Family-owned Firms Research Articles

Family businesses and strategic change: the role of family ownership

In this study, we analyze how the performance-aspiration gap influences strategic change in family firms, providing evidence of the moderating role of family ownership in this relationship. According to socioemotional wealth (SEW) theory, family owners pursue non-financial as well as financial goals, are more risk-averse due to their personal wealth being tied to the firm, and seek to maintain control of the firm to preserve and build their SEW—all characteristics that influence their strategic behavior. We therefore suggest that strategic decisions in family-owned firms are less influenced by purely economic performance, and that such firms tend to persevere more strongly in their strategic direction. We test our hypotheses on a sample of publicly listed European firms between 2007 and 2016. Our findings confirm that the success of firms inhibits strategic change, and that family ownership moderates this relationship by making the overall effect smaller, indicating greater resistance to change despite economic pitfalls.

INFLUENCE OF FAMILY OWNERSHIP, BOARD AND TOP MANAGEMENT CHARACTERISTICS ON THE QUALITY OF WEBSITE CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE IN INDONESIA

Background and Purpose: This study aims to investigate the effect of family ownership, board characteristics (board foreign experience and board accounting expertise), and top management characteristics (management education level) on the quality of website Corporate Social Responsibility (CSR) disclosure via corporate website among the top companies listed in the Indonesia Stock Exchange (IDX). This study adds to the body of literature by examining the moderating effect of family ownership towards the relationship between board characteristics and website CSR disclosure, which is useful for investors who might have concerns on the level of CSR disclosure as a gauge of firm ethics, particularly in respect to family-owned firms.
 
 Methodology: Sample of this study consisted of 100 non-financial companies listed in Indonesia Stock Exchange (IDX) for the year of 2019. To test the study’s hypothesis, multiple linear regression analysis was applied.
 
 Findings: Empirical results from this study have shown that family ownership is negatively related to the quality of website CSR disclosure. Board foreign experience has a positive effect on CSR disclosure practices in their respective corporate websites. Meanwhile, top management education level was found to have a negative and statistically significant relationship with the quality of voluntary website CSR disclosure. Lastly, this study demonstrated that family ownership moderates the relationship between board accounting expertise and the quality of CSR disclosure on corporate websites.
 
 Contributions: This study contributes to the literature on CSR disclosure by introducing a set of index measuring the quality of voluntary website CSR disclosure, which captures not only the variety, but also the richness of CSR information. The moderating role of family ownership on such relationships, which is rarely investigated in the context of developing countries, was also explored by this study.
 
 Keywords: CSR disclosure, voluntary disclosure, family ownership, board characteristics, top management.
 
 Cite as: Melati, I., Arshad, R., Ahmad Nadzri, F. A., Nair, R., & Hermawan, A. A. (2023). Influence of family ownership, board and top management characteristics on the quality of website corporate social responsibility disclosure in Indonesia. Journal of Nusantara Studies, 8(TI), 351-381. http://dx.doi.org/10.24200/jonus.vol8issTIpp351-381

Corporate restructuring at Tata Steel Ltd

Research methodology The case was developed from secondary sources and interviews with a security analyst. The secondary sources include company annual reports, news reports, analyst reports, industry reports, company websites, stock exchange websites and databases such as Bloomberg and CMIE Prowess. Case overview/synopsis Increasing competition in product and capital markets has put tremendous pressure on managers to become more cost competitive. To address their firms' uncompetitive cost structures, managers may have to consider dramatic restructuring of their businesses. During 2014–2017, Tata Steel Ltd (TSL) UK considered a series of divestitures and a merger plan to nurse the company back to health. The case considers the economics of the restructuring plan. The case is designed to help students analyze a corporate downsizing program undertaken by a large Indian company in the UK and to highlight the dynamic role of the CFO and governance issues in family firms. It introduces students to issues surrounding a typical restructuring and provides students a platform to practice the estimation of value creation in a restructuring exercise. While some cases on corporate restructuring in the context of developed economies are available, there are very few cases written in an emerging market context. This case bridges that gap. TSL presents a unique opportunity to study corporate restructuring necessitated by a failed cross-border acquisition. It illustrates the potential for value loss in large, cross-border acquisitions. It shows how managerial hubris can prompt family firm owners to overbid in acquisitions and create legacy hot spots. In addition, the case can be used to discuss the causes of governance failures such as weak institutional monitoring and poor legal enforcement in emerging markets that could potentially harm minority shareholders. Complexity academic level The case was developed from secondary sources and interviews with a security analyst. The secondary sources include company annual reports, news reports, analyst reports, industry reports, company websites, stock exchange websites and databases such as Bloomberg and CMIE Prowess.

