Founding family controlled firms: Efficiency and value

Abstract

We examine the efficiency and value of founding family controlled firms (FFCFs), firms whose CEOs are either the founder or a descendant of the founder. We find that FFCFs are more efficient and valuable than non‐FFCFs that are similar with respect to industry, size, and managerial ownership. We also observe that descendant‐controlled firms are more efficient than founder‐controlled firms. Finally, we show that younger founder‐controlled firms are more efficient than older ones. These results are robust after controlling for the age of the firm and a variety of investment opportunity measures. Our results are consistent with the notions that managerial ownership is endogenous to the firm and that family relationships improve monitoring while providing incentives that are associated with better firm performance.

Understanding the relationship between founder–CEOs and firm performance

“…Since testing the null that the correlation coefficient ρ is zero is an explicit test of the exogeneity of founder-CEO status (under the assumption that the model is otherwise correctly specified), we reject the null that the two equations in (3) and (4) are independent in all of our specifications. 16 We summarize the results in this section as follows. We confirm the previous findings that firms that keep one of their founders as their CEOs perform better than the ones that do not, but the extremely large estimated partial effects of founder-CEOs on performance that we found in the previous subsection appear to be a feature of our 2SLS specification.…”

Personal relations and their effect on behavior in an organizational setting: An experimental study

“…Several papers support the transaction cost hypothesis (Pollak, 1985) of no difference in performance, for example Cho (1998), or Demsetz and Villalonga (2001). However, there is also evidence of both more Amit, 2004 andMorck, Shleifer andVishny, 1998), and of less economic value being created under family firm governance (McConaughy et al, 1998 and Anderson and Reeb, 2003).…”

The Benefits of Family Ownership, Control and Management on Financial Performance of Firms

“…Chaganti & Demanpour, 1991;Lauterbach & Vaninsky, 1999;McConaughy, Matthews & Fialko, 2001;Yammeesri & Lodh, 2004, Lehmann & Weigand, 2000. Other studies use ownership as a proxy for family involvement and are concerned with different types of management involvement and familiness like founder-and descendant CEOs, family members in (one-tier) board of directors and second level management, generational transfer, succession intention and self-perception as family firm (Athanassiou, Crittenden, Kelly & Marquéz, 2002;Chrisman, Chua & Litz, 2004;Chrisman, Chua & Steier, 2002;Daily & Near, 2000;Lee 2004Lee , 2006McConaughy, Walker, Henderson & Mishra, 1998;Zahra, 2003). While some studies fail to confirm the benefits of the separation of ownership and management (Coles, McWilliams & Sen, 2001) others like Anderson and Reeb (2003) found a positive impact.…”

“…Chaganti & Damanpour, 1991;Daily & Near, 2000;Galve & Salas, 1996;McConaughy et al 1998McConaughy et al , 2001Anderson & Reeb, 2003;Lee 2004;Barontini & Caprio 2006). Arguments for the use of these and similar indicators are frequently the diversity, independence and unbiased reporting.…”