Does family ownership always reduce default risk?

Abínzano, Isabel; Corredor, Pilar; Martínez, B.

doi:10.1111/acfi.12725

Cited by 18 publications

(19 citation statements)

References 104 publications

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“…Accordingly, average shareholder activism, measured as a dummy variable equal to 1 when owners are appointed to the board of directors and 0 otherwise, equals 69%, as reported by several authors (Villalonga and Amit, 2006; Abinzano et al , 2020) and shown by Figure 2.…”

Section: Resultsmentioning

confidence: 96%

“…These circumstances are found to be associated with conflicting effects. On the one hand, it is argued that family owners favor more conservative strategies to limit the risk of firm failure and increase the likelihood of handover (Abinzano et al , 2020). On the other hand, the aim of handing down the business to the next generation leads family owners to fully exploit entrepreneurial opportunities (Nguyen, 2011) and take on riskier projects to increase the firm’s value and competitive advantage (Zahra, 2005).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…In terms of executives’ risk-taking choices, it is argued that the misalignment between shareholders’ and managers’ goals translates into different degrees of risk propensity (Abinzano et al , 2020; Ongsakul et al , 2021), which raises questions regarding the association between corporate governance mechanisms and risk.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Family ownership and risk: the role of family managers

D’Este

Carabelli

2022

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Purpose This study aims to investigate the relationship between family managers and firms’ risk levels in a context characterized by low investor protection and firm opacity. Specifically, this paper examines whether the level of risk faced by firms is affected by family shareholders’ ownership stake and activism. Design/methodology/approach Corporate governance data were hand-collected for a sample of 90 Italian listed companies and 540 observations from the year 2018. Regression analysis was then used to test the research hypotheses. Findings This study provides evidence of a positive association between active family ownership and risk faced by sampled firms. This study also finds that the number of inside directors is negatively correlated with firms’ risk-taking. Overall, the results confirm family managers’ influence on firms’ risk choices and show consistency with theoretical arguments in favor of hiring professional managers to guide family-owned firms. Practical implications Practical implications emerge from the study findings. First, family owners should consider to hire a larger number of professional managers to support firms’ wealth maximization and retention and to reduce default risks. Second, investors should take into account the firms’ board of directors and management composition to better assess the investments risk level. Finally, the positive correlation between active family owners and systematic risk suggests the opportunity for regulators to improve the legal requirements related to minority directors to increase their effectiveness and, therefore, minority shareholders’ protection. Originality/value This study extends the literature on the association between ownership structure and firms’ risk levels, showing the effect of family managers on firms’ risk levels. Besides, to the best of the authors’ knowledge, no previous study investigates professional executives’ influence on risk when family ownership prevails.

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Section: Resultsmentioning

confidence: 96%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Family ownership and risk: the role of family managers

D’Este

Carabelli

2022

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“…In the specific context of family firms, family members are often appointed to the board and actively participate in strategic decision-making, prioritizing the preservation of socioemotional endowments (Abinzano et al, 2020). According to previous studies, as family owners' stakes increase, their propensity to diversification strategies raises as a means to simultaneously reduce the riskiness of their investment portfolio and retain their control over the business (Defrancq et al, 2016).…”

Section: The Role Of Board Sizementioning

confidence: 99%

The corporate governance-diversification link: exploring the heterogeneity of family firms

Galavotti

D’Este²

2022

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Purpose Building on behavioral agency theory, the authors explore the role played by corporate governance characteristics as drivers of the diversification strategies of family firms. Specifically, this study aims to investigate the effects of board size and board gender diversity on the likelihood that family firms will execute a diversifying acquisition vis-à-vis a related acquisition. Furthermore, the authors investigate the contingency effects played by foreign directorship and the firm’s listing status. Design/methodology/approach The hypotheses are tested on an original sample of 213 cross-border acquisitions executed by Italian family firms between 2008 and 2021. Findings The findings suggest that both large board sizes and greater gender diversity positively affect the diversification of family firms. While the presence of foreign directors magnifies the positive effect of board size, gender diversity discourages diversification in the case of listed firms. Originality/value The originality of this study is twofold. First, while prior literature has mostly focused on the family vs nonfamily dichotomy, this paper contributes to an emergent line of research investigating the heterogeneity among family firms’ corporate strategy decisions. Second, by exploring the corporate governance-diversification link in the context of family business, the authors answer to recent calls that diversification by family firms deserves further investigation in light of its highly controversial nature in terms of socioemotional wealth implications and potential mismatch among multiple objectives.

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“…Gomez-Mejia et al, 2007;Gonz alez et al, 2013;Moussa and Elgiziry, 2019) has documented that family owners appear to be risk-averse, have strong control incentives and strong reputation considerations. These unique characteristics effectively shape the distinctive ways in which family firms do business (Abinzano et al, 2021). Unfortunately, research that examines the business behaviors of family firms is surprisingly inconclusive in terms of the driving factors that influence family firms' business decisions and lacks cross-country studies.…”

Section: Introductionmentioning

confidence: 99%

Family ownership and capital structure: evidence from ASEAN countries

Tran

Nguyen

2023

CFRI

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PurposeThis paper examines the capital structure decisions of family firms in Southeast Asian (ASEAN) countries, considering the moderating effects of various firm-level and country-level factors.Design/methodology/approachThe authors apply various panel data models to analyze the data of listed firms in six ASEAN countries over the period of 2007–2017.FindingsThe authors find that family firms tend to use more debt, particularly short-term debt, than non-family firms, which is explained by family owners' concern about the risk of losing control. The authors further document that family firms would use more debt when they have lower ownership concentration, have more family members on the board of directors and are young firms. The authors also find that the impact of family ownership on capital structure is moderated by the level of investors' legal protection of a country.Originality/valueThis study, for the first time, provides comprehensive analyses of the financing decisions of family firms in ASEAN using a unique hand-collected dataset, which highlights that regional culture and market conditions can shape family firms' financing decisions. The authors also manage to mitigate the endogeneity issues that pervade most research on family firms. In addition, this research further explores the heterogeneous impacts of family control on capital structure given different levels of board involvement, firm age, ownership concentration, and most importantly, institutional differences. Such insights provide useful information for prospective investors as well as regulators to make more efficient investment and legislative decisions.

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Does family ownership always reduce default risk?

Cited by 18 publications

References 104 publications

Family ownership and risk: the role of family managers

Family ownership and risk: the role of family managers

The corporate governance-diversification link: exploring the heterogeneity of family firms

Family ownership and capital structure: evidence from ASEAN countries

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