Does the preference of family board seats allocation influence corporate investment efficiency?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chun Su ◽  
Xing Liu ◽  
Huan Shao
Keyword(s):  
Cash Flow ◽  
Family Firms ◽  
Corporate Investment ◽  
Altruistic Behavior ◽  
Investment Efficiency ◽  
Control Rights ◽  
Content Type ◽  
Law System ◽  
And Control ◽  
The Relationship

Purpose This paper aims to investigate the influence of over-allocation and under-allocation of family board seats on the corporate investment efficiency. Design/methodology/approach Based on the perspective of altruistic behavior, this paper theoretically analyzes the relationship between the preference of family board seats allocation and corporate investment efficiency, and designs the research. On this basis, we use STATA14.0 as an analysis tool to empirically test the relationship between the preference of family family board seats allocation and corporate investment efficiency, and consider the impact of different governance scenarios. Findings This study finds that firms with a higher over-allocation degree of family board seats invest more efficiently, evidenced by significantly suppressed over-investment rather than mitigated under-investment. However, we do not find evidence that the higher degree of under-allocation of family board seats contribute to lower corporate investment efficiency. Additionally, this study finds that the positive relationship between the over-allocation degree of family board seats and corporate investment efficiency is more pronounced for firms with higher separation of cash flow rights and control rights, and weaker regional law system environment. Our mechanism discussion shows that the higher over-allocation level of family board seats contributes to the mitigation of agency costs for family firms by reducing the tendency for non-family boards to vote “against board proposals” and the appropriation behavior of the controlling family, and eventually improving corporate investment efficiency. Originality/value This paper examines the relationship between the preference of family board seats allocation and corporate investment efficiency from the perspective of altruistic behavior. Unlike previous studies, this paper distinguishes the governance effects arising from over-allocation and under-allocation of family board seats. Additionally, different governance scenarios are incorporated into the decision-making mechanism of the board of family firms, and the influences of the divergence of cash-flow and control rights and a weaker regional law system on the governance effect of the preference of family board seat allocation are analyzed.

Separation of cash flow rights and control rights and debt among Malaysian family firms

2015 ◽  
Vol 5 (2) ◽  
pp. 184-201 ◽  
Author(s):  
Norhidayah Abdullah ◽  
Wee Ching Pok
Keyword(s):  
Cash Flow ◽  
Family Firms ◽  
Equal Proportion ◽  
Control Rights ◽  
Content Type ◽  
Shareholder Protection ◽  
Cash Flow Rights ◽  
Minority Interests ◽  
And Control ◽  
Debt Policy

Purpose – The purpose of this paper is to examine the relationship of separation of cash flow rights (CFR) and control rights (CR) and debt policy of Malaysian listed family firms. Design/methodology/approach – The sample of this study consists of 256 observations from companies listed in the Main Board of Bursa Malaysia for the period between year 2005 and 2009. The multivariate ordinary least square regressions have been conducted in order to examine the relationships between separation of CFR and CR and debt. Findings – The study reveals that the separation of CFR and CR does not lead to the increase of debt policy among Malaysian listed family-owned firms. Thus, the results suggest there is no expropriation of minority interests in Malaysian family-owned firms. The plausible reason is that Malaysia has better investor or shareholder protection laws compared to other emerging markets such as Indonesia, Thailand and Philippines. Research limitations/implications – The first limitation is the underestimation of CFR and CR because the affiliated business of unlisted firms and foreign companies are excluded. The second limitation is the presence of 100 percent ownership in firms controlled by family-owned firms or in firms that are controlled by another firms which are under the controlled of family-owned firms, or both, will lead to equal proportion of CFR and CR. Thus, the degree of separation of CFR and CR of such firms are indeterminable. Originality/value – This paper investigates the expropriation of minority interests by Malaysian family-owned firms on which has not been explored.

