Board independence and information asymmetry: family firms vs non-family firms

2019 ◽  
Vol 27 (3) ◽  
pp. 329-349
Author(s):  
Kean Wu ◽  
Susan Sorensen ◽  
Li Sun
Keyword(s):  
Information Asymmetry ◽  
Family Firms ◽  
Family Firm ◽  
Independent Directors ◽  
Board Independence ◽  
Business Practices ◽  
Corporate Disclosure ◽  
Content Type ◽  
Negative Relation ◽  
The Impact

Purpose The purpose of this paper is to investigate the effect of independent directors in reducing firms’ information asymmetry. Moreover, the authors enrich this investigation by differentiating the effectiveness of independent directors in an intriguing comparative setting of family vs non-family firms. Family firms are used to represent an interesting environment where controlling insiders (i.e. firms’ founding families) have dominant control over corporate decisions. This study addresses the question of whether controlling-insiders dominate independent directors. Design/methodology/approach The authors manually collect firms’ founder information to identify family firm status in a sample of S&P 500 firms. Following a large literature in capital market research, the authors proxy information asymmetry by trading volume, bid-ask spread and price volatility. The authors employ multivariate regression with two-stage least square analysis, instrumental variable method, Heckman selection model and Hausman–Taylor model to address the issue of endogenous selection of board of director and family firm status. Findings The authors find a negative relation between the board independence and information asymmetry, suggesting independent directors are effective in reducing information asymmetry. Furthermore, the authors find this negative relation is stronger in family firms. These results are robust after controlling for the endogenous issues using various models. Research limitations/implications Our results suggest that independent directors in family-controlled firms are more successful in reducing information asymmetry than their counterparts in non-family firms. The authors provide direct evidence to support the existing theoretical arguments from Rediker and Seth (1995) and Anderson and Reeb (2004) that founding families and independent boards might be a powerful combination for aligning the interest of insider and diffused shareholders. The findings ease a prevalent concern that the role of independent directors might be compromised in an environment with controlling shareholders, and advocate regulations promoting board independence for various business practices. Originality/value A number of studies concentrate on the practice of corporate disclosure of firm’s performance and governance and how corporate disclosure mitigates information asymmetry (Leuz and Verrecchia, 2000; Ali et al., 2007; Chen et al., 2008). To the best of our knowledge, this study is the first to examine the impact of independent directors in reducing information asymmetry. The research adds to understanding the incentives of board members and supports recent findings that different types of investors have heterogeneous incentives for corporate disclosure (Srinidhi et al., 2014).

scholarly journals The influence of board independence on dividend policy in controlling agency problems in family firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Erhan Kilincarslan
Keyword(s):  
Dividend Policy ◽  
Family Firms ◽  
Agency Problems ◽  
Fiscal Year ◽  
Independent Directors ◽  
Board Independence ◽  
Minority Shareholders ◽  
Content Type ◽  
Turkish Family ◽  
The Impact

Purpose This study aims to investigate the impact of board independence on the cash dividend payments of family firms listed on the Borsa Istanbul (BIST) in balancing controlling families’ power to mitigate agency problems between family and minority shareholders in the post-2012 period. The authors focus on this period because Turkish authorities implemented mandatory regulations on the employment of independent directors on boards from fiscal year 2012. Design/methodology/approach The research model uses a panel dataset of 153 BIST-listed family firms over the period 2012–2017, employs alternative dependent variables and regression techniques and is applied to various sub-groups to improve robustness. Findings The empirical results show a strong positive effect of board independence on dividend decisions. The authors further detect that family directorship exhibits a negative effect, whereas both board size and audit committees have positive influences but chief executive officer (CEO)/duality has had no significant impact on the dividend policies of Turkish family firms since the new compulsory legal requirements in the Turkish market. Research limitations/implications The findings suggest that independent directorship and dividend policy are complementary governance mechanisms to reduce agency conflicts between families and minority shareholders in Turkey, which is a civil law-based emerging country characterized by high family ownership concentration. Practical implications The authors present evidence that Turkish family firms’ corporate boards have evolved, to some extent, from being managerial rubber stamps to more independent boards that raise opposing voices in family decision-making. However, independent directors’ preference for dividend-induced capital market monitoring implies that their direct monitoring is less effective than it is supposed to be. This suggests a need to revise the Turkish Corporate Governance Principles to enhance independent directors’ monitoring and supervisory power. Originality/value This is thought to be the first study to provide insights on how board independence influences dividend policy in controlling agency problems in Turkish family firms since Turkish authorities introduced compulsory rules on the employment of independent directors on boards.

