Informational efficiency and governance in restricted share settings: boosting family business leaders' financing decisions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Daniel Dupuis ◽  
Virginia Bodolica ◽  
Martin Spraggon
Keyword(s):  
Family Firms ◽  
Family Influence ◽  
Informational Efficiency ◽  
Negative Effects ◽  
Potential Measurement ◽  
Content Type ◽  
Financing Decisions ◽  
Restricted Stock ◽  
Information Opacity ◽  
Dual Class

PurposeVolume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two modified metrics, the free-float liquidity and the alternative free-float illiquidity ratios. These measures are well suited to estimate liquidity in the presence of trading constraints, as can be found in closely held/state-owned entities, IPOs/SEOs with lockup restrictions, dual-class share structures and family-owned businesses.Design/methodology/approachThe authors modify the turnover illiquidity ratio, where the number of outstanding shares is scaled by the public free float, and use natural log transformation to normalize free-float liquidity. Our dataset is composed of daily observations for US stocks included in the S&P 500 index over the 2015–2018 period. To test the validity of free-float (il)liquidity ratios, the authors perform a correlation analysis for various liquidity metrics. To examine their empirical efficiency, the authors employ pooled OLS regression models for family firms as a subsample of liquidity-constrained entities, relying on five different identifiers of family-owned businesses.FindingsThe authors’ empirical testing indicates that the proposed free-float (il)liquidity ratios compare favorably with other volume-based methods, such as Amihud's ratio, liquidity ratio and turnover ratio. For the subsample of family organizations as a restricted-share setting, the authors report significant coefficients for our free-float measures across all the family firm identifiers used. In particular, as free-float decreases with progressive family influence, the advanced ratios capture an increase (decrease) in perceived liquidity (illiquidity) that is absent in the other benchmarks.Originality/valueThis study allows the authors to inform the ongoing debate on the management and governance of publicly listed companies with various impediments to trade. Traditional measures understate illiquidity (overstate liquidity) as the fraction of free trading shares is limited by design or circumstances. The authors’ proposed free-float metrics offer informational gains for family leaders to aid in their financing decisions and for non-family outsiders to guide their investment choice. As a constrained free float inhibits price discovery processes, the authors discuss how restricted stock issuers may alleviate the attendant negative effects on governance and information opacity.

Consequences of earnings management for corporate reputation

2016 ◽  
Vol 29 (4) ◽  
pp. 457-474 ◽  
Author(s):  
Lázaro Rodriguez-Ariza ◽  
Jennifer Martínez-Ferrero ◽  
Manuel Bermejo-Sánchez
Keyword(s):  
Earnings Management ◽  
Corporate Reputation ◽  
Family Firms ◽  
Negative Impact ◽  
Corporate Image ◽  
Social Consequences ◽  
Negative Effects ◽  
Content Type ◽  
Family Control ◽  
International Panel

Purpose Based on earnings management (EM) practices, the purpose of this research is to analyze their market social consequences on corporate reputation. Moreover, this paper illustrates this impact in the context of family firms which are led and controlled by family members, whose main interest is the long-run survival through succession. Design/methodology/approach A sample comprising 1,169 international listed companies for the period 2006-2010 was used. Findings The empirical evidence shows the negative impact of these discretionary accounting practices on corporate image. However, family firms have more incentives for controlling and monitoring managerial decisions, avoiding information asymmetries and, thus, EM behavior and their subsequent loss of reputation. Therefore, fewer negative effects on corporate reputation are observed in highly concentrated ownership structures as a result of the negative link between family control and EM. Originality/value This study presents a number of contributions because of its focus on specific discretionary practices and on family firms. This study contributes to previous literature on family firms, as previous papers do not tend to focus on EM issues. Moreover, in contrast to most of the studies that have focused on only one country, we use an international panel database. This leads to potentially more powerful and generalized results. In addition, this paper is the first attempt (to the authors' knowledge) to study the possible impact of EM on corporate reputation in the family firm context.