Ownership structure, stock volatility and analyst independence

2014 ◽  
Vol 4 (2) ◽  
pp. 187-208 ◽  
Author(s):  
Xiaobao Song ◽  
Wenjia Zheng
Keyword(s):  
Cash Flow ◽  
Negative Correlation ◽  
Institutional Investors ◽  
Stock Return ◽  
Significant Negative Correlation ◽  
Control Rights ◽  
Analyst Following ◽  
Content Type ◽  
Cash Flow Rights ◽  
The Relationship

Purpose – The purpose of this paper is to examine securities analyst independence in China's capital market and the effect on analyst independence of institutional investors’ shareholding and separation between control rights and cash flow rights of ultimate controller. Design/methodology/approach – Using data of China's listed companies from 2006 to 2012, the authors empirically tested the relationship between analyst following and volatility of stock return. And based on the test, the authors investigated the role played by institutional investors’ ownership and separation between control rights and cash flow rights of ultimate controller. Findings – According to the empirical results, there is a significant negative correlation between analyst following and volatility of stock return. Also, shareholding of institutional investors and the separation between control rights and cash flow rights of ultimate controllers will have an impact on the relationship between analyst following and volatility of stock return. When institutional investors hold higher proportion or the separation between control rights and cash flow rights of ultimate controllers keeps at a high level, the negative correlation between analyst following and volatility of stock return will weaken. Originality/value – First, based on the theory of market intermediation, the paper examined analyst independence by investigating and analyzing the relationship between analyst following and volatility of stock return. Second, it analyzed the factors affecting analyst independence by integrating enterprise characteristic variable and market characteristic variable on the basis of introducing two variables – shareholding of institutional investors and the separation between control rights and cash flow rights of ultimate controllers.

The Mutual Friend: Dual Holder Monitoring and Firm Investment Efficiency

2019 ◽  
Vol 9 (1) ◽  
pp. 81-115
Author(s):  
Miguel Antón ◽  
Luca X Lin
Keyword(s):  
Cash Flow ◽  
High Growth ◽  
Investment Efficiency ◽  
Firm Investment ◽  
Control Rights ◽  
Debt Overhang ◽  
Equity Value ◽  
Growth Firms ◽  
Editorial Decision ◽  
And Control

Abstract We investigate the influence of simultaneous equity holdings by creditors (dual holders) on investment efficiency. Such creditors have stronger incentives and power to monitor firm investment as they have cash flow and control rights from both debt and equity sides. We provide evidence that dual holders, particularly noncommercial bank dual holders, significantly mitigate overinvestment. For high growth firms and those subject to debt overhang, dual holders also alleviate underinvestment. Equity value increases at the presence of dual holders. Our results indicate that by improving firm investment efficiency, dual holders not only make creditor investments safer but also create value for shareholders. Received March 26, 2019; editorial decision September 17, 2019 by Editor Isil Erel.

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.

Earnings management and corporate investment efficiency: does the board of directors matter?

2019 ◽  
Vol 17 (4) ◽  
pp. 650-670 ◽  
Author(s):  
Bilel Bzeouich ◽  
Faten Lakhal ◽  
Neila Dammak
Keyword(s):  
Earnings Management ◽  
Board Of Directors ◽  
Management Practices ◽  
Earnings Quality ◽  
Theoretical Perspective ◽  
Negative Relationship ◽  
Corporate Investment ◽  
Investment Efficiency ◽  
Content Type ◽  
The Relationship

PurposeThe purpose of this paper is to examine the relationship between earnings management and the efficiency of French firms’ investments. It also investigates the moderating effect of board of directors’ features on this relation.Design/methodology/approachThis study is based on a sample of French listed companies from 2011 to 2015, i.e. 435 firm-year observations. The authors use the instrumental variable method based on 2SLS models.FindingsThe authors show that there is a negative relationship between earnings management and investment efficiency. This finding supports the theoretical perspective of the agency theory, as the propensity of firms to engage in earnings management practices is associated with high managerial opportunistic behavior and asymmetric information issues, leading to the problem of under and overinvestment. The findings also show that board size, independence and gender diversity are positively associated with investment efficiency. These board features moderate the relationship between earnings management and investment efficiency suggesting that earnings quality plays a more prominent role in guiding managers to choose the right investments when the corporate governance environment is strong.Research limitations/implicationsThe negative relationship between earnings management and investment efficiency suggests that firms with lower earnings quality are exposed to high information asymmetries. They are then more likely to deviate from their expected level of investments. In addition, the results highlight the importance of corporate financial transparency and board monitoring to reduce agency costs and ensure the efficiency of corporate investments, particularly in a setting where investors’ interests are poorly protected.Originality/valueThis paper is the first to the best of the authors’ knowledge to examine the effect of earnings management, a metric for earnings quality, on the corporate investment efficiency in France. Besides, they extend previous literature by investigating how board features are able to monitor managerial actions and decisions and therefore to moderate the effect of earnings management on investment efficiency.

