Does family ownership matter in executive pay design?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Subba Reddy Yarram ◽  
Sujana Adapa
Keyword(s):  
Executive Compensation ◽  
Family Firms ◽  
Family Businesses ◽  
Executive Pay ◽  
Minority Shareholders ◽  
Content Type ◽  
Financial Outcomes ◽  
Optimal Contracting ◽  
Managerial Power ◽  
And Performance

PurposeThe purpose of this study is to analyse the level and structure of executive compensation of family and non-family businesses and if minority shareholders are expropriated by family businesses in the Australian context using excessive pay. Studies on compensation practices of family businesses are limited to the European and North American contexts. This study, for the first time, considers the Australian context, which is unique with its transparent compensation disclosures, and a principle-based corporate governance framework to examine the level of compensation as well as the association between pay and performance.Design/methodology/approachA set of family and matched non-family firms for the period 2004–2014 are examined in a panel data setting. Robust models are estimated to examine the association between compensation and a set of economic, governance and ownership factors.FindingsThis study finds evidence that family businesses in general pay lower levels of compensation than non-family businesses. An investigation of the role of economic factors on compensation of family and non-family businesses shows evidence that supports the optimal contracting theory. Further examination of governance factors on compensation levels and pay–performance sensitivities shows there is a limited role for managerial power approach in explaining the executive compensation practices of family businesses in Australia. These findings infer that family businesses, given their interest in non-financial goals, do not pay excessive compensation to their executives to expropriate minority shareholders.Research limitations/implicationsThese findings have implications for theory relating to executive compensation and human resource management in all types of businesses, including family firms. These findings offer support for the theory of optimal contracting. Empirical analysis shows no evidence of entrenchment effect or managerial power in family businesses in Australia. In terms of theory-building, there is role for socioemotional wealth model in addition to optimal contracting theory and managerial power approach.Practical implicationsThe findings of this study also have implications for practice. Compensation practices may be designed in such a way that executives and firms pursue broader social goals such as the sustainable development goals or more generally non-financial objectives. Businesses may not necessarily use only financial outcomes when assessing appropriate level of pay of executives. Often, the financial outcomes may involve wealth transfers between different stakeholders and may not necessarily lead to improving the societal well-being. In terms of human resource management, the findings of this study emphasise the need for explicit consideration of socioemotional wealth of all family-related and non-related employees when designing recruitment, training, reward and recognition policies.Originality/valueThis study highlights the role non-financial factors play in executive pay setting processes in family businesses in a highly transparent and principle-based governance framework. Family businesses in Australia are not motivated by monetary considerations, and that their interest in non-financial objectives leads to less emphasis on the link between compensation and performance.

Another hybrid? Family businesses as venture capitalists

2017 ◽  
Vol 7 (3) ◽  
pp. 329-350 ◽  
Author(s):  
Torbjörn Ljungkvist ◽  
Börje Boers
Keyword(s):  
Venture Capital ◽  
Family Business ◽  
Family Firms ◽  
Family Businesses ◽  
Board Members ◽  
Family Ownership ◽  
Venture Capitalists ◽  
Ethical Awareness ◽  
Minority Shareholders ◽  
Content Type

Purpose This paper addresses the phenomenon of venture capital firms which are also family businesses (VCFBs). The purpose of this paper is to explore and understand the phenomenon of VCFB by answering the following questions: What are the features of professionalization in VCFBs? And, how do professionalization and types of family businesses explain the strategies and governance of VCFBs? Design/methodology/approach As an explorative case study, it maps the Swedish venture capital (VC) industry and compares two VCFBs and their business investments with regard to strategy and governance. Findings By suggesting two major configurations, the study explains how family business development and levels of professionalization relate to differences in VCFBs’ strategies, which in turn, affect their governance. The personal VCFB features active owners who personally take responsibility roles and strongly focus on customers and relationships. The administrative VCFB strongly focuses on predetermined financial metrics, high ethical awareness among board members, and ongoing interplay between the active family board members and minority shareholders. Research limitations/implications The study was conducted in Sweden and concerns Swedish VCFBs. The paper contributes to the literature by combining the two currently separate research streams, i.e. family business and VC, highlighting the importance and consequences of family ownership in VC businesses. Practical implications The present study provides stock market investors and stock analysts with a deeper understanding of VCFBs’ strategy incentives. By identifying the kind of VCFB and its relation to strategy, more reasonable assessments and analyses of the VCFBs’ actions will be possible. Family firms willing to accept VC-finance should consider the type of VC and the potential consequences of family ownership. Originality/value This study is the first to classify VC firms as family businesses. Moreover, it shows the features of professionalization in VCFBs by suggesting a set of configurations.

