CEO pay and family firm heterogeneity: A behavioral agency model perspective

2021 ◽  
pp. 234094442110517
Author(s):  
Carlos Fernández Méndez ◽  
Rubén Arrondo García ◽  
Shams Pathan
Keyword(s):  
Family Firms ◽  
Firm Heterogeneity ◽  
Jel Classification ◽  
Agency Model ◽  
Family Control ◽  
Listed Firms ◽  
Top Executives ◽  
Pay Disparity ◽  
Ceo Pay ◽  
Behavioral Agency

We study the effects of family control on CEO pay from the perspective of behavioral agency model (BAM), with particular focus on family firm’s generational stage and CEO family ties. Using a panel of Australian listed firms, we find that family firms present lower total and variable CEO pay, showing also less pay disparity between the CEO and other top executives. We also find that multi-generational family firms and those run by non-family CEOs offer higher total and variable CEO pay and present high pay disparity. The BAM and family’s aversion to socioemotional wealth loss can explain the effects of family control based on the pursuing of non-financial family goals. The decline of these goals derived from the aging of the firm and the hiring of external CEOs shape family control and should be considered in the design of executive compensation policies and by external parties when assessing their suitability. JEL CLASSIFICATION: G30; G32; G34; G38

Takeover Premiums and Family Blockholders

2015 ◽  
Vol 29 (2) ◽  
pp. 214-230 ◽  
Author(s):  
Max P. Leitterstorf ◽  
Maximilian M. Wachter
Keyword(s):  
Family Firms ◽  
Agency Model ◽  
Listed Firms ◽  
Empirical Results ◽  
The Impact ◽  
Special Case ◽  
Behavioral Agency

Blockholders impact strategic firm decisions because they are better at monitoring managers than dispersed shareholder groups. Nevertheless, we do not sufficiently understand how preferences of different blockholder types impact strategic firm decisions. We discuss this in the context of takeover premiums offered for publicly listed firms. Prior studies have argued that managers are often tempted to offer excessively high premiums. Consistently, blockholders might better control managers and ensure lower premiums. To better understand the impact of blockholder preferences, we focus on the special case of family firms. Specifically, drawing on the behavioral agency model, we hypothesize that bidders with family blockholders offer lower premiums than bidders with other blockholders or bidders without blockholders. Our empirical results support our hypotheses based on a sample of 149 takeover offers.

scholarly journals Do family firms pay less for external funding?

2021 ◽  
pp. 031289622110182
Author(s):  
Muhammad Jahangir Ali ◽  
Seema Miglani ◽  
Man Dang ◽  
Premkanth Puwanenthiren ◽  
Mazur Mieszko
Keyword(s):  
Family Involvement ◽  
Family Firms ◽  
Jel Classification ◽  
Family Control ◽  
Listed Firms ◽  
Family Enterprises ◽  
The Cost ◽  
And Control ◽  
The Impact

We examine the impact of family control on the cost of raising external funds by family enterprises. Using a sample of Australian publicly listed firms, we find a significantly negative relation between cost of newly raised capital and family control. Moreover, we show that this relationship varies with the quality of corporate governance and the quality of firm’s information environment. Furthermore, we conduct several robustness checks and consistently find that our main results remain unchanged. Overall, our evidence suggests that family firms have easier access to external financing fostered by family involvement in the ownership and control. JEL Classification: G31; G32; M41; M42

CEO Risk-Taking and Socioemotional Wealth: The Behavioral Agency Model, Family Control, and CEO Option Wealth

2017 ◽  
Vol 45 (4) ◽  
pp. 1713-1738 ◽  
Author(s):  
Luis R. Gomez-Mejia ◽  
Ionela Neacsu ◽  
Geoffrey Martin
Keyword(s):  
Risk Behavior ◽  
Risk Taking ◽  
Family Firms ◽  
Family Influence ◽  
Firm Risk ◽  
Dominant Firm ◽  
Agency Model ◽  
Family Control ◽  
Unique Nature ◽  
Behavioral Agency

