Effects of Family Ownership, Debt and Board Composition on Mexican Firms Performance

Abstract

This study examines the relationship between ownership structure and performance of public firms in Mexico, considering debt and the structure of the board of directors as contextual and institutional factors. This research seeks to explain the mixed results about the relationship of ownership and performance presented by other relevant studies in family and non-family businesses, mainly in emerging countries. The results confirm the positive association between family ownership concentration and performance, calculated by Tobin's Q, showing how the participation of inside shareholders on the board and a low debt level contribute to higher performance. However, the association of these variables with performance shows a contrasting effect in the case of family as compared to non-family businesses. The particular corporate legal context in Mexico could be highlighted as one of the main reasons for these results.

Performance and Behavior of Family Firms

“…There has been also an increase in research examining family firm performance and its antecedents, owing to the critical role of firm value in buy-out decisions, tax payments, executive compensation, capital raising strategies, and selling the company (Villalonga [30]). The articles in this Special Issue (e.g., Lipiec [20]; San Martin-Reyna and Duran-Encalada [21]) are in line with studies showing that family ownership and management can enhance firm value since the controlling family can provide superior oversight through lengthy tenure, investment in long-term projects, or exhibit reputation concerns that diminish the possibility of questionable or irresponsible business practices (Anderson and Reeb [5]; Dyer and Whetten [26]). Nevertheless, family involvement can also result in negative firm behavior and performance, if principal-principal agency problems prevail, particularly after an optimum level of family ownership and/or management (e.g., Luo and Liu [22]; Memili and Misra [23]).…”

“…The article by San Martin-Reyna and Duran-Encalada [21] shows a positive link between family ownership concentration and performance among publicly-traded firms in Mexico. In addition, lower levels of debt and less participation by independent directors in family businesses strengthens this positive link.…”

“…Relevant to San Martin-Reyna and Duran-Encalada's [21] work, the article by Luo and Liu [22] in this Special Issue, examines publicly-traded family firms in China. The authors show that there is an inverted U-shaped relationship between family ownership concentration and corporate value, and board independence positively moderates this relationship, suggesting interest-alignment effects of family ownership concentration up to an optimum level.…”

Untitled

“…Our findings have important implications for future research as well as the establishment of regulations and standards. Our findings provide evidence of a positive association between family effects and innovation capacity, which depends on the degree of family involvement in management and leadership structure (e.g., Lam & Lee, 2012; Miralles-Marcelo, Miralles-Quirós, & Lisboa, 2014; Prencipe & Bar-Yosef, 2011; San Martin-Reyna & Duran-Encalada, 2015). We found that family governance has a significantly positive impact on the competitive advantage of FBs.…”

“…Previous research on FBs has indicated that family involvement plays a critical role in the decision-making process (Shi, 2014); however, there are two opposing perspectives related to family involvement in management (Wang, 2006). From the alignment perspective, family involvement is seen to positively influence performance by mitigating agency problems (Anderson & Reeb, 2003;Arregle, Hitt, Sirmon, & Very, 2007;Minichilli, Corbetta, & MacMillan, 2010;San Martin-Reyna & Duran-Encalada, 2015;Villalonga & Amit, 2006). For instance, some studies indicate that family involvement in management may encourage innovative behavior and eventually lead to higher firm performance (Craig & Moores, 2006;Gudmundson, Tower, & Hartman, 2003;Hsu & Chang, 2011;Wu, 2008;Zahra, 2005).…”