Non-family Ones Research Articles

Effects of Family Ownership and Professionalization on Firms’ Financial Performance and Sustainability Reputation

Family firms face significant challenges in professionalizing their management, while the professionalization effects on the firms’ performance are unclear. Drawing on stewardship and agency theories, we theorize and test the effects of family ownership and professionalization on firms’ financial performance and sustainability (environmental, social and governance) reputation. Using a large-scale management practices dataset of both public and private companies in the US, UK, Germany, and France, we find that family firms outperform nonfamily ones in terms of both financial performance and sustainability reputation, and professionalization helps strengthen such positive effects. We theorize that this is because professionalization can address agent opportunistic behaviors, while enhancing steward behaviors unique to family firms. The findings contribute to the literature on family business governance and professionalization.

How a larger family business is different from a non-family one?

A larger family business seeks to remain strong and competitive against larger non-family businesses in domestic and foreign markets. This goal can result in replicating practices adopted by larger non-family businesses. We build from agency and institutional theories to explore how different are large family businesses from non-family ones as they become professionally managed and conform to isomorphic pressures. We conduct our study with a sample of Ibero-American and Asian firms ranked in the Top 750 largest family businesses. Our findings provide an initial assessment about the limits of the family influence on the business and discuss the potential implications for future research in the field.

COVID-19 Interruptions and SMEs Heterogeneity: Evidence from Poland

This study contributes to the emerging stream of the literature on the COVID-19-related risks and their impact on businesses’ performance. The growing evidence within is, however, missing the uniqueness of country-level settings, as well as lacking the voice of SMEs solely. The extant literature provides some evidence on SMEs’ vulnerabilities to the crisis, but it commonly compares SMEs with large firms. To cover this gap, the main aim of this study is to analyze the perception of COVID-19 interruptions by various groups of Polish SMEs. Thus, this work adds primarily by revising the perceptions of COVID-19 risks, given the heterogeneity of SMEs if we consider their size, age, legal form of organization and status of a family firm. Based on the survey results on SMEs operating in Poland, we employ ANOVA and k-means ranks to provide strong evidence that COVID-19’s impact was perceived as more interruptive by micro and very young firms, as well as by the firms that perform as sole proprietorships. We have also found evidence that family firms do not differ from non-family ones in the perceptions of COVID-19 impacts.

Do manufacturing firms in Bangladesh engage in earnings management to avoid losses? Further evidence using the governance elements as monitors

PurposeThis study aims to investigate the earnings management practices of the listed manufacturing firms in Bangladesh and assess the impact of corporate governance mechanisms on such earnings management behavior.Design/methodology/approachThe study applies the real earnings management (REM) model developed by Dechow et al. (1998) and implemented by Roychowdhury (2006) and modified Jones model (1991) for the proxy of accrual-based earnings management (AEM). It uses a pooled ordinary least square regression model corrected with robust standard errors for empirical analysis.FindingsThe study finds that firms with small positive earnings per share are engaged in AEM to avoid losses. Also, firm managers craft discretionary expenses to manage real earnings. For governance factors, the institutional shareholders tend to play a significant role in limiting both REM and AEM embedded in generally accepted accounting principles or International Financial Reporting Standards. Also, factors such as foreign ownership and board size significantly restrict REM, whereas director ownership encourages the same. The paper does not reveal any significant monitoring role for other governance factors in curbing either REM or AEM practices by Bangladeshi firms.Research limitations/implicationsThe paper studies the monitoring role of governance mechanisms on listed manufacturing firms’ earnings management. A study of separating the listed firms into family and non-family ones could be interesting for future research.Practical implicationsThe paper unveils earning management techniques used by firms in Bangladesh and provides critical policy implications to the corporate governance mechanisms that effectively limit earnings management practice.Social implicationsThe social significance is to aware constituents of financial reporting about the earnings management behavior by firms in emerging economies.Originality/valueThe study adds to evidence that the manufacturing firms in Bangladesh adopt both REM and AEM techniques to avoid losses. Simultaneously, the paper highlights some critical governance factors that can restrict misleading earnings management behavior by firms in an emerging economy to assist in policymaking.