We combine behavioral agency and family business literature to analyze the role of dominant firm principals in constraining the managerial agent’s (CEO’s) response to equity-based pay. Behavioral agency research has made progress in understanding CEO risk behavior in response to equity-based incentives and family firm risk behavior driven by concentrated socioemotional and financial firm-specific risk bearing. However, both literatures have evolved independently, which has limited our understanding of how the risk bearing of agent and principal influences the predictions of the behavioral agency model (BAM). We combine these literatures in order to enhance BAM’s predictive validity with regard to firm risk-taking as a function of both agent and principal risk preferences. Our findings suggest that family principals are more likely than nonfamily principals to constrain CEO risk behavior that is perceived as immoderate (excessively risk averse or excessively risk seeking). We also offer evidence that CEO ties to the family influence the CEO’s response to equity-based incentives. In doing so, we offer refinements to BAM’s formulation and advance our understanding of the unique nature of agency problems within family firms.

scholarly journals Family Control And The Value Of Cash Holdings

2015 ◽  
Vol 31 (2) ◽  
pp. 647 ◽  
Author(s):  
Sabri Boubaker ◽  
Imen Derouiche ◽  
Majdi Hassen
Keyword(s):  
Firm Value ◽  
Family Firms ◽  
Cash Holdings ◽  
Firm Resources ◽  
Family Control ◽  
Large Sample ◽  
Listed Firms ◽  
Excess Cash ◽  
Cash Reserves ◽  
Corporate Cash Holdings

The present study investigates the effects of family control on the value of corporate cash holdings. Using a large sample of French listed firms, the results show that the value of excess cash reserves is lower in family firms than in other firms, reflecting investors concern about the potential misuse of cash by controlling families. We also find that the value of excess cash is lower when controlling families are involved in management and when they maintain a grip on control, indicating that investors do not expect the efficient use of cash in these firms. Our findings are consistent with the argument that the extent to which excess cash contributes to firm value is lower when dominant shareholders are likely to expropriate firm resources. Overall, family control seems to be a key determinant of cash valuation when ownership is concentrated.

scholarly journals To Merge, Sell, or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit

2019 ◽  
Vol 46 (8) ◽  
pp. 1342-1379 ◽  
Author(s):  
Francesco Chirico ◽  
Luis R. Gómez-Mejia ◽  
Karin Hellerstedt ◽  
Michael Withers ◽  
Mattias Nordqvist
Keyword(s):  
Agency Theory ◽  
Financial Distress ◽  
Family Firms ◽  
Matched Sample ◽  
Financial Returns ◽  
Socioemotional Wealth ◽  
Family Control ◽  
Privately Held Firms ◽  
Exit Options ◽  
Behavioral Agency

We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and when performance heuristics suggest that exit is unavoidable, family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, nonfamily firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and nonfamily firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.

scholarly journals Family Control, Political Connection, and Corporate Green Governance

2020 ◽  
Vol 12 (17) ◽  
pp. 7068
Author(s):  
Xiaolin Li ◽  
Weian Li ◽  
Yaowei Zhang
Keyword(s):  
Family Firms ◽  
Chinese Family ◽  
The Political ◽  
Political Connection ◽  
Social Emotional ◽  
Family Control ◽  
Listed Firms ◽  
Individual Level ◽  
Green Governance ◽  
Governance Practice

This paper firstly introduces green governance into the empirical research of family firms. Due to the fact that family firms have their own particularity in the principal agent and also have a strong desire to preserve social emotional wealth, this paper deeply studies the driving influence of family control on the green governance of family firms, and analyzes the moderating effect based on the political connection of executives. Taking the 2015–2017 Chinese family-listed firms that released social responsibility reports as the research sample, we find that family control contributes to the improvement of corporate green governance in family firms. However, the political connection of the actual controller weakens the effect of family control on the green governance of family firms. In addition, this research is also carried out under different situations, such as at the regional level and individual level. The research helps family firms give full play to their own advantages, guide the green governance practice of family firms, and improve the level of green governance.

