ArticlePDF Available

Does family business excel in firm performance? An institution-based view


Abstract and Figures

We offer an institution-based view to the classic inquiry on the relationship between family business and firm performance, which has been dominated by traditional theories such as agency theory and the resource-based view. Specifically, we argue that institutions define family business characteristics such as ownership concentration and family management, and also affect the performance of family business. Our research contributes to a reconciliation of prior inconsistent findings and calls further attention to the embedded nature of family business in institutions. KeywordsFamily business-Institutions-Governance characteristics-Institution-based view
Content may be subject to copyright.
Does family business excel in firm performance?
An institution-based view
Weiping Liu &Haibin Yang &Guangxi Zhang
#Springer Science+Business Media, LLC 2010
Abstract We offer an institution-based view to the classic inquiry on the
relationship between family business and firm performance, which has been
dominated by traditional theories such as agency theory and the resource-based
view. Specifically, we argue that institutions define family business characteristics
such as ownership concentration and family management, and also affect the
performance of family business. Our research contributes to a reconciliation of prior
inconsistent findings and calls further attention to the embedded nature of family
business in institutions.
Keywords Family business .Institutions .Governance characteristics .
Institution-based view
Family businesses have dominated the economic landscape around the world
(Claessens, Djankov, Fan, & Lang, 2002; La Porta, Lopez-de-Silanes, & Shleifer,
1999; Morck & Yeung, 2003). In the United States, one third of the companies listed
in the Standard & Poor 500 are owned or managed by families (Anderson & Reeb,
2003a). In countries such as those in South and East Asia, Latin America, and Africa,
family businesses are becomingeven more prevalent, with a vast majority of private and
Asia Pac J Manag
DOI 10.1007/s10490-010-9216-6
We would like to thank Mike Peng (Editor-in-Chief Emeritus) for his constructive comments and hands-on
editorial assistance. Thanks also go to two APJM reviewers and Yi Jiang for their very helpful comments.
W. Liu
Department of Management, School of Business and Management, Hong Kong University of Science
and Technology, Clear Water Bay, Hong Kong
H. Yang (*):G. Zhang
Department of Management, City University of Hong Kong, Kowloon, Hong Kong
G. Zhang
publicly traded firms either owned or controlled by families (Carney & Gedajlovic,
2002; Claessens et al., 2002; Claessens, Djankov, & Lang, 2000; Faccio & Lang, 2002).
The prevalence of family businesses has intrigued academia for decades (Arregle,
Hitt, Sirmon, & Very, 2007;Boyd,1990; Morck, Scheifer, & Vishny, 1988; Villalonga
&Amit,2006). Two streams of research can be identified in the broad family business
literature. One stream compares and contrasts the performance implications between
family and non-family firms. Some studies find that family firms outperform non-
family firms (Carney & Gedajlovic, 2002), while others find the opposite (Barth,
Gulbrandsen, & Schone, 2005; Westhead & Howorth, 2006). Another stream of
research investigates how the specific characteristics of family business affect firm
performance, especially those related to governance structure. The results are also
highly inconsistent. For example, when compared with family firms managed by
outside CEOs, firms managed by family CEOs have been found to be more productive
(Durand & Vargas, 2003), less productive (Barth et al., 2005; Westhead & Howorth,
2006), or equally productive (Barontini & Caprio, 2006) in different research contexts.
While the proposition that institutions matterhas long been acknowledged,
prior research has predominantly used agency theory and the resource-based view
(RBV) as major explanations of the family business-performance relationships (see
Appendix I,II,III,IV,V). However, family firms behave and perform differently
when operating in countries with different institutional environments (Steier, 2009).
Studies adopting an institution-based view find that the institutional context has a
strong bearing on family business practices and performance. For example, Peng and
Jiang (2006,2010) find that having a family CEO is value-enhancing in
underdeveloped countries, while it has no significant effect in more developed
countries. They argue that the benefits and costs of family businesses may be
influenced by the institutional environments in different countries, such as the level
of legal and regulatory protections for shareholders. A more recent meta-analysis of
the relationship between ownership concentration and firm performance finds that
ownership concentration is more efficient in regions with less than perfect legal
protection of minority shareholders, but less efficient and even redundant in regions
with strong legal protection of shareholders (Heugens, van Essen, & van Oosterhout,
2009). Although informative, these studies fall short of presenting a holistic view of
family business-performance relationships across institutions. As Bhagat and his
colleagues (2010) argue that robustness of management theories needs to be further
examined in various institutional contexts, our research attempts to address two
critical questions in the family business literature: (1) What is the role of the
institutional environment in affecting the choice and performance difference between
family and non-family business? (2) How does the institutional environment drive
the specific characteristics of family business and its performance?