Social networks and family firm internationalisation: cases from a transition economy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Liridon Kryeziu ◽  
Recai Coşkun ◽  
Besnik Krasniqi
Keyword(s):  
Social Networks ◽  
Transition Economy ◽  
Family Firms ◽  
Family Firm ◽  
Research Strategy ◽  
Family Businesses ◽  
Product Diversification ◽  
Content Type ◽  
Competitive Prices ◽  
The Impact

Purpose The purpose of this study is to examine the impact of family firms’ types of social networks on internationalisation. By investigating the mechanisms and the process and complexity regarding the operation, function and impact of social networks, this paper aims to gain insights and understand the dynamism concerning the content, and process as well as build rich and detailed construct analysis. Design/methodology/approach This study used a qualitative case study as a research strategy to examine the impact of social networks on family firm internationalisation. A qualitative research strategy was used as the impact of networking relations and structure is challenging to be measured statistically. Findings The findings suggest that family firm internationalisation was gradual and characterised by an incremental learning process. This process facilitated the networking relations and structures that helped firms improve their quality, product diversification and set competitive prices. Research limitations/implications This study’s first limitation is that it focused mainly on low technology manufacturing firms. This paper recommends examining how high technology firms maximise social networks. Secondly, this paper examined family firms; therefore, this paper recommends comparing and contrasting networking relations and family and nonfamily firms' social structure. Thirdly, being limited only to social networks, this study did not focus on the impact of ownership; this paper suggests future studies to examine family ownership and involvement in firm internationalisation. Originality/value Understanding how firms’ social network types influence family firms’ internationalisation in a transition economy is critical to ensuring family businesses’ expansion. This study explains how family firms use social networks to internationalise, extending the current understanding of family business literature in transition economies. It also provides implications for policymakers and family firms managers for improving the growth prospects of family businesses.

The impact of board independence on accounting-based performance

2017 ◽  
Vol 33 (2) ◽  
pp. 114-130 ◽  
Author(s):  
Allam Mohammed Mousa Hamdan ◽  
Muneer Mohamed Saeed Al Mubarak
Keyword(s):  
Design Methodology ◽  
Stock Exchange ◽  
Independent Directors ◽  
Board Independence ◽  
Stewardship Theory ◽  
Ongoing Debate ◽  
Content Type ◽  
Return On Equity ◽  
Inverse Effect ◽  
The Impact

Purpose The purpose of this paper is to explore the effect of board independence on firm’s performance from the Stewardship theory perspective. Design/methodology/approach The study uses panel data of 162 firms listed in Bahrain Bourse and Saudi Stock Exchange during the period of 2013-2015. It also uses several econometric techniques to confirm the robustness of the results, such as firm fixed-effect approach and two-stage least squares (2SLS) in order to overcome the endogeneity which exists in such relations. Findings The study found an inverse effect of board independence on firm performance which was measured using two accounting-based measures: return of assets and return on equity. Based on these results, it was found that internal directors are more effective in enhancing performance of the firm than independent directors as information asymmetry problem and lack of firm-specific experience hinders the ability of independent directors of taking proper decisions that enhance firm's performance. Originality/value The study contributes to the ongoing debate about the relation between board independence and firm's performance in emerging markets, focusing on Saudi and Bahraini markets which have recently sought to form a system of laws that aims at protecting investors. The study indicates the importance of such laws rather than traditional governance measurements in enhancing performance.

