A Behavioral Agency Model of Managerial Risk Taking

This study suggests that firms in highly competitive industries should have fewer outside board members, whereas companies operating in less competitive industries should have more outside directors. Specifically, we argue that board independence is less relevant or even redundant in highly competitive industries, where the firm is already "monitored" by a competitive product market. Using publicly traded Swedish firms for empirical testing, this study finds that board independence reduces firm performance in industries with highly competitive product markets. On the other hand, board independence enhances firm performance among companies facing less competitive product markets. Copyright Blackwell Publishing Ltd. 2004.

Section: Board Independence Competitive Pressures and Firm Performancesupporting

confidence: 67%

Board Independence and Product Market Competition in Swedish Firms

Randøy¹,

Jenssen²

2004

“…However, whereas the findings of both Anderson and Reeb (2003b) and Gómez-Mejía and his colleagues (2010) indicate that FFs tend to be less diversified than other types of public corporations, they base their explanations of this phenomenon on different theoretical assertions and invoke conflicting narratives regarding its antecedents and performance implications. Gómez-Mejía et al (2010) ground their explanation of lower diversification among FFs in terms of Wiseman and Gómez-Mejía's (1998) behavioral agency model and the notion of "socio-emotional wealth" (Gómez-Mejía et al, 2007). In this view, the desire to protect the socio-emotional benefits family members derive from the firm usually takes precedence over the preservation of financial wealth.…”

Section: Diversificationmentioning

confidence: 99%

How does Family Control Influence Firm Strategy and Performance? A Meta‐Analysis of US Publicly Listed Firms

Essen¹,

Carney²,

Gedajlovic³

et al. 2014

128

Manuscript Type Empirical Research Question/Issue A contentious and prominent research question in the management literature is whether publicly listed family firms (FFs) outperform other types of corporations. Through a research synthesis of all available studies on the performance of US FFs, we address this question directly. We also extend the debate by raising three salient follow‐up questions. First, is the performance differential between FFs and non‐FFs attributable to a unique set of strategic choices? Second, do FF performance effects persist across generational transitions in FF control? Third, are performance differentials across generations attributable to intergenerational shifts in corporate governance and strategy? Research Findings/Insights With respect to our primary research question, we find that the balance of evidence indicates that (US) FFs outperform other types of public corporations. We also evaluate competing narratives regarding which strategies are characteristic of FFs, and demonstrate that their diversification, internationalization, and financing strategies mediate the FF‐performance relationship in manners consistent with the narratives advanced by certain leading FF scholars, but not others. Further, we find that the performance of (US) FFs drops dramatically after the first generation and show that this negative performance differential is due to the much more conservative patterns of strategic decision making enacted by successor generations. Theoretical/Academic Implications In addition to providing the most comprehensive evidence to date regarding the performance attributes of FFs, we nuance several theoretical debates concerning the propensity of FFs to diversify, internationalize, and leverage their equity capital. Practitioner/Policy Implications We identify value‐creating strategic choices of FFs related to internationalization, diversification, and capital structure. We also identify strategic choices often made in successor‐led FFs which reduce value. Both sets of findings are relevant to FF executives and consultants. The policy implications of the study are that in advanced liberal market economies high‐quality capital market institutions are likely to contribute to FF outperformance vis‐à‐vis other types of publicly listed firms, but these findings may not hold in other types of national governance systems or in emerging markets.

“…In addition, family owners have typically been considered as being resistant to change unless there is an external "fear factor" compelling them to change (Gómez-Mejia et al, 2010). Specifically, Gómez-Mejia et al (2007) adopted a behavioral agency perspective (Wiseman & Gómez-Mejia, 1998) to propose that the extent to which family owners are willing to engage in decisions of significant change (which are likely to include risk) depends on whether such decisions are necessary for them to preserve their socio-emotional wealth or affective endowment (see also Gómez-Mejia et al, 2011). Evidence from the US suggests that established ownership groups, which are thought to include family owners, are averse to change, i.e., they have a preference for stability and preservation of the status quo (e.g., Zeitlin, 1974).…”

Section: Theory Developmentmentioning

confidence: 99%

Who Drives Corporate Restructuring? Co‐Existing Owners in French Firms

Kavadis¹,

Castañer²

2015

Manuscript Type Empirical Research Question/Issue This study aims to explain who drives corporate restructuring, after a period of important corporate governance changes in France, and where the respective role of Anglo‐American institutional investors and domestic family owners have been the object of debate. Research Findings/Insights Using extensive longitudinal data from French publicly‐listed firms during the 2000–2007 period, we find that domestic family ownership is positively related to restructuring. This effect is magnified under conditions of high Anglo‐American institutional investor ownership and poor firm performance. We also find that restructuring improves subsequent firm performance. Theoretical/Academic Implications We contribute to corporate governance research on family firms with a contingent framework about the relative influence of different types of owners with supposedly different value systems and preferences on restructuring. Domestic family owners, even from a country where shareholder value maximization is not historically preeminent, promote restructuring. In contrast, the influence of Anglo‐American institutional investors is indirect: the more they are present in the firm's capital, the more French family owners will further support restructuring, as a means to preserve their socio‐emotional wealth. Anglo‐American institutional investor influence on French family owners is further accentuated under conditions of poor firm performance. Practitioner/Policy Implications Practitioners and, in particular, (potential and current) owners can use our findings to reflect on the implications for corporate decisions of the relative presence of different owners coming from different institutional environments and thus with potentially different objectives. Our results may also be informative to policy makers to further enhance effective regulation.