scholarly journals Internationalization vs family ownership and management: the case of Portuguese wine firms

2017 ◽  
Vol 29 (2) ◽  
pp. 195-209 ◽  
Author(s):  
Luis Miguel Pacheco
Keyword(s):  
Family Involvement ◽  
Family Firms ◽  
Control Structure ◽  
Export Performance ◽  
Content Type ◽  
Portuguese Economy ◽  
The Portuguese Economy ◽  
And Control ◽  
To Receive ◽  
The Relationship

Purpose The purpose of this paper is to empirically examine the relationship between the firms’ ownership and control structure and their export performance. The literature is traditionally focused on the relationship between firms’ performance and internationalization, with the relationship between ownership and control structure with internationalization being much less studied, particularly in the context of family firms. Design/methodology/approach The authors focus their study on the Portuguese wine firms due to their increasing importance in the Portuguese economy and in the promotion of the country’s exports and image abroad. They used a balanced panel data sample of 82 firms for the period from 2011 to 2015 and applied a random effects model and a Tobit specification. Findings The degree of family involvement shows a negative and significant relationship with internationalization, meaning that family firms that intend to internationalize should be open to receive external managers with international experience and increase their internal competencies to enhance internationalization. Originality/value This paper extends the literature since assesses, at the light of the agency theory, the presence of differences in the internationalization degree and export intensity between family firms that are managed and controlled by the owners and family firms that are managed by non-family members, with an application to a less studied sector and country.

Beyond socioemotional wealth: taking another step toward a theory of the family firm

2016 ◽  
Vol 14 (3) ◽  
pp. 279-287 ◽  
Author(s):  
James J. Chrisman ◽  
Daniel T. Holt
Keyword(s):  
Family Firms ◽  
Initial Step ◽  
Family Firm ◽  
Economic Activities ◽  
Socioemotional Wealth ◽  
Content Type ◽  
The Family ◽  
Conceptual Paper ◽  
And Control ◽  
The Relationship

Purpose The purpose of this paper is to explain how the concept of socioemotional wealth can be combined with other important concepts in the family firm literature to develop a theory of the family firm. Design/methodology/approach This is a conceptual paper based on a review of the paper of Martin and Gómez-Mejía in this issue as well as the family business literature in general. Findings Martin and Gómez-Mejía (this issue) present a theoretical model and propositions on the relationship between socioemotional and financial wealth that advances understanding of family firm decision-making. That paper provides an initial step toward a theory of the family firm that can explain why firms select the family form of organization to conduct economic activities, what determines their scale and scope and why heterogeneity is observed among family firms. This commentary takes another step toward such a theory by discussing how the combined consideration of goals, governance and resources could be used to address the above three questions. Originality/value The precepts of a new theory of the family firm is presented that incorporates the concepts of goals (socioemotional wealth), governance (family ownership and control) and resources (familiness) of family firms to explain why family firms exist and potentially thrive as well as to explain the heterogeneity among family firms.

Birth mode of family firms, family entering time and R&D investment: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Zulfiqar ◽  
Shihua Chen ◽  
Muhammad Usman Yousaf
Keyword(s):  
Agency Theory ◽  
Family Firms ◽  
Family Firm ◽  
Research Database ◽  
Content Type ◽  
Firm Birth ◽  
The Relationship ◽  
D Investment ◽  
Moderating Role