Exploring the family effect on firm performance

2015 ◽  
Vol 21 (6) ◽  
pp. 898-917 ◽  
Author(s):  
Yosra Mani ◽  
Lassaad Lakhal
Keyword(s):  
Social Capital ◽  
Firm Performance ◽  
Family Firms ◽  
Family Firm ◽  
Social Capital Theory ◽  
Three Dimensions ◽  
Capital Theory ◽  
Cognitive Dimension ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to investigate how internal social capital – as a part of the familiness resources– affects family firm performance. The social capital theory states that internal social capital within family businesses is composed of three dimensions: the structural dimension, the relational dimension, and the cognitive dimension. The aim of the paper is to study the relationship between each dimension of internal social capital and family firm performance. Design/methodology/approach – The paper employs an empirical investigation which is based on a sample of 114 Tunisian family firms. Findings – Results demonstrate that the structural and relational dimensions are positively associated with financial and non-financial family firm’s performance. However, the cognitive dimension has a significant positive effect on financial performance but not on non-financial family firm performance. Originality/value – The proposed model aims to test the direct effect of internal social capital dimensions on financial and non-financial family firm’s performance. Besides, there is a lack of empirical evidence aiming at understanding the impact of structural, cognitive and relational social capital on the performance of family firms.

Board independence, gender diversity and CEO compensation

2017 ◽  
Vol 17 (5) ◽  
pp. 845-860 ◽  
Author(s):  
Ramzi Benkraiem ◽  
Amal Hamrouni ◽  
Faten Lakhal ◽  
Nadia Toumi
Keyword(s):  
Ceo Compensation ◽  
Gender Diversity ◽  
Joint Effect ◽  
Independent Directors ◽  
Board Independence ◽  
Women Directors ◽  
Content Type ◽  
Corporate Managers ◽  
Board Decision Making ◽  
The Impact

Purpose This paper aims to investigate the joint effect of board independence and gender diversity on the effectiveness of boards in monitoring CEO compensation in a continental European context, i.e. France. Design/methodology/approach Fixed-effect regressions are used to study the impact of board independence, gender diversity and their interaction, i.e. the proportion of female independent directors on the different components of CEO compensation (total, fixed and variable). Findings The authors observe that both the proportions of independent directors and women sitting on the boards positively influence the various components of CEO compensation. However, the interaction of these factors, i.e. the proportion of female independent directors, is negatively associated with CEO compensation. These results suggest that independent women directors improve board effectiveness in monitoring CEO compensation, especially its fixed component. Originality/value The results of this research help to elucidate the importance of women being appointed to boards as independent directors to properly monitor managerial pay. These results provide support to the approach of the French Cope-Zimmerman law of January 2011, which promotes female representation on boards as independent directors to enhance board decision-making. Thus, evidence presented and discussed in this paper should provide useful insights for academics, corporate managers and regulators.

The impact of VC backing on the corporate governance of Chinese IPOs

2017 ◽  
Vol 29 (3) ◽  
pp. 330-355 ◽  
Author(s):  
Qing (Sophie) Wang ◽  
Hamish D. Anderson ◽  
Jing Chi
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Independent Directors ◽  
Board Independence ◽  
Board Size ◽  
Content Type ◽  
Shareholder Protection ◽  
Political Ties ◽  
The Impact ◽  
Industry Experience