Family Business as a Bearer of Social Sustainability in Multinationals-Case of Slovakia

Social sustainability is slowly becoming a more important aspect of a company’s management, particularly in the case of multinational companies with an international network of subsidiaries placed in diverse cultural and social environments. The concept of social sustainability is strongly connected with a considerable number of stakeholders, compared to the environmental and economic aspects of sustainability. The nature of activities under the social pillar of corporate responsibility connects social sustainability with family business, which aims at the principles of social solidarity, equality and ethics. This article uniquely analyzes selected aspects of social sustainability on a sample of 201 Slovak subsidiaries of foreign multinationals and finds differences between family and nonfamily ones. Surprisingly, the conducted research proved that the examined family businesses cannot be considered as bearers of social sustainability in Slovakia, since, in many aspects, the nonfamily businesses implemented the monitored aspects in larger measures, and there were only two factors that turned out to be significant, according to the type of business ownership. Equal opportunities in the workplace were the only variable, due to which significant differences were seen, according to the factor of a family business and the factor of employees’ gender simultaneously, which makes it a crucial variable. The conducted study fills the gap in explanation of interconnections between social sustainability, family business and equal gender opportunities, which makes it unique not just in Slovak conditions.

Empresas familiares e não familiares na Bolsa de Valores do México: comparação dos retornos financeiros 2006-2012 / Family and non-family businesses on the Mexican Stock Exchange: comparison of financial returns 2006-2012

Family businesses represent most organizations in Mexico and participate in a wide variety of industries. They come in all sizes, even among the largest in the country. In the Mexican Stock Exchange (BMV), 70% of the companies that issue shares are family members (Belausteguigoitia, 2012). Research has been conducted in various countries comparing returns between family and non-family businesses (Villalonga and Amit, 2006). A comparative study of this nature was lacking in Mexico, which would allow us to know the performance of family organizations. This work offers additional value as it compares returns during years of crisis and stability. Preliminary results indicate that during years of relative financial instability (due to the 2008 crisis), family organizations show significantly higher returns than non-family ones, while in years of stability the returns tend to be similar. In addition to presenting detailed results during this period, some hypotheses are put forward that explain the fact that family organizations perform better in times of crisis.

Family firm CEOs: human capital and career success

PurposeThis article explores the influence of education and experience on the time to the top in family and non-family CEOs who work for Latin American family firms.Design/methodology/approachIn order to achieve these objectives, this study draws upon human capital theory as well as career and family firm literature. The careers of 129 CEOs of family firms who form part of the América Economía ranking were analyzed and quantitative methods were used.FindingsIn Latin American family firms, family CEOs reach the top faster than their non-family counterparts. In addition, the influence of human capital variables on the way to the top differs between the two groups. For family CEOs, obtaining a graduate degree delays the way to the top, while for non-family ones, it reduces the time to the top. As regards experience, for promoted family CEOs, the greater the percentage of the career spent in the organization they lead, the shorter the time to the top. No support was found for either the influence of having worked for just one firm or having had elite graduate education abroad, in multilatina CEOs.Practical implicationsIndividual career management suggestions for future CEOs as well as specific guidelines for talent managers are proposedOriginality/valueThis is the first study to explore the influence of human capital indicators on the time to the top in Latin American family firm CEOs.

Board Diversity and Corporate Social Responsibility: Empirical Evidence from France

This study analyzes how the board’s characteristics could be associated with globally corporate social responsibility CSR and specific areas of CSR. It is drawn on all listed firms, in 2016, on the SBF120 between 2003 and 2016. Our results provide strong evidence that diversity in boards and diversity of boards globally are positively associated with corporate social performance. However, they influence differently specific dimensions of CSR performance. First, we show that large boards are positively associated with all areas of CSR performance, while specific and overall CSR scores are negatively associated with CEO-chair structures. Second, board gender diversity is positively associated with human rights and corporate governance dimensions. Third, age diversity is positively associated with corporate governance, human resources, human rights, and environmental activities. Also, our results provide evidence that outside directors care about CSR performance. Specifically, the presence of foreign directors is positively associated with environmental performance and community involvement, whereas CSR-Governance dimension is positively associated with the presence of independent directors. Regarding the director’s educational level, post-graduated directors are positively and significantly associated with overall CSR score and all CSR sub-scores, except the corporate governance one. When directors have multiple directorships, they are more concerned about human resources, environmental performance, and business ethics. Finally, our findings are robust only in non-family firms. In fact, family boards are less diverse than non-family ones; specifically, they have a lower number of independent, foreign, and high-educated directors.