How does family exit affect family business financialization?

This paper examines how the family exit of family businesses affects financialization, using family-owned firms in China's stock markets as samples. The study shows that family exit from executive positions to increase the proportion of non-family member executives has a facilitating effect on corporate financialization, and controlling family's reduced shareholding has a dampening effect on corporate financialization; providing equity incentives to executives helps to dampen the facilitating effect of family exit at the managerial level on corporate financialization compared to compensation incentives; and family exit reduces the degree of corporate financialization by increasing the level of corporate financing constraints.

IFRS Mandatory Adoption and Earnings Quality in an Emerging Market: The Case of Ecuador

This paper examines changes in earnings quality, including accruals, earnings smoothing, and asymmetric loss recognition schedules, following the mandatory adoption of IFRS in Ecuador. Using 5,436 year-firm observations, we employ a differences-in-differences approach, comparing the effect of IFRS on an initial group of adopters (publicly traded companies) with non-adopters (small and medium-sized enterprises) with essentially the same financial reporting requirements. Our findings indicate a decrease in accrual levels and more timely recognition of losses, with no evidence of changes in earnings smoothing. These results suggest that companies use the increased flexibility of IFRS to meet debt holders' demand for timely loss recognition. The decrease in accruals suggests earnings management for tax purposes. This study contributes to the literature on IFRS and earnings quality by using a more robust research design and providing evidence on the consequences of IFRS adoption in an emerging market dominated by debt capital and family-owned firms.

Does the Founder CEO Receive a Higher Pay for the Firm’s Performance? Evidence from Malaysia

This paper examines whether firms run by a founder chief executive officer (CEO) have higher pay and whether their power sources from chairing the board, remuneration committee, tenureship, or share ownership affect the pay-performance nexus. Data for the study was hand-collected amongst 362 family-owned firms listed in Bursa Malaysia from 2009 to 2015 and analysed via the generalized method of moments (GMM) system to address endogeneity. The results showed that initially there was a significant positive pay-performance relationship in Malaysian family-owned firms; however, the founder CEOs had a weak influence on the pay-performance nexus. Secondly, the founder CEOs’ influences on the pay-performance nexus mainly came from their ownership power and their structural power as the chairman of the board. Thirdly, the pay-performance nexus tended to be positive and stronger when the family member of the CEO was chairing the board of directors and remuneration committee, instead of themselves, but the relationship changed to negative when more independent directors sat on the board, including a remuneration committee. The findings offered some policy implications for the regulators to enhance corporate transparency on the directors’ remuneration and ownership.

Does capital structure matter? Evidence from family-owned firms in Jordan

PurposeThis study examines the potential impact of capital structure on the financial performance of family-owned firms in Jordan.Design/methodology/approachUsing panel data of 107 listed companies from 2019 to 2021, the authors use a multivariate regression model to empirically examine the role that family firms' capital structure can play in engendering financial performance in the short and long terms.FindingsThis study's evidence indicates that family businesses rely on equity as their primary source of funding. This approach has been proven to be detrimental to their financial performance, as evidenced by the negative impact of capital structure on family firms' financial performance in the current study.Originality/valueCapital structure-related decisions are essential to a firm's performance. Thus, there have been numerous empirical studies examining the relationship between capital structure and corporate performance in various settings worldwide. However, the findings of these studies are inconclusive. Also, there are relatively few empirical studies investigating the association between capital structure and the performance of family firms in emerging countries, particularly Jordan. This study, therefore, addresses this empirical gap in extant literature.