Does CEO duality give more influence over executive pay to the majority or minority shareholder? (A survey of Brazil)

2016 ◽  
Vol 16 (1) ◽  
pp. 96-115 ◽  
Author(s):  
Enoima Abraham ◽  
Gurcharan Singh
Keyword(s):  
Executive Compensation ◽  
Governance Structure ◽  
Minority Shareholder ◽  
Executive Pay ◽  
Minority Shareholders ◽  
Managerial Performance ◽  
Ceo Duality ◽  
Content Type ◽  
Conditional Effects ◽  
The Impact

Purpose The purpose of this paper is to focus on comparing the influence of majority and minority shareholders on executive compensation under conditions of CEO duality, examining majority and minority shareholder influences by measuring their investment and return activity. The paper seeks to uncover how CEO duality changes the impact the two categories of shareholders have on executive compensation, especially in an emerging nation. Design/methodology/approach In total, 30 corporations out of the 70 corporations listed on the BM&F Bovespa (a Brazilian stock market) were used for the paper. Quarterly data were collected on the companies from the Datastream database. The paper conducted a moderated regression analysis on the data to determine the conditional effects of majority and minority holders’ investment and returns on executive compensation. Findings There are incentives for executives meeting majority shareholder objectives, but minority shareholders’ influences act as a disincentive for executives. Only the influence of blockholders by their returns is affected by the separation of the roles of CEO and Chairman. The effect is such that firms with a separation of the roles have their executives rewarded in line with increments to the returns made to blockholders, but firms that have the roles merged pay a high wage that is inconsistent with managerial performance. Finally, the majority of variation in executive pay levels can be attributed to individual company traits. Research limitations/implications The paper’s sample is biased to firm which had publicly available data on the total compensation payable to their top executives. Practical implications Advocates of minority shareholder rights may need to exercise patience with the implementation of more formalised governance structure, as they are not providing protection for minority shareholders within the period studied. Originality/value The paper provides empirical evidence within the Brazilian context of minority shareholder effects on executive compensation and the effect of CEO duality on the relationship.

Managerial power, agency cost and executive compensation – an empirical study from China

2016 ◽  
Vol 10 (1) ◽  
pp. 119-137 ◽  
Author(s):  
Xiaohong Zhang ◽  
Gaowen Tang ◽  
Zhaohong Lin
Keyword(s):  
Stock Market ◽  
Executive Compensation ◽  
Listed Companies ◽  
Agency Cost ◽  
Senior Executives ◽  
Compensation Contracts ◽  
Content Type ◽  
Optimal Contracting ◽  
Managerial Power ◽  
The Relationship

