Family firms, board structure and firm performance: evidence from top Indian firms

2017 ◽  
Vol 59 (5) ◽  
pp. 699-717 ◽  
Author(s):  
R. Rathish Bhatt ◽  
Sujoy Bhattacharya
Keyword(s):  
Firm Performance ◽  
Family Firms ◽  
Independent Directors ◽  
Family Management ◽  
Family Ownership ◽  
Board Structure ◽  
Board Size ◽  
Content Type ◽  
Board Characteristics ◽  
The Relationship

Purpose Given the prevalence of family-run businesses in India, this paper aims to empirically investigate the impact of family firms on the relationship between firm performance and board characteristics. The effectiveness of board characteristics such as independent directors, chairman independence, role duality, non-executive directors, board busyness, board size, board meetings and board attendance are studied in the Indian context. Design/methodology/approach The sample consists of top-listed firms in India for the period 2002 to 2012. Board index was constructed to capture the governance quality of the firm. The authors also study the relationship between board structure and firm performance by segregating the sample based on family management, family ownership and family representative directors. Random effects model was used for the regression analysis in the study. Findings The authors find a negative effect of board structure on firm performance in family firms compared to non-family firms. Contrary to the most Western literature, family management was not found to significantly affect firm performance as compared to that of professionally managed firms. In the subset analysis of family firms, higher proportion of family ownership and family representative directors did not show any significant impact on the firm performance. Having a higher proportion of independent directors, larger board size or an independent chairman does not appear to improve this insignificant relationship between family firms and firm performance. Also, in family firms, no significant difference in performance is noticed before and during recession period. Originality/value The study uses a self-defined corporate governance index to measure the governance parameters, specifically the board characteristics. The results documented in this study adds to the debate on the generalizability of the findings in Western governance studies in emerging markets like India with unique institutional development background.

scholarly journals The board of directors and firm performance: empirical evidence from listed companies

2019 ◽  
Vol 19 (3) ◽  
pp. 508-551 ◽  
Author(s):  
Alessandro Merendino ◽  
Rob Melville
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Agency Theory ◽  
Ownership Structure ◽  
Listed Companies ◽  
Independent Directors ◽  
Board Structure ◽  
Board Size ◽  
Ceo Duality ◽  
Content Type

PurposeThis study aims to reconcile some of the conflicting results in prior studies of the board structure–firm performance relationship and to evaluate the effectiveness and applicability of agency theory in the specific context of Italian corporate governance practice.Design/methodology/approachThis research applies a dynamic generalised method of moments on a sample of Italian listed companies over the period 2003-2015. Proxies for corporate governance mechanisms are the board size, the level of board independence, ownership structure, shareholder agreements and CEO–chairman leadership.FindingsWhile directors elected by minority shareholders are not able to impact performance, independent directors do have a non-linear effect on performance. Board size has a positive effect on firm performance for lower levels of board size. Ownership structure per se and shareholder agreements do not affect firm performance.Research limitations/implicationsThis paper contributes to the literature on agency theory by reconciling some of the conflicting results inherent in the board structure–performance relationship. Firm performance is not necessarily improved by having a high number of independent directors on the board. Ownership structure and composition do not affect firm performance; therefore, greater monitoring provided by concentrated ownership does not necessarily lead to stronger firm performance.Practical implicationsThis paper suggests that Italian corporate governance law should improve the rules and effectiveness of minority directors by analysing whether they are able to impede the main shareholders to expropriate private benefits on the expenses of the minority. The legislator should not impose any restrictive regulations with regard to CEO duality, as the influence of CEO duality on performance may vary with respect to the unique characteristics of each company.Originality/valueThe results enrich the understanding of the applicability of agency theory in listed companies, especially in Italy. Additionally, this paper provides a comprehensive synthesis of research evidence of agency theory studies.

scholarly journals The relationship between corporate governance and financial performance

2019 ◽  
Vol 9 (1) ◽  
pp. 54-78 ◽  
Author(s):  
Zaid Saidat ◽  
Mauricio Silva ◽  
Claire Seaman
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Family Firms ◽  
Corporate Performance ◽  
Independent Directors ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

PurposeThe purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015.Design/methodology/approachThis research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’sQas proxies for corporate financial performance.FindingsThe study found that board size both in term of Tobin’sQand ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’sQ. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’sQin family and non-family firms.Originality/valueStudies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

scholarly journals Limiting role of resource dependence: an examination of director interlocks, board meetings and family ownership

