Board Composition: Balancing Family Influence in S&P 500 Firms

2004 ◽  
Vol 49 (2) ◽  
pp. 209-237
Author(s):  
Ronald C. Anderson ◽  
David M. Reeb
Keyword(s):  
Family Firms ◽  
Balance Of Power ◽  
Family Influence ◽  
Independent Directors ◽  
Family Ownership ◽  
Board Composition ◽  
Public Firms ◽  
Founding Family ◽  
Board Representation ◽  
Balance Family

We examine the mechanisms used to limit expropriation of firm wealth by large shareholders among S&P 500 firms with founding-family ownership. Consistent with agency theory, we find that the most valuable public firms are those in which independent directors balance family board representation. In contrast, in firms with continued founding-family ownership and relatively few independent directors, firm performance is significantly worse than in non-family firms. We also find that a moderate family board presence provides substantial benefits to the firm. Additional tests suggest that families often seek to minimize the presence of independent directors, while outside shareholders seek independent director representation. These findings highlight the importance of independent directors in mitigating conflicts between shareholder groups and imply that the interests of minority investors are best protected when, through independent directors, they have power relative to family shareholders. We argue that expanding the discussion beyond manager-shareholder conflicts to include conflicts between shareholder groups provides a richer setting in which to explore corporate governance and the balance of power in U.S. firms.

scholarly journals Limiting role of resource dependence: an examination of director interlocks, board meetings and family ownership

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vidya Sukumara Panicker ◽  
Rajesh Srinivas Upadhyayula
Keyword(s):  
Board Of Directors ◽  
Resource Dependence ◽  
Family Firms ◽  
Emerging Market ◽  
Resource Provisioning ◽  
Independent Directors ◽  
Family Ownership ◽  
Independent Director ◽  
Content Type

PurposeThis paper attempts to examine the activity and involvement of board of directors in internationalization activities of firms in emerging markets, by evaluating the resource provisioning roles of interlocks provided by board of directors, and the frequency of board meetings. We demonstrate that the effectiveness of board involvement is contingent upon the levels of family ownership in firms since family ownership could impact the firm’s ability to utilize the presence of different types of board members.Design/methodology/approachThe authors test our hypotheses on a sample of listed Indian companies, extracted from the Prowess database published by the Centre for Monitoring Indian Economy (CMIE), a database of the financial performance of Indian companies. On a panel of 3,133 firm years of 605 unique Indian firms with foreign investments, over a time period of 2006–2017, the authors apply different estimation techniques.FindingsThe results demonstrate that both board meeting frequency and director interlocks are instrumental in supporting internationalization activities in emerging market firms. However, family ownership moderates the role of insider and independent interlocks on internationalization investments in different ways; the authors find that interlocks provided by independent directors support internationalization activities in family firms, whereas those provided by insider directors do not. Further, the study also finds that board meetings are less effective in internationalization of family firms.Practical implicationsThe authors conclude that family firms aiming at international diversification require to develop more connected and networked independent directors to enable internationalization in firms. While independent director interlocks enhance the international investments, it is also useful to know that board meetings are ineffective in utilizing the resources in family firms. This points to the possibility that family firms should device mechanisms to integrate family meetings with board meetings so that they can utilize the within-family processes to aid in their internationalization decisions.Originality/valueThe study contributes to resource dependence theory by understanding its limiting role in family firms. Theoretically, it helps delineate the limiting resource provision role of the insider directors vis-à-vis independent directors. The authors argue that the resource provision role of insider director interlocks does not effectively help in internationalization in comparison to independent director interlocks in family-dominated firms. Consequently, the study shows the limiting role of resource provision and utilization by family-owned firms in comparison to non-family-owned firms.

scholarly journals Determinants of Companies’ Board Composition in Emerging Markets

2021 ◽  
Vol 12 (5) ◽  
pp. 17
Author(s):  
Leticia L. N. Bellato
Keyword(s):  
Emerging Market ◽  
Gender Diversity ◽  
Developed Countries ◽  
Independent Directors ◽  
Board Composition ◽  
Corporate Boards ◽  
Count Data Models ◽  
Private Control ◽  
Women On Boards ◽  
Board Representation

This paper examines the determinants of female board representation for a sample of Brazilian listed companies for the year of 2018. Using count data models, we find that greater firm size, performance and board size lead to higher woman representation on companies’ boards. Also, that private control is associated with a lower number of women on boards. Most studies related to board composition focus on independent directors and are conducted in a developed countries’ setting. This work contributes to the extant literature in understanding what drives woman representation on corporate boards in an emerging market context and also would help to support the definition and implementation of gender diversity policies by showing possible impacts.