Purpose Based on the theory of “optimal contracting approach” and “the managerial power approach”, this paper aims to investigate whether senior executives of listed companies in China make use of their power to gain their own private benefits. The paper also compares compensation contracts between state- and private-owned enterprises to test whether there is a significant difference between senior executives from different ownership types of enterprises in terms of compensation contracts. Design/methodology/approach The paper raises four hypotheses based on the theories of “company agency”, “optimal contracting approach” and “managerial power approach”. After that, 5,680 A-share-listed companies of stock market in Shanghai and in Shenzhen Stock Market from 2008 to 2012 were taken as research samples to conduct a series of research analysis, including t-test, reliability analysis and regression analysis, with the help of SPSS 18.0. Findings The senior executives of listed companies in China could make use of their power to increase their own salary to gain power pay and, at the same time, company performance, company size and other factors that are important to influence the executive compensation. This paper further argues that senior executives of private-owned listed companies are more likely to use their power to obtain power pay and increase their own compensation. Additionally, the agency costs of Chinese listed companies are negatively related to the performance pay of senior executives, whereas there is no obvious negative correlation with the power pay of senior executives. Practical implications This paper takes multiple, in-depth approaches to study the relationship among managerial power, agency cost and executive compensation and to find out the differences in compensation contracts of senior executives between private-owned listed companies and state-owned companies. It also provides necessary suggestions to ensure the interests of stockholders, such as: optimizing the management structure of listed companies; improving the transparence of information disclosure of listed companies; establishing effective mechanism of incentive and constraint; and improving and standardizing the market of professional managers. Social implications The compensation contract of senior executives in China is critical to enhance enterprises’ performance, and it will become an important factor that will facilitate the interests of stockholders and management. However, this paper argues that some phenomena of over-payment of senior executives in listed companies cannot be explained by the theory of “optimal contracting approach”, but it is necessary and important to compare the differences of compensation contract of senior executives between private-owned listed companies and state-owned companies. A series of findings are proposed in this paper. Originality/value This paper made use of a principal analysis to extract the main factors that could represent the managerial power from different angles. In addition, this paper also compared the differences between compensation contracts of senior executives between private-owned listed companies and state-owned companies. Additionally, in this paper, the compensation of senior executives was divided into “power compensation” and “performance compensation”, which were used to test the relationship with the management cost of companies.

Debt policy and firm performance of family firms: the impact of economic adversity

2017 ◽  
Vol 13 (3) ◽  
pp. 267-286 ◽  
Author(s):  
Elisabete Simões Vieira
Keyword(s):  
Firm Performance ◽  
Family Firms ◽  
Negative Relationship ◽  
Small Sample ◽  
Minority Shareholders ◽  
Content Type ◽  
And Performance ◽  
The Impact ◽  
The Relationship ◽  
Debt Policy

Purpose The purpose of this paper is to analyse the relationship between debt policy and performance among family firms (FF), providing evidence on whether FF differ from non-family firms (NFF). It also focusses on the possibility of asymmetrical debt policy impact on performance between periods of stability and economic adversity. Design/methodology/approach The paper employs panel data regression, considering a sample of Portuguese listed firms for the period between 1999 and 2014. Findings Overall, the author find evidence that debt contributes negatively to firms’ performance, which is consistent with the pecking order prediction, and that the relationship between debt and performance do not differ significantly between FF and NFF. After addressing the endogeneity issue, the author conclude that firms’ performance is negatively influenced by both short- and long-term debt. Considering the total debt, the negative relationship between the two variables differs from family and non-family companies. The results show that age and size influences positively, and the independence of the board directors influences negatively the firms’ performance. The empirical findings suggest that under economic adversity, the firms’ performance is negatively affected. Finally, the author conclude that return on assets appear to fit better than return on equity or MB when you want to relate debt and firm performance. Research limitations/implications A limitation of this study is the small size of the Euronext Lisbon that results in a small sample. Originality/value This paper offers some insights on the relationship between debt policy and firm performance from a country with weak protection of minority shareholders, concentrated ownership and a significant family control. It also gives the opportunity to analyse whether firm performance differs according to market conditions.

Compensation of top brass, corporate governance and performance of the Indian family firms – an empirical study

2017 ◽  
Vol 13 (3) ◽  
pp. 529-551 ◽  
Author(s):  
Palanisamy Saravanan ◽  
Maram Srikanth ◽  
Suhas M. Avabruth
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Executive Compensation ◽  
Family Firms ◽  
Emerging Market ◽  
Content Type ◽  
Indian Family ◽  
The Family ◽  
And Performance ◽  
Practical Implications