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vidya Sukumara Panicker ◽  
Rajesh Srinivas Upadhyayula
Keyword(s):  
Board Of Directors ◽  
Resource Dependence ◽  
Family Firms ◽  
Emerging Market ◽  
Resource Provisioning ◽  
Independent Directors ◽  
Family Ownership ◽  
Independent Director ◽  
Content Type

PurposeThis paper attempts to examine the activity and involvement of board of directors in internationalization activities of firms in emerging markets, by evaluating the resource provisioning roles of interlocks provided by board of directors, and the frequency of board meetings. We demonstrate that the effectiveness of board involvement is contingent upon the levels of family ownership in firms since family ownership could impact the firm’s ability to utilize the presence of different types of board members.Design/methodology/approachThe authors test our hypotheses on a sample of listed Indian companies, extracted from the Prowess database published by the Centre for Monitoring Indian Economy (CMIE), a database of the financial performance of Indian companies. On a panel of 3,133 firm years of 605 unique Indian firms with foreign investments, over a time period of 2006–2017, the authors apply different estimation techniques.FindingsThe results demonstrate that both board meeting frequency and director interlocks are instrumental in supporting internationalization activities in emerging market firms. However, family ownership moderates the role of insider and independent interlocks on internationalization investments in different ways; the authors find that interlocks provided by independent directors support internationalization activities in family firms, whereas those provided by insider directors do not. Further, the study also finds that board meetings are less effective in internationalization of family firms.Practical implicationsThe authors conclude that family firms aiming at international diversification require to develop more connected and networked independent directors to enable internationalization in firms. While independent director interlocks enhance the international investments, it is also useful to know that board meetings are ineffective in utilizing the resources in family firms. This points to the possibility that family firms should device mechanisms to integrate family meetings with board meetings so that they can utilize the within-family processes to aid in their internationalization decisions.Originality/valueThe study contributes to resource dependence theory by understanding its limiting role in family firms. Theoretically, it helps delineate the limiting resource provision role of the insider directors vis-à-vis independent directors. The authors argue that the resource provision role of insider director interlocks does not effectively help in internationalization in comparison to independent director interlocks in family-dominated firms. Consequently, the study shows the limiting role of resource provision and utilization by family-owned firms in comparison to non-family-owned firms.

The strength of the board on sustainability assurance decisions

2017 ◽  
Vol 24 (4) ◽  
pp. 863-886 ◽  
Author(s):  
Jennifer Martinez-Ferrero ◽  
Lázaro Rodríguez-Ariza ◽  
Isabel María García-Sánchez
Keyword(s):  
Random Effects ◽  
Design Methodology ◽  
Family Firms ◽  
Positive Impact ◽  
Family Businesses ◽  
Family Ownership ◽  
Logit Models ◽  
Board Size ◽  
Content Type ◽  
Sustainability Reports

Purpose The purpose of this paper is to analyze how family ownership influences the strength of the board’s monitoring function in companies’ decisions regarding the assurance of sustainability reports. Design/methodology/approach The international sample consists of 536 companies operating in more stakeholder-oriented countries during the period 2007-2014. The paper proposes alternative logit models of analysis using the random-effects estimator. Findings The results provide evidence that a firm’s sustainability assurance and its choice of accounting professionals as higher quality assurers are positively associated with board size and independence. The main result is the positive impact of family businesses on these assurance issues. The paper evidences the greater orientation toward sustainability issues of family businesses. Furthermore, it verifies the greater impact of board size on family firms’ assurance demand. Originality/value This study sheds some light on the unexplored topic of sustainability assurance in family firms. One of the differentiating aspects with respect to previous studies is the consideration of the moderating factor of family property. This study also contributes to the understanding of family firms’ demand for assurance and its practitioners, and the literature’s focus on its determinants.