scholarly journals Earnings Quality, Family Influence and Corporate Governance: Empirical Evidence from Malaysia

2021 ◽  
Author(s):  
◽  
Wan Adibah Binti Wan Ismail
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Audit Committee ◽  
Family Firms ◽  
Earnings Quality ◽  
Governance Structure ◽  
Family Influence ◽  
Family Ownership ◽  
The Board Of Directors ◽  
And Control

<p>This study investigates whether family ownership and control, and corporate governance are associated with earnings quality, and whether family influence in firms weakens the association between corporate governance and earnings quality. This study uses a panel sample of 527 publicly traded firms over the period 2003-2008 from the Malaysia Stock Exchange (Bursa Malaysia). Identifying family firms as firms in which family members hold a significant portion of shares and possess control over the board of directors, this study finds that family firms have significantly higher earnings quality. The results remain unchanged, even after using alternative measures of earnings quality and family influence. This study also finds that the earnings quality of firms in Malaysia is positively associated with the size and independence of the audit committee and negatively associated with the size of the board of directors. However, these relationships exist only for nonfamily firms. These results on the corporate governance variables suggest that the effectiveness of corporate governance could be mediated by family influence. Using multivariate regressions that include interaction variables for corporate governance and family firms, the study finds that the relationship between corporate governance and earnings quality is mediated by family ownership and control. The result is consistent with the argument that the monitoring role of corporate governance reduces when there is substantial control by family owners in a firm. Overall, this study concludes that family ownership and control drives higher quality earnings for firms regardless of their corporate governance structure.</p>

scholarly journals Earnings Quality, Family Influence and Corporate Governance: Empirical Evidence from Malaysia

2021 ◽  
Author(s):  
◽  
Wan Adibah Binti Wan Ismail
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Audit Committee ◽  
Family Firms ◽  
Earnings Quality ◽  
Governance Structure ◽  
Family Influence ◽  
Family Ownership ◽  
The Board Of Directors ◽  
And Control

<p>This study investigates whether family ownership and control, and corporate governance are associated with earnings quality, and whether family influence in firms weakens the association between corporate governance and earnings quality. This study uses a panel sample of 527 publicly traded firms over the period 2003-2008 from the Malaysia Stock Exchange (Bursa Malaysia). Identifying family firms as firms in which family members hold a significant portion of shares and possess control over the board of directors, this study finds that family firms have significantly higher earnings quality. The results remain unchanged, even after using alternative measures of earnings quality and family influence. This study also finds that the earnings quality of firms in Malaysia is positively associated with the size and independence of the audit committee and negatively associated with the size of the board of directors. However, these relationships exist only for nonfamily firms. These results on the corporate governance variables suggest that the effectiveness of corporate governance could be mediated by family influence. Using multivariate regressions that include interaction variables for corporate governance and family firms, the study finds that the relationship between corporate governance and earnings quality is mediated by family ownership and control. The result is consistent with the argument that the monitoring role of corporate governance reduces when there is substantial control by family owners in a firm. Overall, this study concludes that family ownership and control drives higher quality earnings for firms regardless of their corporate governance structure.</p>

scholarly journals Internal governance mechanisms, agency problems and family ownership: Evidence from Australia

2008 ◽  
Vol 6 (1-3) ◽  
pp. 385-397
Author(s):  
Lukas Setia-Atmaja
Keyword(s):  
Family Firms ◽  
Agency Problems ◽  
Family Ownership ◽  
Board Composition ◽  
Governance Mechanisms ◽  
Minority Shareholders ◽  
Internal Governance ◽  
Value Maximization ◽  
Internal Governance Mechanisms ◽  
Corporate Governance Mechanisms

This paper investigates whether family firms use dividends, board composition and debt to expropriate the wealth of minority shareholders or to mitigate agency problems. Utilising panel data on a sample of publicly traded firms in Australia over the period 2000-2005, this study provides evidence that family firms pay optimal and higher levels of dividends and debt compared with their non-family counterparts. The study also finds that family firms have significantly lower proportions of independent directors on the board, but this is consistent with the optimal (value maximization) use of board composition. These results provide evidence that family firms mitigate rather than exacerbate moral hazard problems between owners and minority shareholders in Australia. This study adds to the very limited research into the relationship between family ownership and corporate governance mechanisms in Australia.

