moderation effect of financial slack becomes weaker while the moderation effect of founder reputation becomes stronger. Our findings suggest logic-hybridizing likely happens in transition phase between firm life-cycle stages, and propose to manage organizational destabilization by a strategy-timing (evolution) contingency view.

Performance of German Family Firms During the Global Financial Crisis

Research on family firm performance has led to inconclusive results which is why scholars called for a differentiated consideration of family firms during exogenous shocks, where costs and benefits of the inherent ownership structure are assumed to be magnified. Following these calls, I use the Global Financial Crisis of 2007 – 2009 as a unique natural experiment where firms have been moved out of their equilibrium while ownership structure maintained constant in the near term. I differentiate between true family firms and lone founder firms and hypothesize that the firm performance of both ownership structures during the Global Financial Crisis is higher than for non-family firms. In a study of 178 firms listed in the German Prime Standard, I found that lone founder ownership was significantly associated with higher firm performance during the GFC, while showing no differences in performance during the period of stable economic conditions prior to the crisis. For true family ownership, in contrast, the results suggest a general tendency of superior performance during the steady-state pre-crisis period, but it could not be established that these firms outperformed other firms during the GFC. Analogously, I found that the presence of a family CEO in true family firms is beneficial for firm performance during stable economic conditions, but the advantageousness seems to vanish in times of severe financial distress. Keywords: Family firm; ownership; governance; performance; crisis.

Innovation Signaling in M&A Announcements of Family Firms

Family firms have previously been found to be more efficient in creating innovation internally as compared to non-family firms because of their effective use of resources. Nevertheless, we do not sufficiently understand whether and how family firms signal their innovativeness towards the market to, e.g., enhance their reputation. We discuss this relationship in the context of M&A deal announcements of publicly listed firms. We hypothesize that true family firms mention more innovation in their deal announcements as compared to non-family firms while lone founder firms do so less. Moreover, we argue that being led by a family CEO strengthens this effect. We test our hypotheses based on a sample of 2153 M&A deal announcements and find support for most of our hypotheses.

Influence of Social Identity on Family Firms’ FDI Decisions: The Moderating Role of Internal Capital Markets

This paper examines the foreign direct investment (FDI) decision by family firms from an emerging economy, China. Despite the increasing attentions to family firms’ FDI, extant research has focused largely on the comparisons between family firms and non-family firms with inconsistent findings. Limited research effort has been devoted to the heterogeneous FDI among family firms. We investigate how different family firm types affect its FDI. Family firms differ in the identity of family owners due to their variation in the trade-off between preserving family’s socioemotional wealth (SEW) and maximizing firm economic goals. Family owners with different identities will behave differently in their FDI decisions. We find that family firms owned by a lone founder (i.e., lone-founder firms) who perceives himself more as an entrepreneur, have higher propensity and intensity of FDI than those owned by multiple family members (i.e., family-controlled firms) who share the identity of family guardians. Moreover, we find that the positive effect of lone-founder on family firms’ FDI decisions is stronger when they have adequate access to internal capital markets through pyramidal ownership structure or financial slack. Overall, this paper enhances our understanding of family firms’ FDI decisions and offers an explanation for prior inconclusive findings on this important area by highlighting the effect of huge heterogeneities among family firms on their FDI decisions.

Owner type, pyramidal structure and R&D Investment in China’s family firms

Drawing on socioemotional wealth perspective and agency theory, this paper holds that lone-founder firms tend to engage more actively in R&D projects than do family-controlled firms involving multiple family members as owners, while family ownership structure moderates that effect. Using a large sample of 5808 firm-year observations in China, the study found that lone-founder firms do more R&D than family-controlled firms, though the positive effect is less pronounced when founder’ ownership is higher and more pronounced when the divergence between founders’ ownership and control (resulted from pyramidal structures) is higher. These findings indicate that properties of family ownership structure, and particularly pyramidal ownership structure, are important contingencies of family firms’ R&D decisions. This yields implications for family business and researchers, as well as policymakers seeking to encourage innovativeness in the large family business sector.

Voluntary disclosure of individual supervisory board compensation in public family firms

In family firms, the decision to voluntarily disclose individual supervisory board compensation induces confidence in the family firm's governance system, but may also compromise a family's efforts to keep exclusive control. Drawing on socioemotional wealth (SEW) research, we investigate family influence on a firm's voluntary disclosure decisions while distinguishing between different types of firms: non-family, true family (TFF), and lone founder firms (LFF). Our findings demonstrate the complex influence of two control-enhancing factors, family CEO and high ownership concentration, on disclosure decisions.