Purpose The purpose of this paper is to investigate how venture capital (VC) backing influences the board size and independence and how VC backing and board structure impact firm performance in China. Design/methodology/approach Using hand-collected data from 924 initial public offering (IPO) prospectuses covering the period from January 2004 to December 2012, the authors investigate the impact of VC backing on board size, board independence and firm market performance through regression analysis. A two-stage approach is also used to address the endogeneity issue. Findings The authors find robust evidence that VC-backed IPOs have more independent boards, after controlling for CEO and firm characteristics, and the potential endogeneity concerns. Furthermore, firms backed by VCs with management political ties (PTs) have more independent directors with industry relevant expertise than other firms. While no significant relationship is found between board independence and firm performance, the authors present some evidence that IPOs which have a larger percentage of independent directors with industry relevant expertise exhibit higher long-term stock returns, and VCs with management PTs also improve IPO long-run stock performance. Research limitations/implications Although VC is new in China and the Chinese capital market has relative poor corporate governance and weak minority shareholder protection, the authors find support in this paper that VC backing is valuable to IPO firms in China not only through providing funding but also by providing political ties and industry experience. However, Chinese regulatory and institutional settings have strong impact on test results and they change rapidly, so the results may not apply to other period in Chinese markets. Originality/value This paper sheds lights on the influences of VC backing on corporate governance and firm performance in a transitional and emerging economy. It discovers the value of VC investors in a transitional economy as of providing political ties and industry experience. The new definition of independent directors suggested by Suchard (2009) is first used by our paper in the Chinese context.

scholarly journals Family firms’ management decision to export/not to export: a resource-based view

2017 ◽  
Vol 14 (3) ◽  
pp. 270-287 ◽  
Author(s):  
Abel Duarte Alonso ◽  
Seamus O’Brien
Keyword(s):  
Family Firms ◽  
Word Association ◽  
Family Firm ◽  
Management Decision ◽  
Knowledge Gaps ◽  
Resource Based View ◽  
Content Type ◽  
Exporting Firms ◽  
Telephone Interviews ◽  
The Impact

Purpose The purpose of this paper is to address some knowledge gaps in the family entrepreneurship literature, examining the cases of seven Western Australian family firms with various degrees of export involvement, including no involvement. In this process, the study incorporates the resource-based view of the firm (RBVF). Design/methodology/approach Face-to-face and telephone interviews conducted with firm co-owners and one manager of seven family firms. Content analysis and word association were employed to analyse the data gathered. Findings The interviews revealed the significance of various key resources regardless of firms’ extent of export involvement. Indeed, alignments with the RBVF emerged, with firms’ strategies resting on valuable, rare, perfectly immobile and non-substitutable resource attributes. More lucrative consumer markets, diversifying, product recognition and minimising the impact of domestic competitors were main reasons to export. In contrast, rising costs, unfavourable currency exchanges or mediocre previous experiences were motives for discontinuing exports. Nonetheless, building on their resource foundation, non-exporting firms’ strategies focussed on strengthening their involvement in the domestic market, perceived as a valued alternative. Originality/value The academic literature identifies various knowledge gaps concerning family firm entrepreneurship, including research focussing on family firms’ internationalisation process. By addressing this under-researched area, the study provides an element of originality and value. In addition, despite Western Australia’s proximity to neighbouring markets, limited contemporary research on family firms has been conducted in this state; hence, the study provides an original component. Finally, the study seeks to refine the RBVF in the context of family firm research.

Impact of the busyness and board independence on the discretionary disclosures of Indian firms

2019 ◽  
Vol 61 (1) ◽  
pp. 250-265
Author(s):  
Kavitha D. ◽  
Nandagopal R. ◽  
Uma Maheswari B.
Keyword(s):  
Design Methodology ◽  
Negative Impact ◽  
Annual Reports ◽  
Independent Directors ◽  
Board Independence ◽  
Content Type ◽  
Future Studies ◽  
Listed Firms ◽  
Board Characteristics ◽  
The Impact