Family ownership and cooperative R&D: the moderating effect of political ties

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Feng Dong ◽  
Xiao Wang ◽  
Jiawen Chen
Keyword(s):  
Family Firms ◽  
Family Ownership ◽  
Content Type ◽  
Political Ties ◽  
Wealth Concentration ◽  
The Impact ◽  
The Relationship ◽  
Moderating Role ◽  
Ability And Willingness

Purpose This study aims to investigate the impact of family ownership on cooperative research and development (R&D). Drawing on the ability and willingness paradox framework in family business research, the authors suggest that family ownership influences cooperative R&D via two opposing mechanisms: power concentration and wealth concentration. It also deepens the current understanding of the boundary conditions of informal institutions for the impact of family ownership on cooperative R&D by investigating the moderating role of political ties. Design/methodology/approach The authors analyze a panel of 610 Chinese manufacturing family firms and 2,127 firm-year observations from 2009 to 2017. Fixed effects regression analysis is used to test the hypotheses, with the two-stage Heckman model to address sample selection bias. Findings The research findings indicate that family ownership has an inverted U-shaped relationship with cooperative R&D and political ties moderate the relationship in such a way that the inverted U-shaped relationship will be steeper in firms with more political ties than in firms with fewer political ties. Practical implications Family ownership influences firms’ cooperative R&D through the positive effect of power concentration and the negative effect of wealth concentration. Family owners should, therefore, take advantage of concentrated power, for instance, by adapting quickly and committing sufficient resources to cooperative R&D opportunities, while controlling path-dependent relationship development caused by concentrated family wealth. The effect of political ties on the relationship between family ownership and cooperative R&D is found to be a double-edged sword. Originality/value This study extends the ability and willingness paradox framework and provides novel insights into cooperative R&D in family businesses by integrating power concentration and wealth concentration associated with family ownership. Moreover, this study provides a contingency perspective and introduces the moderating role of political ties in shaping cooperative R&D in family firms.

High leverage and variance of SMEs performance

2019 ◽  
Vol 20 (2) ◽  
pp. 155-175 ◽  
Author(s):  
Mazen Gharsalli
Keyword(s):  
Firm Performance ◽  
Small Business ◽  
Firm Growth ◽  
Family Firms ◽  
Global Financial Crisis ◽  
Cash Flows ◽  
Data Set ◽  
Content Type ◽  
Good Investment ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between leverage and firm performance using small business data from France by estimating the effects of leverage on both average firm performance and the variance of firm performance. Design/methodology/approach Focusing on French small- and medium-sized enterprises (SMEs), which tend to be dependent on bank loans, the authors examine the relationship between leverage and firm performance. This study was based on a unique panel data set of more than 2,157 manufacturing SMEs covering the years 2007-2015. The authors estimate the effects of leverage on both average firm performance and the variance of firm performance. Findings Focusing on the average effects of leverage, the authors find that highly leveraged firms suffer from poor performance. In addition, the variance in firm performance is higher if firms are highly leveraged. Results also underline that leveraged firms are better performers when they have sufficient collateral assets. Research limitations/implications The study, however, has also some limitations. The first one is that the findings were obtained for only one industry sector, so attempts should be made to study the issue, as it applies to other sectors as well. Second is the context where the study was conducted. This study has been conducted based on data gathered from SMEs in France within a specific socioeconomic context (2007-2008 global financial crisis), which may also limit the generalizability of the results for different contexts with different socioeconomic situations. It would also be useful, to have a better explanation for the performance of SMEs, to add to the model more financial variables or other types of variables such as those related to managerial skills or to the macro-economic environment. Finally, further research could examine the joint impact of both leverage and ownership structure on firm’s performance as a large number of French firms are family firms. The limitations of this study, however, can in fact be an opportunity for future researchers to conduct studies addressing those limitations. Practical implications This research has some implications for small business lending. SME owners and managers may, on the one hand, be encouraged by the fact that collateral assets can reduce agency costs, thereby positively affecting firm performance. On the other hand, high leverage can facilitate firm growth if firms have collateral assets. This implies that policymakers interested in stimulating SMEs should develop more suitable collaterals for high-risk SMEs with low asset tangibility. Social implications The results also have implications for financial institutions. To prevent unexpected and extensive bankruptcies, banks might classify firms with negative cash flows as borrower in danger of bankruptcy. However, the results show that highly leveraged firms with good investment opportunities and high collateral assets reduce the probability of bankruptcy. This implies that banks need to evaluate the credit risk of very highly leveraged small businesses more carefully. Originality/value It should be noted that the case of France remains marginal in terms of the conducted studies.

