Family ownership and firm performance: evidence from Taiwanese firms

Abstract

PurposeUsing the panel data of 465 Taiwanese listed companies and taking into consideration endogeneity issues this paper aims to examine the influence of family ownership on firm performances.Design/methodology/approachThe use of a panel data set encompassing a five‐year period enables one to examine both cross‐sectional and within‐firm variations in the relationships between family ownership and firm performances. The paper also uses a simultaneous equation system to account for the endogeneity between family ownership and firm performances, and apply the quadratic equations to identify the percentage of family ownership that maximizes firm performance.FindingsWhen either a profitability indicator (ROA) or a valuation indicator (Tobin's Q) is applied, the empirical results show that family ownership positively affects firm performance. The results also show that the profitability of a firm (ROA) first increases and then decreases with family ownership. In other words, when families have more than 30 per cent control of the firm, the potential for entrenchment and poor performance becomes greater.Originality/valueThis paper is the first to examine the relationships between family ownership and firm performances, while simultaneously addressing the issue of endogeneity and identifying the optimal level of family ownership in Taiwanese firms. The finding that family ownership positively affects firm performance elucidates why a family firm is one of the most important business development models in Taiwan. Meanwhile, the finding that the percentage of family ownership should not exceed 30 per cent to avoid the occurrence of poor performance also suggests that excessive family shareholdings may not be necessarily healthy for a family firm in Taiwan.

Impact of Ownership Characteristics on Modified Audit Opinion in Jordan

“…Also, family members maybe perhaps encouraged to increase their wealth by disregarding the interests of the other stakeholders. In contrast, family members can be generally thoughtful of maximizing the company value [64]. General, the results show that the practices of financial reporting of family companies are of better quality than those of non-family firms.…”

Factors Affecting the Financial Performance of Companies Based on Agency Theory

“…These results indicate that a company's high debt ratio signifies that the company aggressively uses debt funds for growth and has the potential to earn more revenue than if the company does not use debt financing so that the company's financial performance will improve (Mishra & Kapil, 2017). The existence of debt will also increase the supervision of creditors (Hutchinson andGul, 2004 in Muttakin et al, 2014) and get tax protection (Morck et al, 1988in Shyu, 2011.…”

Untitled

“…In Asia, firms with family control are very common and popular where family members dominate the overall activities of the firms. Ownership and composition of family-based firms are also investigated by Anderson and Reeb (2003); Shyu (2011). The role of family control on firm performance is also documented in a mixed result.…”