Leader behaviours of family and non-family executives in family firms

PurposeSeveral studies of family firm failures have pointed to non-family members in leading positions as a reason. However, non-family members have often played a key role in family-firm longevity, while non-family executives’ involvement in family firms is increasing. These non-family executives who (co-)run family firms are thought to require an almost impossible set of behavioural qualities. The aim of this exploratory study is to find out how specific leader behaviours of effective family executives and non-family executives may differ.Design/methodology/approachBased on Dulewicz and Higgs’ (2005) broad leadership frame, the authors draw attention to a large range of behaviours of family-firm executives. In-depth interviews were conducted with successful German executives, both family and non-family ones. Their answers had to contain specific behavioural examples.FindingsMore behavioural similarities than differences are shown between family- and non-family-based executives. Yet, the self-reflective communicative behavioural qualities of the non-family executives could balance a lack of such qualities among the family-based executives. Based on the three major differences – decision-making style, communication versatility and self-awareness – specific new research propositions are distilled about effective family firm leadership.Originality/valuePractical suggestions for recruiting non-family executives are offered. Future quantitative longitudinal research on how to pair specific behavioural qualities of family and non-family based executives that optimise family-firm longevity is urgently needed.

Ownership structure and profitability of listed firms in an emerging market

Motivated by the agency theory and the need to examine the effect of separation of ownership and management, this study examines the determinants of profitability in different firm ownership structures and how different ownership structures impact the profitability of listed firms between 2003 and 2013, using pooled annual data of 23 Ghanaian listed firms. Employing a number of static models (OLS, Random Effects and 3 Stage Least Squares), we find evidence that while profit determinants vary for listed firms given their ownership structures, ownership structures also affected profitability differently. Specifically, for listed firms, profitability was determined by capital intensity, liquidity, financial risk, age and GDP; for non-family owned listed firms, profitability was determined by capital intensity, liquidity, market share and age; for foreign-owned firms, profitability was determined by capital intensity, liquidity, age and GDP; and for non-foreign ownership, profitability was determined by capital intensity, liquidity, financial risk, growth, age and GDP. When we examine the impact of ownership structure on profitability and find that family-owned listed firms make 30% less profits compared to nonfamily owned ones, whilst foreign-owned firms make 13% more profits than non-foreign owned ones. These findings confirm the agency theory which posits that separation of ownership and management, though may lead to agency problems, can positively affect profits. The study recommends that family-owned listed firms should consider diluting ownership in order to grow more profits.

Private benefits extraction by the initial owner and the dynamic of ownership and control post‐initial public offering

We investigate the relation between the private benefits' extraction by the initial controlling shareholder and the likelihood of the change of control post‐initial public offering (IPO) in France. We find that (a) in a weak investor protection context, the initial controlling shareholder with high private benefits of control is less likely to relinquish control 5‐years post‐IPO. (b) The initial controlling shareholder extracts private benefits of control through high voting rights and when the founder is involved in control at IPO. (c) Family controlling shareholders are less likely to end up with change of control post‐IPO than nonfamily ones. Such behavior is more pronounced with substantial voting rights, when the founder is in control and when the founder or his heir is an executive director. High private benefits of control contribute therefore to foster the survival of the initial controlling shareholder post‐IPO. Our findings are robust even after using alternative proxies of private benefits of control and also after running a survival analysis.

