Slack in family firms: evidence from Italy (2006-2010)

Abstract

Purpose – The purpose of this paper is to examine the relationship between available slack and firm performance in Italian family-controlled public firms (FCPFs) from 2006 to 2010. In addition the authors analyze the moderating effects of specific board structure variables on the relationship between slack resources and firms’ performance. Design/methodology/approach – A pooled cross-section of family and non-family publicly traded firms was drawn from COMPUSTAT global and matched with corporate governance and family firm variables hand-collected from companies’ standard profiles from Italy's primary stock exchange, Borsa Italiana. The hypotheses were tested using the feasible generalized least square method in order to analyze the data from 583 firms-observations, controlling for self-selection bias and reverse causality. Findings – The study shows that FCPFs with available slack experience less than proportionate increases in performance, suggesting a concave curvilinear slack-performance relationship. However, the slack-performance relationship is contingent on board independence and board size: greater board independence and larger boards in FCPFs relate to higher performance when the firm lacks or has too much slack available. The findings suggest that a balanced approach of oversight and stewardship helps families to make better resources allocation, to the benefit of outside shareholders as well. Research limitations/implications – The slack measure was restricted to available slack. Future studies can expand this research inquiry with other forms of slack, including potential and recoverable slack. The sample included only publicly traded family and non-family firms, thereby limiting the generalizability of the findings to other types of family enterprises. Lastly, the results only attend to the slack-performance relationship by controlling whether the firm's performance is below or above the industry average. Practical implications – Policy makers and non-family stakeholders may rely on the findings better understand the factors that can alter the family's propensity for risks and its related strategic decisions in the Italian context. Procedures to fully monitor family management's decision making or, at the other extreme, to give the family free reign are likely to disadvantage families, their business, and their outside stakeholders. Originality/value – The study reconciles the debate on the role of slack on firms’ performance by proposing a curvilinear relationship. The study is one of only a handful of research inquiries centrally addressing the role of slack in family-owned businesses, and the only analysis focussed on Italian FCPFs.

The Concept of Risk Capital and Its Application in Non-Financial Companies: A Sustainable Dimension

“…In this respect, slack as a resource enhances a company's performance, as a company is better equipped to respond to the changes imposed by its environment. However, there is also a concept of slack as inefficiency-a holding of slack negatively impacts a company's performance, as it may enhance the waste of idle resources for empire-building purposes (agency theory considerations), potentially imposes significant opportunity costs of liquidity (cash is an unproductive asset) or enhances a wrong understanding of the buffering function of slack (as slack performs as a safety net for wrong decision making) [93][94][95][96]. The example of the implementation of a relatively simple source of risk retention may raise numerous doubts, in this the question of the rationale behind its implementation in comparison to other obtainable sources of risk capital.…”

Relação entre folga financeira e desempenho econômico em empresas cinquentenárias e não cinquentenárias

“…A folga nanceira fornece às empresas a autonomia e recursos necessários para explorar novas oportunidades no mercado em que está inserida (Kim, Kim & Lee, 2008). Esta é uma espécie de proteção que a empresa tem ao disponibilizar novos recursos para a sua continuidade, já que o nanceiro não é estático e pode apresentar resultados negativos (Laffranchini & Braun, 2014;Dai & Kittilaksanawong, 2014).…”

“…A relação de indicadores e as suas respectivas equações estão evidenciadas na Tabela 1. Nos estudos anteriores, o indicador ROA é utilizado para o cálculo da rentabilidade (Laffranchini & Braun, 2014;Su, Xie & Li, 2009); para este, quanto maior o seu valor, melhor para a empresa. Este também indica o retorno dos investimentos totais os quais são representados por seus ativos totais (Camargos & Barbosa, 2005).…”

“…A relação entre a folga organizacional e a rentabilidade é estudada por diferentes autores (Bourgeois, 1981;Wiseman & Borimiley, 1996;Cheng & Kesner, 1997;Nohria & Gulati, 1997;Daniel et al 2004;Bradley;Shepherd & Wiklund, 2011;Vanacker et al 2013;Laffranchini & Braun, 2014). Entre as correlações vericadas, especicamente entre folga nanceira e rentabilidade, a literatura aponta à utilização de não só um tipo de folga, mas também para o uso de outros múltiplos tipos (Daniel et al 2004).…”

Conflitos de agência em empresas familiares de capital aberto e a composição do Conselho de Administração

“…Nas empresas familiares, o Conselho de Administração alinha os interesses de membros familiares e não familiares com a finalidade de evitar a sobreposição dos interesses familiares aos dos acionistas externos. Assim, o mecanismo utilizado é a presença de membros independentes no Conselho de Administração, os quais medeiam os conflitos entre os membros da família e destes com aqueles (LAFFRANCHINI;BRAUN, 2014).…”