Extending the institution-based view of business strategy and corporate
governance (Peng & Jiang, 2010; Peng, Sun, Pinkham, & Chen, 2009; Peng, Wang,
& Jiang, 2008), we provide an in-depth analysis of how institutional forces
differentially regulate family business and performance in different institutional
environments. Our research has two major contributions. First, by comparing family
firms with non-family firms across institutions, we explore how and to what extent
family firms perform distinctively from non-family firms in different institutional
environments. Second, by focusing on family firms only, we explore how and in
W. Liu et al.
what ways institutions influence family firms and their performance (see Figure 1).
In doing so, this research attempts to reconcile prior inconsistent findings and
enhance our understanding of family business across institutions. Our framework
suggests that family businesses interact closely with the institutional environment,
which are not just background,but play active and critical roles in affecting family
firm performance.
Family business and institutional environment
Family business differs from non-family business in that family business is governed
and/or managed by members of the same family or a small number of families with a
vision of continuing the business across generations (Chua, Chrisman, & Sharma,
1999). Prior studies have used different ways to define the family business
concept, including family ownership, voting control, involvement in management,
control of the board, intention for family succession, or a self-perception of being a
family business (Chrisman, Chua, & Sharma, 2005; Chua et al., 1999; Gomez-
Mejia, Larraza-Kintana, & Makri, 2003; Litz, 1995). The selection and combination
of one or more of these dimensions lead to a variety of definitions. To achieve a
thorough understanding of family business, we define family business more broadly
and inclusively: a firm is defined as a family firm if it is controlled by the founders,
or by the foundersfamilies and heirs (Burkart, Panunzi, & Shleifer, 2003). This
definition covers a variety of family businesses and allows for enough variations in
our further investigation of the specific governance characteristics. Family
ownership, family management, and family control of the board are the most
important indicators of family business (Chua et al., 1999; Villalonga & Amit,
Agency theory and RBV are two dominant theories in explaining the family
business-performance relationships. Agency theory views organization as a nexus of
contracts between principals and agents, and argues that because of goal congruence
and close relationships between family owners and family managers, principal-agent
conflict is reduced in family firms and leads to higher performance. RBV in family
business research argues that family involvement helps develop family resources and
capabilities that contribute to firm performance (Habbershon, Williams, &
Institutional Environment
Underdeveloped vs. developed
Family Business Dimensions
Family ownership concentration
Family management
Family control of the board
Performance Difference
Family business vs. non-
family business
Family Firm Performance
Firm Identity
Family business vs. non-
family business
Figure 1 Conceptual framework
Does family business excel in firm performance? An institution-based view
MacMillan, 2003; Sirmon & Hitt, 2003). However, both agency theory and RBV-
based explanations could be externally determined (Miller & Shamsie, 1996; Oliver,
1997; Priem & Butler, 2001), and thus provide only a partial explanation of the
relationships (Shleifer & Vishny, 1997).
In contrast to the more traditional agency theory and RBV, recent corporate
governance research has recognized the importance of institutions (Davis, 2005).
Institutions are rules of the game in a society, or more formally, the devised
constraints that shape human interaction (North, 1990: 3). An institution-based view
addresses the embeddedness of firms in the institutional environment (Peng et al.,
2008,2009). It is the institutional arrangements or a set of fundamental political,
social, and legal rules that shape the strategic behaviors and outcomes of firms
across institutions (North, 1990). For example, legal institutions such as corporate
laws regulate the internal relationships of firms and their relationships to share-
holders, providing legal and regulatory regimes for corporate operation; economic
institutions such as the infrastructure for capital distribution influence firmsaccess
to resources and their operation cost in market; political institutions help establish a
stable social structure that facilitates economic exchanges among firms. Researchers
in the stream of comparative corporate governance have investigated the roles of
country-level institutions on firm-level practices in corporate governance (Aguilera
& Jackson, 2003; Aoki, 2001; Crouch, 2005). According to them, diversity of
corporate governance practices and varieties of capitalism originate from the diverse
institutional configurations in these countries (Carney, Gedajlovic, & Yang, 2009;
Hall & Soskice, 2001; Morck & Steier, 2005; Steier, 2009). A more recent study by
Aguilera, Filatotchev, Gospel, and Jackson (2008) advocates an open-system
approach to understand the interdependence between the broader environmental
context and governance practices, in particular, how environmental factors shape the
costs, contingencies, and complementarities of different corporate governance
practices and their effectiveness.
Notwithstanding the potential impact of the institutional environment on firm
practices and performance, it is surprising to see how little research has paid
attention to the institutional impact on family business (see Burkart et al., 2003;
Jiang & Peng, 2010;Peng&Jiang,2006,2010 for some exceptions). By
incorporating agency theory and RBV with an institution-based view, we attempt
to uncover the significant impact of institutions on family business and performance.