“Ownership structure and firm performance: the mediating role of board characteristics”

2020 ◽  
Vol 20 (4) ◽  
pp. 719-737 ◽  
Author(s):  
Md Mamunur Rashid
Keyword(s):  
Firm Performance ◽  
Ownership Structure ◽  
Indirect Effect ◽  
Positive Influence ◽  
Board Independence ◽  
Content Type ◽  
Board Characteristics ◽  
Mediating Role ◽  
The Relationship

Purpose The purpose of this study is to examine the mediating role of corporate board characteristics in the relationship between ownership structure and firm performance in the listed public limited companies of Bangladesh. Design/methodology/approach The study analyzed 527 annual reports of listed companies in Bangladesh for the years 2015-2017. The direct and indirect effect of ownership structure on firm performance was examined using AMOS 23. Baron and Kenny’s (1986) four steps procedure was used to establish the mediating role of board characteristics. Findings The results demonstrated that foreign ownership and director ownership have significant positive influence on both accounting and market based firm’s performance, while institutional ownership exhibits positive influence only on accounting-based performance (return on assets). With respect to mediating effect, the results show that board size and board independence partially mediate the relationship between ownership structure and firm performance. Research limitations/implications The major limitation of the study is that it focuses only on three years data in examining the hypothesized relationship among the variables. Practical implications Investors, regulators and managers can get evocative insights, particularly who seek to improve their company’s performance in the capital market through restructuring their ownership structure and board composition. Originality/value The study focuses on both direct and indirect effect of ownership structure on firm performance in the context of an emerging and developing economy. In examining the indirect effect, the study uses board size and board independence as the mediating variables.

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.

Family firms, family generation and performance: evidence from an emerging economy

2014 ◽  
Vol 4 (2) ◽  
pp. 197-219 ◽  
Author(s):  
Mohammad Badrul Muttakin ◽  
Arifur Khan ◽  
Nava Subramaniam
Keyword(s):  
Firm Performance ◽  
Family Firms ◽  
Emerging Market ◽  
Emerging Economy ◽  
Family Ownership ◽  
Content Type ◽  
Generation Family ◽  
And Performance ◽  
The Impact ◽  
Better Than

Purpose – The purpose of this paper is to examine the impact of family ownership on firm performance. In particular the authors investigate whether family firms outperform non-family firms and whether first generation family firms perform better than second generation family firms in an emerging economy using Bangladesh as a case. Design/methodology/approach – This study uses a data set of 141 listed Bangladeshi non-financial companies for the period 2005-2009. The methodology is based on multivariate regression analysis. Findings – The result shows that family firms perform better than their non-family counterparts. The authors also find that family ownership has a positive impact on firm performance. The analysis further reveals intergenerational differences where family firms and performance are associated positively only when founder members act as CEOs or chairmen. However, when descendents serve as CEOs or chairmen family firms are associated with poorer firm performance. Originality/value – The authors extend the findings of previous studies that investigate the family ownership and firm performance relationship in developed economy settings, but neglected emerging economies. The study also informs the literature about the intergenerational impact of family firms on performance in an emerging market.

scholarly journals Board Characteristics and Firm Performance: Case of Saudi Arabia

2012 ◽  
Vol 2 (2) ◽  
pp. 168 ◽  
Author(s):  
Mohammad Ahid Ghabayen
Keyword(s):  
Firm Performance ◽  
Audit Committee ◽  
Negative Relationship ◽  
Study Data ◽  
Annual Reports ◽  
Board Composition ◽  
Board Size ◽  
Board Characteristics ◽  
The World ◽  
The Relationship

ABSTRACTCorporate governance (CG) has received much attention in the current studies all over the world especially after many corporate scandals and the failures of some biggest firms around the world such as Commerce Bank (1991) Enron (2001), Adelphia (2002), and World Com (2002).The aim of this study is to examine the relationship between board mechanisms (audit committee size, audit committee composition, board size, and board composition) and firm performance (ROA) based on the annual reports of listed companies in the year 2011 of  sample of non-financial firms in the Saudi Market (Tadawul). For the purpose of this study, data was collected from a sample of 102 non-financial listed companies.Furthermore, an analysis of regression analysis is utilized to examine the relationship between board characteristics and firm performance. The results of this study reveal that audit committee size, audit committee composition and board size have no effect on firm performance in the selected sample while board composition has a significant negative relationship with firm performance.

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