The Use of Incentive Compensation Among Board Members in Family Firms

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.

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The Impact of Incentive Compensation on Labor Productivity in Family and Nonfamily Firms

Family Business Review ◽

10.1177/0894486517690052 ◽

2017 ◽

Vol 30 (2) ◽

pp. 119-136 ◽

Cited By ~ 22

Author(s):

James J. Chrisman ◽

Srikant Devaraj ◽

Pankaj C. Patel

Keyword(s):

Labor Market ◽

Human Resource ◽

Adverse Selection ◽

Labor Productivity ◽

Family Firms ◽

Incentive Compensation ◽

Selection Problems ◽

The Family ◽

Matched Data ◽

The Impact

Family and nonfamily firms both must align owner and employee interests. However, family firms may experience lower labor productivity because of adverse selection problems from labor market sorting and attenuation. Incentive compensation reduces alignment of interest problems in family and nonfamily firms. Importantly, incentive compensation signals to potential employees that performance will be rewarded, which should improve the relative labor productivity in family firms by reducing adverse selection. Analysis of matched data on 216,768 firms supports our hypotheses, implying that incentive compensation has a broader impact on firm performance than commonly recognized in the family firm or human resource literatures.

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Retrenchment Strategies and Family Involvement: The Role of Survival Risk

Family Business Review ◽

10.1177/0894486518794605 ◽

2018 ◽

Vol 32 (1) ◽

pp. 58-75 ◽

Cited By ~ 9

Author(s):

Jose C. Casillas ◽

Ana M. Moreno-Menéndez ◽

José L. Barbero ◽

Eric Clinton

Keyword(s):

At Risk ◽

Family Involvement ◽

Empirical Data ◽

Family Firms ◽

Stock Exchange ◽

Family Businesses ◽

Board Members ◽

Spanish Stock Exchange ◽

Survival Risk

This article analyzes retrenchment strategies that family businesses adopt during periods of crisis. From a socioemotional wealth perspective, we propose that the influence of family board members and family CEOs on retrenchment depends on survival risk. We collected empirical data from companies on the Spanish Stock Exchange (2008-2012). Our findings reveal that family involvement intensifies retrenchment when performance is declining, and that retrenchment intensifies when survival is at risk. We also demonstrate that family firms are able to implement retrenchment measures when required to improve their performance.

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Are family firms reluctant to report impairment losses? Evidence from private firms

Journal of Applied Accounting Research ◽

10.1108/jaar-04-2021-0095 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Charlotte Haugland Sundkvist ◽

Tonny Stenheim

Keyword(s):

Family Relationships ◽

Large Scale ◽

Family Firms ◽

Research Question ◽

Board Members ◽

Private Firms ◽

Socioemotional Wealth ◽

Content Type ◽

External Auditors ◽

Reporting Practices

PurposeThis study examines the reporting of impairment losses in family and non-family private firms. The socioemotional wealth (SEW) theory suggests that the reporting practices in family firms may differ from non-family firms and may vary among family firms.Design/methodology/approachThe research question is examined using a large-scale archival study. The authors use unique register data on family relationships for Norwegian private firms provided by the CCGR database at BI Norwegian Business School.FindingsDrawing on the socioemotional wealth theory, the authors predict and find that private family firms are more reluctant to report impairment losses compared to private non-family firms. The results also suggest that both the likelihood to report impairment losses and the impairment amounts increase with board independence in private family firms. The authors also find some evidence suggesting that private family firms with a family CEO report lower impairment losses than private family firms without a family CEO, but this result is less robust and should be interpreted with caution.Research limitations/implicationsThe true economic impairment is unobservable. The authors use proxies based on prior research to control for whether impairment losses are faithfully reported or not.Practical implicationsThe results suggest a higher risk of impairment losses being managed in private family firms than in private non-family firms and that independent board members mitigate this tendency somewhat in private family firms. Awareness of this risk should have practical value for stakeholders such as non-family owners and creditors, external auditors, supervisory and monitoring bodies, and regulators.Originality/valueThis study contributes to the accounting literature by examining the reporting of a specific accrual (impairment losses) in the setting of private family firms. Prior research in this area is scarce.