Corporate Governance in Family Firms: A Bibliometric Analysis

Like other business forms, corporate governance is a matter of concern for family firms as well. The objective of the work is to study the corporate governance practices of family-owned firms using bibliometric analysis of existing literature. With the help of VOSviewer & Biblioshiny Software, an attempt has been made to develop the visualization patterns based on academic publications growth, most influential authors, country, keyword occurrences, thematic map and co-authorship network. Based on 435 studies conducted during the selected period, the study found the maximum work has been done in the USA followed by Italy, Spain, China and UK, and Anderson and Reeb (2003) is the most cited work in this area. The main focus of prominent studies was on assessing the impact of family ownership on a firm’s performance, and there is unanimity that family firms’ CEOs devote more time and effort to preserve socio-economic wealth, have fewer forecasting errors and perform better. Though ‘corporate strategy’ and ‘governance approach’ are key concepts in family businesses yet it is a less explored areas. Thiss article provides an overview of how the literature on corporate governance and family firms has evolved and a synopsis of the most influential authors, most productive countries, co-word analysis and themes clustering. This study provides a thorough coverage of the existing literature on family governance mechanisms and is helpful for new researchers who want to understand this concept and also for those who are looking to explore new directions in the same field.

The Impact of ESG Performance on the Value of Family Firms: The Moderating Role of Financial Constraints and Agency Problems

The main objective of this research is to shed more light on how ESG may be seen as a valuable investment for family firms. We study the impact of ESG performance on the value of family firms by considering the moderating role played by financial constraints and agency costs. Using an international sample of 254 firms that belong to the 500 largest family-owned firms worldwide over the period 2015–2021, we report that the overall ESG score is positively associated with firm value. Among the three ESG components, we find that environmental and social performances have a positive and statistically significant impact on firm value. However, we find no evidence of any significant effect of governance score on firm value. More importantly, we also find that the impact of ESG performance on firm value is lower under the presence of financial constraints and agency costs.

Lone founders, family owners and borrowing cost: Are female directors influential?

PurposeThis study examines the effect of lone founder and family ownership on borrowing cost. In addition, the study examines the moderating influence of gender diversity on this relationship.Design/methodology/approachThe study used a sample of non-financial firms listed on Pakistan Stock Exchange over the period 2012–2021. The authors used ordinary least squares regression analysis method to test the hypotheses along with generalized method of moments estimation technique to control for unobserved heterogeneity, simultaneity and dynamic endogeneity.FindingsThe authors report that borrowing cost is higher in lone founder ownership, whereas borrowing cost is lower in family firms due to lesser risks attached to such firms by lenders. Further, the presence of female directors on the board weakens this relation in the case of lone founder ownership, whereas their presence further reduces borrowing cost in family-owned firms. Additionally, using the framework of critical mass theory, the authors found that higher number of female directors on boards reduces borrowing cost. Overall, this study’s results provide empirical support for social identity and critical mass theories in the sample firms.Originality/valueThe study provides novel evidence of the influence of lone founder and family ownership on borrowing cost in an emerging economy, as well as the moderating effects of gender diversity on this relationship.

Hiring family or non-family managers when non-economic (sustainability) goals matter? A multitask agency model

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic and non-economic tasks in family firms. Comparing the performance of family and non-family managers under moral hazard and imperfect performance measurement, we find that incentive pay leads to an effort distortion towards economic outcomes for both manager types, however less so for family managers. This effort distortion is less pronounced when economic and non-economic management tasks are complements. We show that family managers with excellent skills regarding non-economic goals of the owner family often outperform non-family managers even if they have poor skills in economic tasks or, what is more, if they have lower average abilities altogether. We further show that the interdependence between economic and non-economic goals in the manager’s job tends to have a moderating effect on the family manager’s relative performance. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family firms’ hiring decisions. By highlighting the importance of non-economic goals, it moreover adds to the current discussion about the compliance with firms’ sustainability goals.

Behavioural Phenomena of Family Firm Control Diversity and R&D Investment with Moderating Role CEO Compensation.

The novel study describes the behXavioural phenomena of family firm types and explores the relationship between the family firm types of control diversity and Research and Development (R&D) investments. Acquiring controlling rights is a psychological phenomenon for family firm owners. The moderating effect of CEO compensations on R&D investments is investigated. We collected data of listed A-share family firms in China from 2011 to 2020 in the China Stock Market and Accounting Research database. We used Tobit regression for data analysis. The study concludes that lone-controller family firms (LCFFs) are less willing to invest in R&D and multi-controller family firms (MCFFs) have positive behaviour towards R&D. The moderating role of CEO compensation deviates the willingness and behaviour to invest in R&D. To the best of our knowledge, this study is the first to outline the paradoxical empirical evidence on family firms and R&D investments by analysing control diversity and how the moderating role of CEO compensation nexus can alter willingness towards R&D. The study is a novel attempt following De Massis et al's framework to test the willingness and ability of LCFFs and MCFFs. Previous studies based on agency theory have tacitly assumed that ability and willingness exist in family-controlled firms. However, this study challenges this implicit assumption.