Purpose The objective of this study is to understand the linkages among executive compensation, corporate governance and performance of the Indian family and non-family firms. Further, the study also analyzes the level of shareholding pattern of the Indian family firms on their performance and the executive compensation. Design/methodology/approach The authors have collected panel data of the companies listed on the National Stock Exchange of India Limited. The data set consists of 284 companies (both family and non-family) for the period 2005–2014. The authors have made use of a dynamic panel data model with generalized method of moments (GMM) estimation to formulate the hypotheses and used fixed-effects regression model to check the robustness of our findings. Findings The authors find support for the agency theory, stewardship theory and resource dependence theory in the paper. Specifically, variables related to executive compensation, corporate governance (board size, proportion of independent directors on board, chief executive officers duality and other directorships held by the executive directors outside the company), firm performance (Tobin’s Q), leverage and shareholding pattern of the family are significant in this study. Practical implications The study has practical implications for all stakeholders of the family and non-family firms, especially in the emerging market economies. It can be used as a reference guide by various other stakeholders of the family firms, viz., customers, educators, tax authorities, government and society. Originality/value The authors confirm that their research is original and provides valuable insights on the Indian family firms. The authors study cross-holding of directorships, inter alia, in the Indian family business groups. As most of the previous studies in the Indian context ignored this important aspect, this study is unique in nature.

Board of directors characteristics and performance in family firms and under the crisis

2018 ◽  
Vol 18 (1) ◽  
pp. 119-142 ◽  
Author(s):  
Elisabete Simões Vieira
Keyword(s):  
Board Of Directors ◽  
Family Firms ◽  
Stock Exchange ◽  
Gender Diversity ◽  
Family Firm ◽  
Family Businesses ◽  
Content Type ◽  
The Board Of Directors ◽  
And Performance ◽  
And Gender

Purpose This paper aims to examine the relationship between board of directors’ characteristics and performance in family businesses. It offers evidence to the question of whether a family firm (FF) differs from a non-family firm and looks at the possibility of asymmetrical effects between periods of stability and economic adversity. Design/methodology/approach A panel data approach was applied to a sample of Portuguese firms listed the on Euronext Lisbon exchange between 2002 and 2013. Findings The results show that FFs are likely to have a lower proportion of independent members and higher gender diversity on their boards than non-family firms. FF performance is positively related to ownership concentration and gender diversity. There are performance premiums for family businesses, which have more gender diversity than their counterparts. These effects also depend on whether the economy is in recession. The evidence suggests that the presence of women on the board and the leverage and size of the FFs have a more significant impact on the performance in periods of economic adversity. Research limitations/implications One limitation of this study is the small size of the sample as it was drawn from the Euronext Lisbon exchange, a small stock exchange market. Originality/value This study provides input into the academic discussion on corporate governance and FF, an area which is in need of research. In addition, the authors examine this issue in conjunction with generalised economic adversity, focusing on the possible asymmetrical effects that the nature of the board of directors may have on performance in periods of stability and those of economic adversity. The role of board of directors is crucial to the understanding of corporate behaviour and the setting of the policy that regulates corporate activities.

CEO Compensation and Acquired and Acquiring Companies in Large Corporate Acquisitions

GIS Business ◽  
2016 ◽  
Vol 11 (5) ◽  
pp. 01-13
Author(s):  
Simon Yang
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Relative Sensitivity ◽  
Matched Sample ◽  
Executive Pay ◽  
Corporate Acquisitions ◽  
Acquiring Firms ◽  
Managerial Power ◽  
To Receive

This paper examines the relative sensitivity of CEO compensation of both acquiring and acquired firms in the top 30 U.S. largest corporate acquisitions in each year for the period of 2003 to 2012. We find that total compensation and bonus granted to executive compensation for acquired companies, not acquiring companies, are significantly related to the amount of acquisition deal even after the size and firm performance are controlled for. Both acquiring and acquired CEOs are found to make the significantly higher compensation than the matched sample firms in the same industry and calendar year. We also find that executives with higher managerial power, as measured by a lower salary-based compensation mix, prior to a corporate acquisition are more likely to receive a higher executive pay in the year of acquisition. The association between executive compensation and managerial power seems to be stronger for acquired firms than for acquiring firms in corporate acquisition. Overall, our findings suggest that corporate acquisition has higher impacts on executive compensation for acquired firm CEOs than for acquiring firm CEOs.