PurposeOn the basis of behavioural agency theory and resource-based view, this study investigates the influence of family firm birth mode (i.e. indirect-established or direct-established), family entering time on R&D investment and the moderating role of the family entering time on the relationship between birth mode and R&D investment.Design/methodology/approachThe authors collected 2,990 firm-year observations from family firms listed on A-share in China from 2008 to 2016 in the China Stock Market and Accounting Research database. They used pooled regression for data analysis and Tobit regression for robustness checks.FindingsIndirect-established family firms show more inclined behaviour towards R&D investment than direct-established counterparts. Family entering time positively affects the R&D investment of family firms. Moreover, family entering time plays a significant moderating role in the relationship between family firm birth mode (i.e. indirect-established or direct-established) and R&D investment.Originality/valueTo the best of the authors’ knowledge, this work is a pioneering study that introduced the concept of family firm birth mode (i.e. indirect-established or direct-established) and family entering time. This work is novel because it differentiated family firms according to their birth modes, an approach which is a contribution to the existing literature of family firms. Moreover, the investigation of the moderating role of family entering time has also produced notable results that help understand the impact of family entering time on different types of family firms. The interpretation of outcomes according to behavioural agency theory also produced useful insights for future researchers as well as for policymakers.

Islamic banking and corporate investment efficiency: empirical evidence from Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Empirical Model ◽  
Generalized Method Of Moments ◽  
Corporate Investment ◽  
Investment Efficiency ◽  
Islamic Banks ◽  
Agency Conflicts ◽  
Content Type ◽  
Listed Firms ◽  
Lower Effect

PurposeThe purpose of this paper is to examine whether and how Islamic banks' financing affects corporate investment efficiency.Design/methodology/approachTo achieve the research purpose, an empirical model was constructed to describe the relationship between Islamic banks' financing and corporate investment efficiency. The empirical model was tested through generalized method of moments (GMM) estimation technique using a panel data of 163 Malaysian listed firms for the period 2007–2017.FindingsThis study provides evidence that Islamic banks' financing plays an important role in enhancing investment efficiency and that this positive effect comes mainly from non-PLS contracts. Moreover, the results show that the effect of Islamic banks' financing in preventing suboptimal investments is stronger in the financial crisis period. The results also reveal that the contribution of Islamic banks' financing in reducing suboptimal investments is more prominent when firms face over-investment problems.Research limitations/implicationsThis research contributes to the debate on the financial implications of Islamic banks' financing modes by exploring their effect on corporate investment efficiency.Practical implicationsFrom a managerial perspective, the research findings are beneficial to Islamic bank managers to the extent that they highlight the role of Islamic financial contracts in improving corporate investment efficiency. In addition, the lower effect of PLS contracts on investment efficiency implies that policymakers in Malaysia should multiply their efforts to further expand the PLS financing.Originality/valueThis paper offers some insights on the role of Islamic banks' financing in mitigating agency conflicts and reducing asymmetric information problems. It is the first attempt focusing on the role of Islamic financing in fostering corporate investment decisions.

Socioemotional wealth and human resource policies: effects on family firm performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Juan David Peláez-León ◽  
Gregorio Sánchez-Marín
Keyword(s):  
High Risk ◽  
Financial Performance ◽  
Human Resource ◽  
Family Firms ◽  
Equation Modeling ◽  
Positive Contribution ◽  
Socioemotional Wealth ◽  
Content Type ◽  
Firm Financial Performance ◽  
The Relationship

PurposeThis study analyses whether human resource management (HRM), through the use of four sets of high-performance work policies (HPWPs) (i.e. selection, training, motivation and opportunity policies), mediates the relationship between socioemotional wealth (SEW)—defined as a unique set of nonfinancial family goals—and firm financial performance when family firms face a high-risk context.Design/methodology/approachHypotheses were statistically tested using a structural equation modeling (SEM) methodology with a cross-sectional sample of 196 medium-sized and private family firms in a high-risk context in Spain.FindingsThe results indicate that the relationship between SEW and financial performance in family firms is fully mediated by the use of HPWPs, especially by training and motivation HR policies. The importance given to preserving SEW influences the use of four sets of HPWPs when family firms show clear evidence of being confronted by a financial decline (i.e. a high-risk context). However, to improve their financial results to avoid the firm's failure and thus the loss of their SEW, only those HR policies that focus on training and motivation made a significant and positive contribution to the firm financial performance.Originality/valueThis study contributes to the literature on family firms and HRM by adopting an alternative theoretical framework to understand how the importance of nonfinancial family goals may affect employee structures and management policies, thereby improving financial performance in family firms.

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