Wrongdoing in Publicly Listed Family- and Nonfamily-Owned Firms: A Behavioral Perspective

We integrate research on family-owned firms (FOFs) and the Behavioral Theory of the Firm (BTOF) to study wrongdoing—a specific dimension of corporate social responsibility (CSR) associated with destructive risk—in family- versus nonfamily-owned firms (NFOFs). We argue that FOFs are likely to respond differently from NFOFs to risks because in addition to concern for economic costs and benefits, FOFs are uniquely concerned with the socioemotional wealth (SEW) accruing from the noneconomic costs and benefits of their actions. Furthermore, we argue that the differences in behavior are dependent upon whether the nature of risk associated with a behavior is destructive, as in the case of wrongdoing, versus productive, as in the case of other previously examined behaviors such as research and development [R&D] investment, diversification, or internationalization. Our analyses, based on 17,022 observations from a sample of 1,900 publicly traded U.S. firms from 1999 to 2016, provide robust empirical support for these predictions, showing that FOFs commit less wrongdoing than their nonfamily counterparts and respond to performance relative to aspirations regarding wrongdoing in a way that varies from their responses regarding other behaviors examined in prior studies. We thereby advance the literatures on BTOF and FOFs by explaining how family owners’ decisions change depending on the type of risk associated with their behavior— destructive versus productive, and by integrating the additional aspiration related to SEW into BTOF predictions to tell a more complete story of organizational wrongdoing from the BTOF perspective. By focusing on wrongdoing as a specific dimension of CSR, our findings also have implications for CSR research as they show that the relative importance of social responsibilities shifts according to the type of risks (and trade-offs) associated with those responsibilities.

Green by Affiliation? Ownership Identity and Environmental Management System Adoption in Chinese Business Groups

How does owner identity affect environmental management system (EMS) adoption by business group affiliates? While current research on EMS adoption is mostly focused on stand-alone Western firms, a marked uptake of adoption has unfolded in Eastern countries such as China, where business group affiliates are the dominant organizational form. This stark contrast between corporate interest and research attention has left a clear lacuna in our understanding of how systems that can reduce environmental impact diffuse across industrial settings. We argue that state, family, and foreign owners of affiliated firms show distinct propensities to adopt an EMS, owing to differences in legitimacy needs, ownership competencies, and group-level preferences to engage in systematic environmental practices. Logistic regressions based on data from listed Chinese business group affiliates between 2008 and 2019 show that state and family ownership negatively influence the likelihood of EMS adoption, whereas foreign control has a positive effect. More intragroup transactions exacerbate the low adoption propensity of family-owned firms. Our study contributes to the literatures on business groups and corporate environmentalism.

Factors affecting income smoothing practice: Insights from the Indonesian capital market

The objective of this quantitative study is to examine the factors that influence income smoothing practices in the Indonesian capital market, including share ownership by groups/institutions, family-owned firms, and industrial sectors, with firm size serving as a control variable. This study used a purposive sampling technique to acquire a sample of 112 businesses over the years 2017 to 2021, yielding 560 observations by using a panel data approach. The findings indicate that neither share ownership by a group/institution nor a family-owned firm has a substantial impact on income smoothing practice. Among industrial sectors, only the sector of consumer products significantly influences income smoothing. As a control variable, business size has a favorable influence on income smoothing. This paper provides empirical evidence on financial accounting research, namely on the subject of income smoothing and the quality of earnings reporting, despite a number of limitations, such as a relatively short observation period.

The family business failure paradox in the retail industry: Does succession planning contribute to the preservation of superior performance?

Family firms have continued to register low survival rates. Across the world, research puts the survival rate of family businesses beyond the third generation at a mere single digit. The dilemma is also that despite the high failure rate of family-owned firms, the world’s most enduring companies also belong to this class. What do they do differently from the majority of their peers? Succession planning tops the list of the 21st century’s paradoxical challenges facing family business enterprises. Past studies have been barely conclusive on whether and how succession planning, or the lack of it, affects business economic performance. The current study assesses the effect of succession planning on business economic performance. The study used a deductive approach, a survey research strategy, and an explanatory research design to fulfil its objectives. Data analysis was done through descriptive as well as inferential analyses. Regression analysis results indicated that succession planning is a statistically significant determinant of business economic performance. The study recommends that firms should improve their measures targeted towards the prior identification of roles and leadership positions that require successors. The study also recommends the enhanced preparation, grooming, and development of identified successors.

