Family ownership and stockholder reactions to environmental performance disclosure: A test of secondary agency relationships

Abstract

Using the first ever Newsweek "Green Rankings" of the 500 largest U. S. firms in 2009 as a significant historical event, we test for the stockholder reaction to ratings of corporate environmental performance. Both the conventional null hypothesis significance testing and Bayesian approaches show that stockholders react significantly more positively to corporations with higher ratings of corporate environmental performance and that this effect is stronger in family owned firms. Our findings suggest that majority shareholders do not necessarily appropriate minority stockholders' rents when investing in environmental activities, as would be the case in the presence of "Type II" agency conflicts between majority family owners and minority stockholders. The family ownership effect is also found to be stronger in dirty (heavy polluting) industries as well as in more competitive and more opaque industry contexts.

Family ownership and control as drivers for environmental, social, and governance in family firms

“…Outside of the organisation, the willingness to maintain the binding of social ties and renewing family bonds drives business-owning families to commit resources to social ties with key stakeholders and customer relationships (García-Sánchez et al 2021 ; Rovelli et al 2022 ). The intention to preserve SEW drives family firms to simultaneously meet the interests of different stakeholders and support the development of the community (Cordeiro et al 2021 ). On the one hand, protecting stakeholder interests and community welfare can directly increase scores in the ESG social responsibility sphere.…”

“…It is less concerned with inwardly orientated SEW preservation. Family ownership can lead to a more rational approach to management, such as the hiring of independent directors, the adoption of a professional top management team (Sacristán-Navarro et al 2011 ), and the willingness to share and disclose more information to stakeholders (Cordeiro et al 2021 ), in awareness of the fact that reputational issues and proper governance models are vital in ensuring the company’s survival. In summary, the engagement with the ESG criteria of a family-owned firm is mainly externally orientated, and a large number of stakeholders and shareholders need to find satisfaction along the chain of ownership.…”

“…The cost of debt for secondary market transactions, for example, seems lower for buildings that are environmentally certified (Eichholtz et al 2019 ). Furthermore, in a more institutionalised environment, hiring nonfamily directors and fostering deeper collaboration with external suppliers can help a family business be recognised by financial institutions as trustworthy (Cordeiro et al 2021 ). Since family ownership is more externally driven when it comes to persevering SEW endowments and adopting ESG criteria, any external pressure received from a more institutionalised environment may be beneficial.…”

“…As such, the goal-setting process of a family business should naturally align with ESG criteria. This can facilitate sustainable development and, in turn, favour long-term orientations and prosperity for the business over time (Villalonga 2018 ; Casado-Belmonte et al 2021 ; Cordeiro et al 2021 ; Fritz et al 2021 ). For example, the reputation, identity, and legacy of a family firm and the perception of the local community are all paramount considerations for a family firm, and they all exist within a non-economic sphere of goals (Chrisman et al 2012 ; Lazzarotti et al 2020 ; García-Sánchez et al 2021 ).…”

“…To answer this question, the present study adopts the socioemotional wealth theory (SEW) thanks to the attention paid to non-economic goals and their pursuit (Gómez-Mejía et al 2007 , 2011 ). We propose that, in large family firms, the engagement and satisfaction of stakeholders through the adoption of ESG criteria is paramount to preserving SEW capital endowments (Cordeiro et al 2021 ; Fritz et al 2021 ; Clauß et al 2022 ). However, the inconsistent findings so far presented in the academic literature may be related to an unclear awareness of the type of influence that a family can exert over a shareholder assembly.…”