Conflict management and resolution in family-owned businesses

2015 ◽  
Vol 5 (2) ◽  
pp. 140-156 ◽  
Author(s):  
Keanon Alderson
Keyword(s):  
Corporate Governance ◽  
Family Business ◽  
Family Firms ◽  
Original Research ◽  
Negative Effects ◽  
Policy Makers ◽  
Content Type ◽  
Governance Tools ◽  
Business Practitioners ◽  
Practical Implications

Purpose – The purpose of this paper is to review the literature concerning the negative effects of conflict among family businesses and to make practitioner focussed recommendations for the prevention, management, and resolution of conflict. This paper discusses the prevalence of conflict in family firms, differentiates the types of conflict present, and recommends proven approaches to prevent and manage the conflict, with a focus on corporate governance tools. Examples of well known companies are presented. Design/methodology/approach – A review was conducted of the literature concerning family business conflict and corporate governance. Findings – Conflict is a common problem in family firms that has significant consequences for the business and the family. Research has shown effective governance may reduce and manage conflict. Research limitations/implications – This was a literature review. As such it did not perform original research. Practical implications – This paper has practical implications for family business practitioners. The paper offers the negative aspects of conflict and recommends effective mechanisms such as governance tools to enable the prevention, management, and resolution of conflict. Social implications – Implications exist for practitioners and policy makers in order to reduce conflict and increase the viability of family firms. Originality/value – The scholarly literature has been reviewed and synthesized into distillation for family business owners.

A meta-analytic examination of the relationship between family firm generational involvement and performance

2020 ◽  
Vol 43 (8) ◽  
pp. 971-987
Author(s):  
Vasiliki Kosmidou
Keyword(s):  
Firm Performance ◽  
Family Firms ◽  
Meta Analysis ◽  
Negative Relationship ◽  
Family Firm ◽  
Negative Effects ◽  
Content Type ◽  
Universal Family ◽  
And Performance ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between family firm generational involvement and performance. Although researchers have studied this relationship extensively, a complete understanding of its true magnitude and sign is still lacking. Design/methodology/approach This meta-analysis sheds new light on this relationship, integrating the findings of 43 studies with 51 independent samples and 18,802 family firms. Findings The results reveal a small and negative relationship indicating that later-generation family firms perform worse compared to first-generation ones. The authors also show that the relationship is stronger for younger than older and for private than public firms. Finally, the measurements of both variables influence the relationship yielding critical research implications. Research limitations/implications This study suggests that future researchers examining the effects of generational involvement on family firm performance should conduct their analysis using multiple measures of both variables to ensure the accuracy of their results. It also highlights the need of family business scholars to converge to the use of a universal family firm definition, as findings differ significantly in strength and direction depending on which definition is used. Practical implications From a practitioners’ perspective, the findings imply that owners of young and private family firms should consider professionalizing and adopting a balanced top management team composition consisting of both family and non-family members as a way to mitigate the negative effects of “familiness” on performance. Originality/value This study empirically demonstrates the importance of adopting a generational perspective when examining differences in family firm performance.

Socio-emotional wealth preservation and KPI voluntary disclosure quality

2020 ◽  
Vol 18 (3) ◽  
pp. 459-482
Author(s):  
Saoussen Boujelben ◽  
Chourouk Boujelben
Keyword(s):  
Voluntary Disclosure ◽  
Family Firms ◽  
Family Members ◽  
Family Influence ◽  
Disclosure Quality ◽  
Content Type ◽  
The Family ◽  
And Control ◽  
Practical Implications