Corporate social responsibility practices developed by Mexican family and non-family businesses

PurposeThe purpose of this paper is to identify the CSR practices developed by Mexican family and non-family MSMEs. The study also aims to compare the CSR practices carried out by family and non-family businesses in a country with an emergent economy.Design/methodology/approachThe paper opted for an exploratory study using a sample of 384 businesses was selected in the southern state of Quintana Roo, Mexico, distributed in 245 family and 139 non-family businesses and a questionnaire was applied directly to the managers/owners.FindingsThe results show that family MSMEs develop CSR practices to a higher extent than non-family ones, mainly on environment and societal dimensions. In addition, CSR practices in family-owned enterprises develop to a higher extent when the manager/owner has more years of experience in the business, has a higher university education and the size of the business is larger.Research limitations/implicationsThe study was developed exclusively with a MSMEs sample with a scope only on the southern part of Quintana Roo, Mexico; the shortage of business databases and the stratification of businesses based exclusively on the number of employees. This work presents information that contributes to the state of the art, broadening the existing literature related to CSR in businesses of a country with an emergent economy and an environment where the tourism and commercial sectors predominate.Practical implicationsThis paper provides information to government institutions for the establishment of public policies targeted for an increase of CSR activities by businesses in the area. Manager and/or owners can understand the importance of implementing CSR activities within the business as a competitive strategy. It is also important for universities, professors/researchers and for all interested parties.Originality/valueThis paper provides theoretical and empirical evidence about CSR practices carried out among family and non-family MSMEs in an emergent economy.

Family ownership and financial reporting quality: Iranian evidence

PurposeIn the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors in providing reasonable assurance about the quality of financial reporting. Studying the quality of family firms’ financial reporting is of higher importance relative to non-family firms due to lower risk of accounting manipulation. Therefore, the purpose of this paper is to examine the relationship between family ownership structure and financial reporting quality from an auditing perspective.Design/methodology/approachTo analyze the research hypotheses, the authors use a sample data consisted of 221 companies listed on the Tehran Stock Exchange (including 52 family and 169 non-family firms) over a five-year span from 2011 to 2015.FindingsUsing multivariate regression analysis of panel data, our results indicate that audit risk in family firms is lower than their counterparts. Likewise, the findings are indicative of lower audit fees paid by family firms as compared to non-family ones. The authors also find that auditors put more effort in family firms and thus audit effort is more significant for these kinds of firms.Originality/valueThe study focuses on family ownership and financial reporting quality in a developing country like Iran and the results of the study may be beneficial to other developing nations, as Iran stock market possesses some unique features which are not normally prevailing in other equity markets, even in the Middle East.

Is succession a problem for family businesses?

Family businesses constitute the oldest form of doing business. They connect three ele-ments: a family, an ownership and a company. The element that distinguishes family busi-nesses from non-family ones is succession. To keep a family character, it is necessary to pass it to the next generations. The main objective of this essay is to draw attention to the issue of succession that is currently faced by many companies in Poland and other coun-tries. Improper execution of the generational change can lead to a demise of the company. The Author discusses various new initiatives and undertakings that aim at supporting the companies in the process of transferring management to the successors. Moreover, he emphasises the importance of preparation of the successors themselves to take the re-sponsibility for the family company.

The Role of Management Ownership in Bank Governance: Evidence from Taiwan

The purpose of this paper is to investigate the relationships that banks’ managerial ownership has with financial performance and firm value. We use a sample of 35 Taiwan domestic banks for the period 2005-2014. In the pooled OLS regression analysis, we find that the banks’ performance and market value fall as the level of management ownership rises, supporting the managerial entrenchment hypothesis. Moreover, the results show that when the ratio of managerial ownership pledge increases, then financial performance decreases while firm value increases. We conjecture that the positive effect of managerial ownership pledge on market value may be caused by the price maintenance effect of stock pledges. In addition, the evidence shows that there is a higher nonperforming loan ratio in family-dominated banks, and this hints that their loan decisions may have more severe agency problems relative to non-family ones.

Impact of financial crisis and family control on earning management of Portuguese listed firms