Board Gender Diversity and Firm Performance: Evidence from Family-Owned Firms in India

This study investigates the impact of board gender diversity (BGD) on firm performance (FP) for family-owned Indian firms. To do so, this study selects a sample of the 75 top-listed family-owned firms for a period of 5 years. For empirical analysis, the study used appropriate panel data models. For robustness, the three-stage least square (3SLS) model was used. The findings obtained from panel data models reveal a significant positive impact of BGD in terms of its different measures on FP after controlling corporate governance and firm-specific characteristics. Such results are further substantiated through the 3SLS model. This study provides novel evidence on the impact of BGD in terms of its diverse constructive measures on FP for family-owned firms in the Indian context, thereby extending the ongoing debate about the outcomes of the mandatory gender quota on board for an emerging market.

Family Ownership and Impression Management: An Integrated Approach

ABSTRACT According to agency theory, impression management is lower in family-owned firms because of reduced agency I conflicts. However, when family owners are present, agency I conflicts are superseded by agency II conflicts between controlling and minority shareholders, leading to a positive association between impression management and family ownership. Moreover, family owners have distinct goals related to the preservation of socioemotional wealth (SEW) that may influence agency conflicts. We formalize these countervailing forces by developing an integrated theoretical framework that considers both agency I and agency II conflicts and how they interact with SEW-related motives. We hypothesize that the coexistence of agency I and agency II conflicts in family-owned firms leads to a U-shaped association between family ownership and impression management. We also expect that this U-shaped association is flatter when family influence on the board is stronger and SEW motives shape more corporate choices. We test our predictions by analyzing the letters to shareholders of 77 Italian-listed firms from 2008 to 2015. The results confirm our expectations and hold when we use instrumental variable estimation, alternative proxies to capture SEW motives, and impression management measures.

Political connection, family ownership and corporate philanthropy: empirical evidence from Jordan

PurposeA key goal of this research is to examine empirically whether politically connected board members are likely to impact corporate philanthropy. A further goal of this study is to contribute to the existing literature by examining the moderating role of political connections on the relationship between family ownership and corporate donations.Design/methodology/approachBased on the content analysis approach, the authors determined the level of cash and in-kind donations made by a group of 94 non-financial Jordanian companies listed on the Amman Stock Exchange. This study examined 658 annual reports spanning over seven years from 2010 to 2016. Ordinary least squares regression (OLS) is used to test the study hypotheses. In addition, this study used the probit regression to validate those results reported by the OLS regression.FindingsCompared to unconnected companies, politically connected companies in Jordan are more likely to donate to philanthropic causes. Moreover, the results revealed that the presence of significant family ownership shareholding in a firm can weaken the firm tendency to donate. Despite this, the regression analysis results indicate that family-controlled firms with political connections are more likely to engage in charitable giving activities compared to those without political nexuses.Research limitations/implicationsThe study contributes to the conversation surrounding corporate giving and sheds light on the role political connections and ownership structure (particularly family-owned firms) play in affecting donations by firms.Practical implicationsManagers of Jordanian firms listed on the stock exchange can use the study's findings to make better decisions about their donations and other philanthropic activities.Originality/valueThis study is the first to examine the relationship between firm donations and political connections in Jordan, and how political nexuses can moderate the relationship between family ownership and corporate donations. Hence, it extends prior research significantly.

Graduating college students apply here: Communicating family firm ownership and firm size

Attracting business college graduates is a major challenge for the growth and transgenerational success of family firms. Moreover, the institutional context of countries is critical in explaining family firms’ potential advantages and/or disadvantages in attracting nonfamily talent. This study aims to elucidate how communicating firm ownership (family vs. nonfamily), firm size (large vs. small), and type of job offered (professional vs. nonprofessional) influences the perceptions and attitudes of Latin American business graduates toward working in such firms. In an experimental study that uses job advertisement stimuli, we found that communicating family ownership positively influences career development’s perceptions of firm prestige. Large (vs. small) firm size also has a positive influence on job seekers’ perceptions of firms. Importantly, both firm prestige and career development positively influence the attraction of working in family firms. In this paper, we discuss the differences in the results among countries and professional vs. nonprofessional job positions advertised. The results have several implications for family firm owners and managers.