Purpose The purpose of this paper is to examine the effect of the emotional attachment strength of family members to their business on the quality of the voluntary disclosure of their key performance indicator (KPI). More specifically, the authors focused on the effect of two dimensions of the socio-emotional theory, i.e. “family influence and control” and “firm dynasty succession.” Design/methodology/approach The authors performed a content analysis of annual reports for a sample of 87 French families listed in CAC All-Tradable to calculate a disclosure quality index of KPI. The authors proxied the “family influence and control” by the proportion of family members appointed in the board. To identify the “firm dynasty succession” concern, the authors classified firms according to the generation they belonged to. The authors estimated a cross-sectional linear regression model to meet the research objective. Findings This study confirms the role of the family affective attachment in decreasing the quality of KPI disclosure in such a way to preserve its socio-emotional wealth. The family firms’ principals who desire to sustain their control on the firm, to perpetuate the business for future generations and to protect their emotional wealth tend to avoid the disclosure of credible and reliable KPI information. Practical implications The findings have meaningful practical implications. First, they provide relevant insights into the regulatory bodies of the financial reporting regarding the increasing appeal for making KPI disclosure mandatory. Second, as the family businesses are the most widespread proprietorship in the French context, the effect of the family agenda on the quality of the KPI should be of interest to various policymakers and financial statements’ users of such firms. Third, the results inform nonfamily shareholders regarding the importance of selecting representatives on the board that should share similar interest with regard to KPI disclosure. Social implications From a societal perspective, this study is relevant in taking into account the critical role the family businesses have in the French economy. This study should help the minority shareholders to protect their interests and maximize their wealth within the family firm because it sheds light on the influence that family members have on hiding key information on the firm’s real performance. Originality/value To the best of the authors’ knowledge, no prior study in the family firms literature has examined the quality of voluntary disclosure of KPI. Although most previous studies merely compared family and nonfamily firms in terms of voluntary disclosure, the authors acknowledge and address the heterogeneity between family firms. The authors contribute to the few prior empirical validations of SEW implication on voluntary disclosure decisions by testing the effect of an additional dimension, which is family dynasty.

The effect of internal factors and family influence on firms’ adoption of green product innovation

2016 ◽  
Vol 39 (10) ◽  
pp. 1167-1198 ◽  
Author(s):  
Yi-Chun Huang ◽  
Min-Li Yang ◽  
Ying-Jiuan Wong
Keyword(s):  
Firm Size ◽  
Family Firms ◽  
Behavioral Theory ◽  
Family Influence ◽  
Future Research ◽  
Green Product ◽  
Internal Factors ◽  
Content Type ◽  
And Control ◽  
The Relationship

Purpose Little research has been conducted on the internal factors that drive green product (GP) innovation and how family influence affects firm adoption of GP innovation. This study aims to apply multiple perspectives to bridge this research gap, adopting the resource-based view (RBV) to examine what and how internal factors affect firm adoption of GP innovation, and using the behavioral theory of family firms to investigate whether family influence fosters or hinders firm adoption of GP innovation. Design/methodology/approach This study used a multichannel approach and adopted content analysis to collect and evaluate data on listed Taiwanese firms and used cross-sectional regression analysis to examine the effect of internal factors and family influence on firm adoption of GP innovation. Findings The results showed that the internal factors of green capabilities, R&D intensity and firm size significantly and positively affected firm adoption of GP innovation separately. Furthermore, the study found that family influence (ownership and control) significantly and negatively affects firm adoption of GP innovation separately. Research limitations/implications This study contributes to the academic research of innovation management, green management and family firms in several aspects, but also has some limitations. This study examined only the relationship between a firm’s internal factors and GP innovation. Future research might test the relationship between a firm’s internal factors and adoption of green process innovation. In addition, such research can explore how integrated internal and external factors influence firm adoption of GP innovation. Practical implications From the RBV, the internal factors of green capabilities, R&D intensity and firm size that can exert crucial effects on firm engage in firm’s adoption of GP innovation. This study suggests that top managers in family-influenced businesses should maintain appropriate commitment and support for fostering and facilitating firm GP innovation. Social implications From the RBV, this study examined how internal factors affect firm adoption of GP innovation. Moreover, based on the behavioral theory of family firms, this study further examined how family influence (ownership and control) affects firm adoption of GP innovation. This paper extended both perspectives to examine green issues. Originality/value From the RBV, this study examined how internal factors affect firms’ GP innovation. Moreover, based on institutional theory, this study further examines how a family firm moderates the relationship between a firm’s internal factors and GP innovation. The paper extended both perspectives to probe further the green issues.

scholarly journals When do family firms consider issuing external equity? Understanding the contingent role of families’ need for control

2019 ◽  
Vol 9 (3) ◽  
pp. 271-296
Author(s):  
Martin Kupp ◽  
Bianca Schmitz ◽  
Johannes Habel
Keyword(s):  
Decision Making ◽  
Empirical Research ◽  
Family Firms ◽  
Family Firm ◽  
Equity Financing ◽  
Content Type ◽  
Financing Decisions ◽  
Firm Owners ◽  
Insight Into ◽  
External Equity