Accounting information is used to evaluate the firm's financial performance. Although, firms may have incentives to engage in earnings management, misleading all stakeholders. This study aims to analyse earnings management behaviours of Portuguese listed firms. Both accrual-based and real activities of earnings management are analysed to draw an overall picture of earnings management’ strategies. Most studies focused only in discretionary accruals as a proxy for earnings management, since cash flow-based earnings management is more difficult to detect. Although both strategies can be complementary instead of substituting. Moreover, the impact of financial crisis, family control, and firm characteristics is taken into account. Previous literature found that 2008 crisis had impact on earnings management as firms want to meet debt covenants and investors’ expectations. Moreover, family firms also impact the magnitude of earnings management. While some researchers found a negative relationship since managers are highly controlled, others found the opposite relationship because the family may want to maximize their own wealth. Analysing 51 listed firms, from 2003 till 2015, results show that firms engage more in earnings management during crisis, when the firm's financial situation is less stable. In addition, accrual-based earnings management is higher in family firms than in non-family ones, suggesting less quality of information in the first group. Due to less control of family firms, the family may expropriate minority investors’ wealth to increase personal benefits. Finally, the impact of firms’ characteristics on earnings management depends on the proxy of earning management analysed, suggesting that firms use accrual or real-activities earnings management depending on its purposes.

The Market Reaction to Earnings Announcements in Public Family Firms

This paper investigates the market reaction to earnings announcements in public family firms and whether this type of announcements affect firm’s return, liquidity and cost of capital, providing also evidence on whether family businesses differ from non-family ones in what concerns the earnings announcements effects. To do so, we analyse a sample of Portuguese listed firms for the period 2000-2013, using the event study and a panel data approach. Overall, we find no support for the earnings-signalling hypothesis and for the efficient markets hypothesis. In addition, we find no significant differences between family and non-family firms in what concerns performance. We conclude that ROA appears to fit better than ROE or MB to relate earnings and firm performance. The results show that firm’s size and age contribute positively to the firm’s performance. Finally, we find no evidence of a significant relationship between earnings changes and both the firm’s liquidity and weighted average cost of capital, giving no support for the pecking order theory. This study is of interest to scholars and practitioners in the finance field, namely the information content of earnings and the differences between listed family and non-family firms in what concerns the earnings announcements effects.

Board composition in family and non-family innovative businesses

This paper aims to contribute to the literature on corporate governance and innovation, providing empirical evidence with respect to the evolution of board composition and innovation over time, comparing between family and non-family businesses. Data were collected from 86 Spanish companies belonging to innovative sectors during the period 2003 to 2014. The results show a significant difference between family and non-family firms in terms of their board composition, indicating bigger boards and a higher proportion of independent directors in the case of non-family businesses. With regards to external directors, the results also show that their proportion has been increasing in the last years especially in family companies, reaching similar levels to non-family ones. Finally, in terms of gender, its diversity has been also increasing in both types of companies, but more in family businesses, equalling or even overcoming gender diversity in non-family businesses. Non-significant differences were detected in the composition of the boards over time, with the only exception of gender diversity, which shows a significant growth. This descriptive study contributes to the inconclusive research on how is the composition and structure of the board in innovative companies, highlighting the differences between family and non-family business

A theory of family employee involvement during resource paucity

All organizations experience resource paucity at some point in their life-cycles. In this paper, we derive a human resource theory of family employee involvement in the family enterprise when it experiences resource paucity. We use a combination of social identity and stewardship theories to explain why family employees provide a competitive advantage to the family enterprise in such situations. Our paper contributes to ongoing theory development in familiness by showing that family identification and stewardship behaviors during resource paucity differentiate family and non-family employees. These differences explain the higher odds of survival among family enterprises facing resource paucity compared to non-family ones.

The nexus between size and external business advice in the family firm

Purpose The purpose of this paper is to suggest two main objectives: to analyze if the size of the company is determined by the use of external legal and human resources (HR) advice; and to analyze if the size of the family business is determined by the use of these two same types of external advice. Design/methodology/approach The assessment is developed (2,013 firms, the Spanish industrial sector) by using descriptive statistics to compare the features of the different types of firms in the sample: family and non-family ones. This is completed with a test of equality of means and using econometric models. Findings Regarding legal advice, results show that as far as legal matters are concerned, when family businesses make greater use of this type of advice, they are smaller. This is a remarkable and interesting result because it differs from non-family firms, in which the use of this type of advice is positively related with size. Regarding the use of HR advice, while it remains significant in general cases with a positive result, this is not the same for family firms. Originality/value The use of advising in family firms is seldom dealt with in the literature, despite its helpfulness for family firm managers. There is gap in this field and a great deal of interesting research remains to be developed, because the authors consider that factors determining the use of advice in family and non-family firms are different.