Founding-Family Ownership and Firm Performance

2009 ◽  
Vol 22 (4) ◽  
pp. 319-332 ◽  
Author(s):  
Chiung-Wen Tsao ◽  
Shyh-Jer Chen ◽  
Chiou-Shiu Lin ◽  
William Hyde
Keyword(s):  
Firm Performance ◽  
High Performance ◽  
Family Ownership ◽  
Work Systems ◽  
Public Firms ◽  
High Performance Work Systems ◽  
Founding Family ◽  
Low Performance ◽  
The Relationship

The controversial findings of both high and low performance for family-controlled public firms offer a unique context in which to study the moderating role of high-performance work systems (HPWS) on founding-family ownership effects. In a sample of Taiwan-based public firms, founding-family ownership was found not to be associated with firm performance. However, when the level of HPWS facing family ownership was accounted for, the results showed that the relationship between founding-family ownership and firm performance is significantly negative for companies with lower levels of HPWS but is significantly positive for companies with higher levels of HPWS.

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.

Family ownership and earnings quality of Thai firms

2019 ◽  
Vol 27 (1) ◽  
pp. 112-136 ◽  
Author(s):  
Kriengkrai Boonlert-U-Thai ◽  
Pradyot K. Sen
Keyword(s):  
Financial Markets ◽  
Family Firms ◽  
Earnings Quality ◽  
Family Members ◽  
Family Ownership ◽  
Earnings Persistence ◽  
Content Type ◽  
Book Value ◽  
Founding Family

PurposeThe purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.Design/methodology/approachThis is an empirical archival research.FindingsThe authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.Research limitations/implicationsThe authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.Practical implicationsThe study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.Social implicationsThe society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.Originality/valueThis if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

The Role of Auditing in Small, Private Family Firms: Is It About Quality and Credibility?

2010 ◽  
Vol 23 (3) ◽  
pp. 230-245 ◽  
Author(s):  
Mervi Niskanen ◽  
Jukka Karjalainen ◽  
Jyrki Niskanen
Keyword(s):  
Family Firms ◽  
Audit Quality ◽  
Financial Statements ◽  
Family Influence ◽  
Family Ownership ◽  
Control Mechanisms ◽  
Big 4 ◽  
Audit Firms ◽  
And Control

The authors present empirical evidence of how family ownership and control affect the demand for audit quality measured by audit firm size in a sample of small private firms. The results indicate that family-held or -controlled firms are less likely to use Big 4 auditors than nonfamily firms and that an increase in family ownership decreases the likelihood of a Big 4 audit. The results imply that the less concentrated family ownership is, the more need there is for outside control mechanisms because of higher agency costs. The results imply that family influence increases firms’ incentives to employ Big 4 audit firms, thereby increasing the credibility of their financial statements vis-à-vis outside stakeholders.

Family firms, board structure and firm performance: evidence from top Indian firms

2017 ◽  
Vol 59 (5) ◽  
pp. 699-717 ◽  
Author(s):  
R. Rathish Bhatt ◽  
Sujoy Bhattacharya
Keyword(s):  
Firm Performance ◽  
Family Firms ◽  
Independent Directors ◽  
Family Management ◽  
Family Ownership ◽  
Board Structure ◽  
Board Size ◽  
Content Type ◽  
Board Characteristics ◽  
The Relationship

Purpose Given the prevalence of family-run businesses in India, this paper aims to empirically investigate the impact of family firms on the relationship between firm performance and board characteristics. The effectiveness of board characteristics such as independent directors, chairman independence, role duality, non-executive directors, board busyness, board size, board meetings and board attendance are studied in the Indian context. Design/methodology/approach The sample consists of top-listed firms in India for the period 2002 to 2012. Board index was constructed to capture the governance quality of the firm. The authors also study the relationship between board structure and firm performance by segregating the sample based on family management, family ownership and family representative directors. Random effects model was used for the regression analysis in the study. Findings The authors find a negative effect of board structure on firm performance in family firms compared to non-family firms. Contrary to the most Western literature, family management was not found to significantly affect firm performance as compared to that of professionally managed firms. In the subset analysis of family firms, higher proportion of family ownership and family representative directors did not show any significant impact on the firm performance. Having a higher proportion of independent directors, larger board size or an independent chairman does not appear to improve this insignificant relationship between family firms and firm performance. Also, in family firms, no significant difference in performance is noticed before and during recession period. Originality/value The study uses a self-defined corporate governance index to measure the governance parameters, specifically the board characteristics. The results documented in this study adds to the debate on the generalizability of the findings in Western governance studies in emerging markets like India with unique institutional development background.

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