Purpose Prior research has argued that family firms are reluctant to consider external equity as a source of financing because they fear a loss of control, which would limit their socioemotional wealth. However, prior empirical research has neglected potential contingencies that determine whether family firms’ need for control affects their equity financing decisions. The purpose of this paper is to provide first insight into this research void. Design/methodology/approach The paper builds on rational choice theory and a logit regression using secondary data. Findings The study shows that the effect of family firm owners’ need for control on their consideration of external equity depends on the extent to which owners expect investors to interfere with management and the extent to which decision making is affected by emotions. Hereby, the present study provides evidence that family firm owners’ decisions to use external equity are more complex than previously presumed. Research limitations/implications This study has several limitations that provide fruitful avenues for further research. Overall, the authors list and detail seven different limitations in the paper, e.g. the narrow focus on equity financing, the use of a partial model, the fact that the authors did not conceptualize differences between different types of investors (such as high net worth individuals, private equity firms and venture capital firms) in the model and further more. Practical implications The study shows that investors need to understand the complex interplay among family firms’ need for control, expected investor interference and emotional decision making, to correctly assess their chances of success when approaching family firms for equity. Originality/value Prior empirical research has neglected potential contingencies that determine whether family firms’ need for control affects their equity financing decisions. The present paper provides first insight into this research void.

Limits to psychological ownership in the family business

2018 ◽  
Vol 8 (2) ◽  
pp. 196-216 ◽  
Author(s):  
Wouter Broekaert ◽  
Bart Henssen ◽  
Johan Lambrecht ◽  
Koenraad Debackere ◽  
Petra Andries
Keyword(s):  
Family Business ◽  
Family Firms ◽  
Strategic Decision ◽  
Psychological Ownership ◽  
Operational Control ◽  
Negative Effects ◽  
Additional Insight ◽  
Content Type ◽  
The Family ◽  
And Control

Purpose The purpose of this paper is to analyze how the sense of control, psychological ownership and motivation of both family owners and non-family managers in family firms are interrelated. This paper analyzes the limits set by family owners when delegating control to their non-family managers and the resulting potential for conflict and demotivation of the non-family managers. Design/methodology/approach Building on the existing literature, first, an overview of the literature on psychological ownership and control is presented. Second, the paper analyzes the insights gained from interviews with 15 family owners and non-family managers in five family firms. Findings This study finds that motivating non-family managers is not merely a matter of promoting a sense of psychological ownership throughout the company. A strong sense of psychological ownership may facilitate but also hinder the cooperation between family and non-family. Family owners are often only willing to delegate operational control, while non-family managers also feel entitled to participate in strategic decision making. This leads to the proposition that non-family managers’ psychological ownership in family firms’ conflicts with family owners’ desire to maintain control. Originality/value This study answers the calls to seek additional insight in how non-family managers function within family firms. By shedding light on the complex relationship between control, psychological ownership and motivation in family firms, the study responds to the calls for more empirical validation of the psychological ownership framework and for more research into the potential negative effects of psychological ownership in the family business.

Corporate governance in the largest family firms in Latin America

2020 ◽  
Vol 27 (2) ◽  
pp. 137-163
Author(s):  
Pedro Vazquez ◽  
Alejandro Carrera ◽  
Magdalena Cornejo
Keyword(s):  
Corporate Governance ◽  
Latin America ◽  
Board Of Directors ◽  
Latin American ◽  
Family Firms ◽  
Family Influence ◽  
Family Management ◽  
Content Type ◽  
Governance Model ◽  
The Board Of Directors