New director selection during growth in family-influenced and lone founder firms: An identity fit perspective

Drawing on the identity fit perspective in organizational identity research, we investigate changes in new director selection patterns for family-influenced (i.e., family identity) and lone founder (i.e., entrepreneurial identity) firms experiencing growth. We collect over 7000 observations of new director placements from 2001 to 2014 and find that both family-influenced and lone founder firms tend to decrease the selection of new directors with similar firm-type board experience as firm size grows and firm performance deviates from that of similar firms. Lone founder firms also decrease the extent to which they hire new directors with previous board experience in lone founder firms following the appointment of a nonfounder CEO. We conclude that while family-influenced firms often use new director selection decisions to maintain the fit between family and firm identity, firm growth creates challenging conditions that threaten family-firm identity maintenance.

Founder-Controlled Firms and R&D Investments: New Evidence From Canada

Our study investigates the R&D investment behavior of founder-controlled Canadian listed firms. We use De Massis et al.’s model of the sufficiency conditions of ability and willingness and adapt it to predict investments in R&D. As founder-controlled firms are heterogeneous in nature, we distinguish four categories: lone founder firms and family founder firms with and without excess voting rights. In line with our predictions, we find that only lone founder firms without excess voting rights have both the ability and the willingness to invest in R&D and so they invest more in R&D than their counterparts.

New Director Selection in Family Firms Under Identity Challenging Contingencies

Relying on a social identity framework, the current research investigates new director selection patterns in family-influenced and lone-founder firms. Based on 8,042 occurrences of new director pla...

Lone founders, types of private family businesses and firm performance

Although previous research focused on private firms has revealed that family involvement generally has an insignificant or negative effect on performance, the effects of family on the performance of non-listed firms has not been tested based on a clearly defined relationship. This study considers the limited evidence regarding the performance of private family firms and the debate about whether lone founder and family firms perform differently. It replicates and provides a deeper examination of the Miller et al. (2007) study for private family firms. Therefore, our contribution is mainly empirical. Our results indicate that lone-founder firms perform better than family businesses (FBs) in a private firm context. Our findings also reveal that firms with family involvement do not significantly outperform other firms. Nevertheless, when FBs are characterized by ownership concentration and non-family management, their performance is significantly lower than other firms.

Identifying and classifying family businesses

One of the main challenges facing those researching family business is that of defining what exactly constitutes a family business when considering whether family businesses and non-family businesses are different or not. Most research on the definition of family firms has been conceptual-based, and the choice of definition has lacked empirical support. Previous research has not yet obtained conclusive results regarding the differences between family and non-family firms. Moreover, very few countries worldwide have explicit database information to enable them to recognize family firms. This research uses an abductive method to identify family-involved firms (FIFs) with homogeneous features compared to the rest of firms regarding performance, an essential indicator of the firm’s success. Second and later generation FIFs, despite their internal differences, make up a uniform group of firms when considering several dimensions of performance (leverage, efficiency and profitability), and differ significantly from the rest of firms. At the same time we test whether entrepreneurial firms (lone- founder firms) should be considered family firms or non-family firms, according to their behavior. Results agree with making a distinction between lone-founder firms, in which no relatives are involved as internal stakeholders, and FIFs.

Family- versus Lone-Founder-Controlled Public Corporations: Social Identity Theory and Boards of Directors

We distinguish between “family companies,” involving multiple family members as owners and/or managers, and “lone-founder companies,” involving only the founder and no other family members. We apply social identity theory and organizational identification to elucidate the differences between these two types of firms, and how their differing organizational identities reflect unique desires for control and influence. We then consider how these differences are reflected in a firm's board structure (i.e., directorship interlocks, director experiences, and director tenures). Specifically, we predict that family firms are more likely to interlock with other family firms, select directors with more experience in family firms, and keep directors on their boards longer. Correspondingly, we posit that family firms are less likely to interlock with lone-founder firms or to select directors with experience in lone-founder-controlled firms. Lone-founder firms follow a similar pattern. We also consider the consequences of family and lone-founder ownership and board structures on the investment behavior of three classes of institutional investors. We test our hypotheses with a sample of publicly traded corporations between 1991 and 2006, and report strong support for most of our predictions.

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.

Frugal Principals, Lavish Agents: CEO Compensation in Family-, Founder- and Other Firms

Using agency theory we formulate hypotheses about the executive compensation practices among lone founder firms and family firms. We argue that compensation schemes reflect attempts to reduce the agency costs inherent in the different ownership structures. Hence, lone founder-owned firms where owner-manager incentive alignment and monitoring advantages are great will exhibit the lowest levels of total and incentive CEO compensation. By contrast, family-owned firms, while enjoying owner-manager agency advantages over other companies, face unique owner-owner agency conflicts as family owners may pressure their CEOs to serve the family instead of the firm. Higher levels of total and incentive CEO compensation thus were expected to be paid to reduce the impact on the CEO of such pressure. These expectations were borne out in our study of S&P 500 companies. However, we also found contrary to the above rationales that despite their higher compensation packages diffusely held firms did not benefit more from higher CEO compensation than founder- or family-owned firms, nor did they outperform. Moreover, CEO compensation was negatively related to performance in the former. It appears therefore that founder- and family-owned firms employ more efficient compensation packages than more diffusely held public firms.