PurposeThe purpose of this paper is to empirically investigate the impact of board characteristics such as size, independence, busyness and duality on the extent of discretionary disclosures of listed Indian firms.Design/methodology/approachA disclosure index with 110 items was constructed to assess the discretionary disclosures in the annual reports of listed firms. The study measured disclosure using 1,024 firm-year observations over 8 years from 2009 to 2016. Board characteristics such as size, independence, busyness and duality have been used in the study as indicators of corporate governance.FindingsThe results indicate that while the proportion of independent directors positively impacts the extent of discretionary disclosures, boards with duality and the busyness of the director have a negative impact. The size of the board does not significantly impact the extent of disclosures.Research limitations/implicationsThis study examines the discretionary disclosures made only in the annual reports. Future studies could examine information disclosed in other media. Moreover, this study uses an un-weighted self-constructed disclosure index, which is subject to its inherent limitations.Originality/valueThis study has examined the impact of the “busyness” of the director on the extent of disclosures. This variable has not been explored in prior studies. The significance of the variable indicates that the number of directorships held impacts the efficiency with which a director performs his/her role in the board. The study reiterates the need for firms and policymakers to focus on improving board independence and to move away from leadership structures with duality.

Audit committee effectiveness and family firms: impact on performance

2019 ◽  
Vol 58 (6) ◽  
pp. 1021-1034
Author(s):  
Jihad Al-Okaily ◽  
Salma Naueihed
Keyword(s):  
Firm Performance ◽  
Fixed Effects ◽  
Audit Committee ◽  
Family Firms ◽  
Family Firm ◽  
Fixed Effects Model ◽  
Minority Shareholders ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to empirically examine the relationship between audit committee characteristics and firm performance, and whether family ownership and involvement moderate the latter relationship. Design/methodology/approach Following Anderson and Reeb (2003), this paper estimates a two-way fixed effects model. A sub-sample analysis is used by first examining the impact of audit committee effectiveness on firm performance only in non-family firms and then only in family firms. A fully interacted model was also analyzed in the robustness tests. Findings This paper finds that the audit committee characteristics of size, expertise and meeting frequency are positively and significantly related to non-family firm performance, while insignificantly related to family firm performance. Research limitations/implications The evidence reported in this paper may be of use for regulators and policy makers pondering corporate governance reforms, as well as for investors, managers and minority shareholders concerned with firm performance and valuation. Originality/value To the best of the authors’ knowledge, this is the first study of its kind to examine the moderating effect of family control and involvement on the relationship between firm performance and audit committee effectiveness in terms of size, expertise and meeting frequency.

Innovation enhancement in family business SMEs in Ghana

2016 ◽  
Vol 8 (4) ◽  
pp. 388-403 ◽  
Author(s):  
Samuel Addae-Boateng ◽  
Smile Gavua Dzisi
Keyword(s):  
Family Firms ◽  
Raw Materials ◽  
Family Businesses ◽  
Market Potential ◽  
Expert Advice ◽  
Business Practices ◽  
Potential Cost ◽  
Content Type ◽  
New Business ◽  
The Impact

Purpose Family businesses are essential for economic growth and development through new business start-ups (entrepreneurship) and growth of existing ones. As competition is fierce, the ability of a company to buoy up its business practices and exceed its own – and its competition’s – expectations through innovation – is critical to survival. In managing family businesses (mostly small and medium-sized enterprises [SMEs]) in the current globally competitive landscape, entrepreneurs must be creative and behave in ways that galvanize workers to be innovative. This study attempts to ascertain the strategies management adopt to heighten innovation in family businesses. Design/methodology/approach Both qualitative and quantitative techniques were used for gathering and analysing data based upon which conclusions were drawn. Findings The study revealed that seven factors should be assessed by SMEs that are family firms to determine the innovative ideas that are promising to be pursued, which are the uniqueness of the idea, its market potential, cost, expert advice, the impact of both current and future environmental forces, availability of raw materials and supplies and the idea’s future appeal. Originality/value This is perhaps the first detailed study of strategies that could be adopted by entrepreneurs and/or managers to heighten innovation in small and medium family firms, which also points out the factors/criteria used to determine which initiatives have higher chances of success – hence deserving to be pursued.

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