The innovation and internationalisation processes of family businesses

2017 ◽  
Vol 27 (2) ◽  
pp. 231-247 ◽  
Author(s):  
Vitor Braga ◽  
Aldina Correia ◽  
Alexandra Braga ◽  
Sofia Lemos
Keyword(s):  
Family Business ◽  
Family Firms ◽  
Family Businesses ◽  
Family Management ◽  
Multivariate Statistic ◽  
Content Type ◽  
Business Innovation ◽  
The Family ◽  
Internationalisation Strategies ◽  
Innovation Processes

Purpose The success of the family firms cannot be detached from the current paradigm where, within the present economic conditions, economic agents struggle to exploit the existing opportunities and need to take into account the risks associated to the international arena and the innovation processes. The internationalisation and innovation processes may trigger resistance within family business due to their relatively higher difficulty to take risks and to invest in industries outside the scope of their original core business. Innovation and internationalisation processes become relevant strategies for the family firms’ continuity and success. In line with such fact, the aim of this paper is to contribute with insights regarding the processes of innovation and internationalisation within family businesses. In particular, this paper aims to assess the propensity of such firms to apply such strategies, to identify the particular business behaviour and to assess the extent to which the particulars of family firms may constraint or lead to the implementation of innovation policies, and thus its internationalisation. Design/methodology/approach The data were collected through questionnaires within family business aiming to understand the scope and characteristics of internationalisation and innovation processes within these firms. The 154 replies from such data collection were analysed using different multivariate statistic procedures, although this paper is based on factorial and correlation analysis. Findings The analysis of the results shows that there is an association between the processes of innovation and internationalisation within family business. In addition, the results also suggest a typology of firms regarding their innovation and internationalisation strategies and motivations. Research limitations/implications The results of this paper are, to some extent, limited because they did not allow comparing the findings with data from non-family business. However, the authors’ aim was not to distinguish family firms, but rather to characterise them. Practical implications This paper expects to contribute with lessons for the management of family business and to raise awareness of the constraints faced by family business. It is important to highlight that family business performance may be affected by a lower propensity to risk-taking attitudes, by the lack of non-family management and to the necessity of separating the family and the business in the business dimensions that the family limits the business growth. Originality/value Although there is a significant amount of the literature devoted to explore family business, innovation and internationalisation studies, very few draw on the relationship between internationalisation and innovation processes within family business. This paper explores such a relationship within a particular business context – the family dynamics that strongly affect management and business development.

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.

Coping mechanisms of Philippine tourism and hospitality family businesses during the COVID-19 pandemic: a non-parametric approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Andrea Santiago ◽  
Fernando Martin Roxas ◽  
John Paolo Rivera ◽  
Eylla Laire Gutierrez
Keyword(s):  
Rural Areas ◽  
Family Firms ◽  
The Philippines ◽  
Academic Community ◽  
Family Businesses ◽  
Content Type ◽  
Family Enterprises ◽  
Tourism And Hospitality ◽  
The Impact ◽  
Non Parametric

PurposeFamily businesses (FB), mostly small-sized, dominate the tourism and hospitality industry (THI), especially in the rural areas. While many would have been used to the impact of demand seasonality, it is unknown how these businesses would have survived through the restrictions imposed to contain the coronavirus disease 2019 (COVID-19) pandemic as compared to non-family business (NFB) counterparts. This study aims to determine if there were differences on how family and non-family enterprises in the THI coped with government restrictions.Design/methodology/approachBy subjecting the survey data from tourism enterprises to non-parametric techniques, the authors establish empirical evidence on similarities and differences of coping strategies adopted by FBs and NFBs; their required support from government and their perceptions of a post-pandemic THI.FindingsThe analysis revealed that family-owned tourism and hospitality businesses in the Philippines tended to collaborate with other businesses to manage the impact of the pandemic restrictions. Since they hired more seasonal workers prior to the restrictions, they tended to avoid hiring workers during the restricted period. NFBs, on the other hand, that were generally larger in size and more professionally managed with more regular employees, tended to streamline operations for greater efficiency.Research limitations/implicationsThe study relied on survey results distributed and collected online. There is an innate bias against those firms that did not have access to the survey links.Practical implicationsThe comparative study suggests that interventions to assist firms in the THI should consider the differences in firm ownership as “one size does not fit all.”Social implicationsThe study provides evidence about how environmental factors impact the operations of family firms. Thus, it provides valuable insights for both the academic community and industry practitioners.Originality/valueThis is the first study in the Philippines that was able to capture response of family and non-family firms in the THI during the COVID-19 lockdown.

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