Family firm heterogeneity on CSR approach: A socio-emotional (SEW) perspective

2021 ◽  
pp. 234094442110638
Author(s):  
Julio Diéguez-Soto ◽  
Marta Campos-Valenzuela ◽  
Ángela M. Callejón-Gil ◽  
Ignacio Aldeanueva-Fernández
Keyword(s):  
Family Firms ◽  
Firm Heterogeneity ◽  
Family Firm ◽  
Study Data ◽  
Jel Classification ◽  
Negative Valence ◽  
Ethics Research ◽  
Interpretative Approach ◽  
Corporate Social

How family firms adopt a certain corporate social responsibility (CSR) approach remains a relatively unexplored matter in family firm and firm ethics research. Hence, we study how and why the CSR approach (broad vs. narrow; benefits vs. costs) differs within family firms, addressing the influence of the socio-emotional wealth (SEW) dimensions, individually or combined. We used empirical evidence gathered through 13 case studies of firms from the Andalusia region and we used the interpretative approach of the grounded theory based on case study data. Results of our analyses lead to propose that family firms with a higher identification and more positive than negative valence with regard to emotional attachment and family enrichment dimensions will be more likely to exhibit a broad approach of CSR. Likewise, those family firms adopting CSR actions with stakeholders due to instrumental use of image and reputation dimension will more probably display a benefits approach. JEL CLASSIFICATION: L26; M14

scholarly journals Impact of financial crisis and family control on earning management of Portuguese listed firms

2017 ◽  
Vol 6 (2) ◽  
Author(s):  
Inês Lisboa
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Family Firms ◽  
Management Strategies ◽  
Negative Relationship ◽  
Earning Management ◽  
Family Control ◽  
Listed Firms ◽  
The Family ◽  
The Impact

Accounting information is used to evaluate the firm's financial performance. Although, firms may have incentives to engage in earnings management, misleading all stakeholders. This study aims to analyse earnings management behaviours of Portuguese listed firms. Both accrual-based and real activities of earnings management are analysed to draw an overall picture of earnings management’ strategies. Most studies focused only in discretionary accruals as a proxy for earnings management, since cash flow-based earnings management is more difficult to detect. Although both strategies can be complementary instead of substituting. Moreover, the impact of financial crisis, family control, and firm characteristics is taken into account. Previous literature found that 2008 crisis had impact on earnings management as firms want to meet debt covenants and investors’ expectations. Moreover, family firms also impact the magnitude of earnings management. While some researchers found a negative relationship since managers are highly controlled, others found the opposite relationship because the family may want to maximize their own wealth. Analysing 51 listed firms, from 2003 till 2015, results show that firms engage more in earnings management during crisis, when the firm's financial situation is less stable. In addition, accrual-based earnings management is higher in family firms than in non-family ones, suggesting less quality of information in the first group. Due to less control of family firms, the family may expropriate minority investors’ wealth to increase personal benefits. Finally, the impact of firms’ characteristics on earnings management depends on the proxy of earning management analysed, suggesting that firms use accrual or real-activities earnings management depending on its purposes.

Entrepreneurial orientation in family firms: New drivers and the moderating role of the strategic involvement of the board

2018 ◽  
Vol 44 (1) ◽  
pp. 128-152 ◽  
Author(s):  
Unai Arzubiaga ◽  
Amaia Maseda ◽  
Txomin Iturralde
Keyword(s):  
Entrepreneurial Orientation ◽  
Boards Of Directors ◽  
Family Firms ◽  
Negative Relationship ◽  
Jel Classification ◽  
Entrepreneurial Activity ◽  
Financial Resources ◽  
Family Control ◽  
Willingness To Change ◽  
Entrepreneurial Activities

In this study, we examine new drivers that generate a disposition toward entrepreneurial activity in family firms and how the strategic involvement of the board of directors (SIBD) moderates the relationships between these drivers (image of the firm, willingness to change, and access to financial resources) and entrepreneurial orientation (EO). Using a sample of 230 family small and medium-sized enterprises (SMEs), our results confirm that a good family firm image and willingness to change may be powerful tools that stimulate a firm to develop entrepreneurial activities. The negative relationship between access to financial resources and EO may relate to the false belief that financial resources help firms be more creative and to maintaining family control of the firm and the socioemotional endowment. Contrary to our expectations, we also find that the SIBD negatively influences the relationship between the above drivers and EO, pointing to the need for more open boards of directors in family SMEs in order to develop and implement entrepreneurial strategies. JEL Classification: L2, M1

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