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Chairpersons’ hubris and internationalization: evidence from emerging market’s family business groups

Multinational Business Review ◽

10.1108/mbr-10-2020-0196 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Arpita Agnihotri ◽

Saurabh Bhattacharya

Keyword(s):

Family Business ◽

Family Firms ◽

Emerging Market ◽

Business Groups ◽

Business Group ◽

Board Members ◽

Content Type ◽

Firm Internationalization ◽

Family Business Groups ◽

Micro Foundations

PurposeThis paper aims to explore the association between chairperson hubris and the internationalization of firms belonging to business groups in an emerging market, India, under the boundary conditions of business group internationalization and the tenure of independent board members. Design/methodology/approachArchival data of 163 Indian family firms over a five-year period were used. FindingsThe study highlights the significance of chairperson hubris in determining the internationalization of family firms in India and the influence that business group internationalization and the tenure of independent board members have on the chairperson hubris and firm internationalization relationships. Originality/valueAlthough literature exists on drivers of internationalization, micro-foundations theories such as chairperson hubris have been less explored in the international business literature, especially in the context of emerging markets. Contribution to Impact

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Family ties, do they matter? Family ownership and firm performance in Peru

Corporate Ownership and Control ◽

10.22495/cocv9i4art7 ◽

2012 ◽

Vol 9 (4) ◽

pp. 96-107 ◽

Cited By ~ 1

Author(s):

Julián Benavides Franco ◽

Samuel Mongrut Montalván ◽

Mónica González-Velasco

Keyword(s):

Family Firms ◽

Stock Exchange ◽

Ownership Concentration ◽

Board Members ◽

Family Ownership ◽

Industrial Firms ◽

Family Ties ◽

Accounting Performance ◽

The Relationship ◽

Excessive Risk

This paper studies the relationship between ownership concentration, family ownership, management, and market and accounting performance for 59 industrial firms listed in the Lima Stock Exchange during the period of 1999 to 2005. An inverted U-shaped relationship was found between ownership concentration and market performance in both family and non-family firms, pointing out an entrenchment effect or excessive risk aversion of the controlling group. This effect is worsened for family firms. The presence of family members as CEOs, Chairmen and Board Members is also negative for a firm’s performance and family ownership was found to increase the leverage of a firm.

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What Impact Does Corporate Governance Have on Corporate Environmental Performances? An Empirical Study of Italian Listed Firms

Sustainability ◽

10.3390/su12145742 ◽

2020 ◽

Vol 12 (14) ◽

pp. 5742 ◽

Cited By ~ 2

Author(s):

Franco Rubino ◽

Francesco Napoli

Keyword(s):

Resource Dependence ◽

Family Firms ◽

Resource Dependence Theory ◽

Board Members ◽

Listed Firms ◽

Ownership Structures ◽

Large Size ◽

Environmentally Responsible ◽

The One ◽

Made In

In this paper, we first build a multi-theoretical framework through which we hypothesise that the governance mechanisms of a board of directors, on the one hand, and the ownership structures of family and nonfamily firms, on the other, can have an impact on corporate environmental performances. We then test this hypothesis against a sample of 83 Italian listed firms, noting the characteristics of their governance and ownership structures over the five years from 2013 to 2017. We also take note of data from the firms’ Sustainability Reports on emissions of greenhouse gases over the 2014–2018 five-year period. The results we obtain support the prediction, made in line with the Agency-Theory perspective, that there is a positive relationship between board independence and the adoption of environmentally responsible practices. Only partial support emerges for the hypotheses, made in line with the Resource Dependence Theory, according to which better corporate environmental performances can be obtained by increasing the resource provision of board members. In particular, we discover a positive effect of a large-size board on corporate environmental performances, but no significant effect arising from the presence of interlocked board members. Finally, our study provides support for the theoretically-based hypothesis according to which the non-economic utility (socioemotional wealth) of family ownership makes family firms likely to have better environmental performances than non-family firms.

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Pay for Outsiders: Incentive Compensation for Nonfamily Executives in Family Firms

Contemporary Accounting Research ◽

10.1111/1911-3846.12650 ◽

2020 ◽

Author(s):

Zhi Li ◽

Harley E. Ryan ◽

Lingling Wang

Keyword(s):

Family Firms ◽

Incentive Compensation

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The effect of family ownership and control on equity-based compensation

Journal of Family Business Management ◽

10.1108/jfbm-04-2014-0008 ◽

2015 ◽

Vol 5 (1) ◽

pp. 55-72 ◽

Cited By ~ 1

Author(s):

Hyungkee Young Baek ◽

Philip L Fazio

Keyword(s):

Family Firms ◽

Family Influence ◽

Incentive Compensation ◽

Foreign Firms ◽

Family Ownership ◽

Stock Market Returns ◽

Content Type ◽

Ceo Pay ◽

Income Ratio ◽

Compensation Plan

Purpose – Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation. Design/methodology/approach – The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables. Findings – For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs. Practical implications – Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies. Originality/value – S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

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