PurposeThe aim of this study is to explore and understand corporate governance patterns in family firms across Latin America. This is in response to several calls in the academic literature urging for more empirical studies in corporate governance in developing regions.Design/methodology/approachFollowing a configurative perspective, a hierarchical cluster analysis is applied to a sample of the 155 largest Latin American family firms.FindingsThe authors identify three main corporate governance configurations across Latin American countries. First, the exported governance model resembles many characteristics of Anglo-American and Continental Europe governance patterns of public listed control, having independence from the board of directors, and mainly hiring non-family management. Second, the super-familial governance model describes private ownership where one or multiple families control both the board of directors and the top-management team. Finally, the hybrid governance model is the largest cluster identified in the sample and combines governance characteristics of both of the foregoing configurations. This configuration exhibits ownership structured through public offerings of shares combined with leadership of the board of directors by a family member as well as moderate family influence on the board and management.Originality/valueThis is the first study to investigate corporate governance in the largest listed and privately-owned family firms in Latin America. The article extends the conversation on family firm heterogeneity and contributes to the configurative approach in the family business field by offering a cross-country perspective and identifying meaningful taxonomies that are applicable beyond national boundaries.

Does founding family involvement affect share repurchase activity? Evidence from US firms from 2006 through 2015

2019 ◽  
Vol 45 (8) ◽  
pp. 1146-1163
Author(s):  
Shane Anthony Van Dalsem
Keyword(s):  
Family Involvement ◽  
Family Firms ◽  
Selection Process ◽  
Family Influence ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Managerial Control ◽  
Content Type ◽  
Founding Family ◽  
The Usa

Purpose The purpose of this paper is to investigate whether family firms (FFs) differ from non-family firms (NFFs) in their propensity and likelihood of repurchasing shares. It focuses on the effects of voting control and managerial control of family members and economic conditions on repurchasing activity. Design/methodology/approach This paper employs pooled Tobit and probit models for a sample of 982 US firms for the period 2006 through 2015 and separates the roles of voting control and managerial control on influencing share repurchase decisions. Findings This paper provides evidence that FFs have a decreased propensity to repurchase shares relative to NFFs over the sample period. In general, the decreased propensity to repurchase shares is driven by the decision whether to repurchase shares and not the percentage of outstanding market value of equity repurchased. Practical implications For critics of share repurchases, this paper provides support for existing literature that FFs provide good long-term stewardship to their firms. In general, it demonstrates that FFs are less likely to repurchase shares than NFFs. Investors that have a preference for or against repurchases can use this information to improve their security selection process. Originality/value To date, the effects of family voting and managerial control on share repurchases in the USA has not been considered in the finance literature. This paper adds to the literature by providing evidence that family influence generally results in a lower propensity to repurchase shares.

Financing family firms in the Middle East: the choice between Islamic and conventional finance

2018 ◽  
Vol 24 (4) ◽  
pp. 842-865 ◽  
Author(s):  
Rima Bizri ◽  
Rayan Jardali ◽  
Marwa F. Bizri
Keyword(s):  
Middle East ◽  
Significant Influence ◽  
Family Firms ◽  
Economic Factor ◽  
Family Firm ◽  
Motivational Factors ◽  
Structured Interviews ◽  
Content Type ◽  
Financing Decisions ◽  
Personal Attitude

Purpose The purpose of this paper is to investigate the role of non-economic factors on the financing decisions of family firms in the Middle East. To contextualize the study, the authors steer away from the traditional capital structure debate toward the choice of financing paradigm: conventional vs Islamic. Design/methodology/approach This study uses Ajzen’s theory of planned behavior due to its ability to delineate the influence of non-economic motivational factors on the financing decisions of family firms. This study also examines the influence of “familial stewardship (FS),” another non-economic factor which is highly relevant in a collectivistic context. The authors initially use SEM with Amos to analyze 115 surveys of family firm owner-managers. For deeper probing, the authors undertook an additional post hoc qualitative analysis of six case studies using semi-structured interviews. Findings The findings of this study suggest that owner-managers’ attitude toward Islamic finance plays a primary motivational role in influencing their intentions to use it. More importantly, the findings depict a significant influence of “FS” and subjective norm on the attitudes of owner-managers. This implies that financing decisions which involve religious beliefs are directly influenced by the decision maker’s personal attitude, which, in turn, is significantly influenced by familial and social pressures. Originality/value This study fills a gap in the family-firm financing literature by suggesting that when choosing religion-related financial products, attitude plays a far more significant role than other motivational factors. This study also contributes to the “familiness” area of research by empirically demonstrating that FS has a significant influence on owner-managers’ attitude toward financing choices.

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