The comparison between family and non-family business across institutions
Institutions may have bearing on two critical aspects of family business: its
occurrence and its performance as compared with non-family business. Prior
research has primarily focused on the performance comparison, but leaves the
institutional impact unexplored for these two aspects (See Appendix Ifor a review).
Family business researchers have identified some key differences between family
and non-family firms such as the use of administrative mechanisms to limit
deceptive or self-interested behavior (agency theory-based argument), or the use of
The comparison excludes state-owned firms since their governance structure and market activities are
subject heavily to government intervention.
W. Liu et al.
family resources to facilitate business operation (RBV-based argument) (Maury,
Agency theorists argue that the agency cost arises from two types of conflicts:
principal-agent (Agency Problem I) and principal-principal (Agency Problem II)
(Villalonga & Amit, 2006). It is expected that the cost of principal-agent conflict is
much lower in family firms than non-family firms because of the goal alignment
between family owners and managers (Jensen & Meckling, 1976), or because of the
family ownersstrong incentive to monitor and discipline managers (Pollak, 1985).
Instead, the cost of principal-principal conflict, or the tendency of large family
shareholders to expropriate benefits of non-family minority shareholders, is found to
be higher in family firms than in non-family firms, hurting firm performance (Fama
& Jensen, 1983; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). Unfortunately,
when addressing the performance variations of family versus non-family firms, most
studies have taken a one-sided view and emphasized only one agency problem while
overlooking the other. It remains unanswered as to under what conditions one
agency problem will outweigh the other.
RBV is another perspective that has been employed to identify the competitive
advantages of family firms. Studies adopting this perspective attempt to identify the
unique resources and capabilities that make family firms unique and allow them to
develop competitive advantages (Habbershon et al., 2003). They find that family
businesses possess hard-to-duplicate capabilities or familinesscapitals, such as
human capital (Sirmon & Hitt, 2003), social capital (Arregle et al., 2007), physical
and financial capital (Dyer, 2006), trust and reputation (Aronoff & Ward, 1995),
integrity and commitment to relationships (Lyman, 1991), and entrepreneurship
(Zahra, Hayton, & Salvato, 2004).
Both agency theory and RBV perspectives on family business limit their attention
to the effects of agency cost or specific resources while paying less attention to the
role of external institutions in conditioning firm activities (Meyer & Peng, 2005). In
contrast to previous studies, our institution-based framework emphasizes the
embeddedness of family business in its institutional environment.
Occurrence of family business across institutions The occurrence of family business
reflects firmsadaptation to specific institutional environments. First, an underde-
veloped institutional environment (e.g., legal regulation, managerial labor market,
takeover market) often encourages the development of a firms internal control
mechanisms, such as family ownership, while a developed institutional environment
often reduces a firms dependence on internal mechanisms (e.g., ownership structure,
boards of directors, and the incentive system for managers), and encourages
dispersed ownership (La Porta, Lopez-de-Silanes, Shleifer, & Vishny 1998; Walsh &
Seward, 1990). In an underdeveloped institutional environment such as many Asian
countries, the inherent institutional deficiencies force firms to rely on family
resources for survival (Carney et al., 2009; Klapper & Love, 2004) while in a
developed institutional environment such as the United States and the United
Kingdom firms have relatively easy access to institutional resources. Although many
modern corporations also started with a concentrated family ownership (Chandler,
1990), the development of the national institutions, especially better protection of
investor rights, encourages founding families and their heirs to dilute their equity to
Does family business excel in firm performance? An institution-based view
attract minority shareholders and delegate day-to-day management to professional
managers (Berle & Means, 1932).
Second, internal family governance represents an effective substitute in the void
of market discipline (Steier, 2009). Managers as agents of owners (principals) may
engage in self-serving behavior that is detrimental to the ownerswealth
maximization (Fama & Jensen, 1983; Jensen & Meckling, 1976). When the
institutions (e.g., takeover markets, legal and regulatory institutions) are underde-
veloped, the cost of monitoring and enforcing contracts becomes high since the
governance vacuum makes it difficult to measure or observe the behavior of agents
(Hill, 1995; Williamson, 1985). Family governance, to some extent, can circumvent
managerial opportunism and therefore be critically needed in an underdeveloped
institution (Dharwadkar, George, & Brandes, 2000).
Proposition 1 There will be a negative relationship between the level of institutional
development and the likelihood of having a family business versus the likelihood of
having a non-family business.
Performance comparison between family and non-family business across institu-
tions The level of institution development may also help explain the performance
differences between family and non-family business. In an underdeveloped
institutional environment, family firms enjoy the advantages of a reduced Agency
Problem I as compared with non-family firms, because it is easier for family
members to have aligned interests in managing firms. Regarding Agency Problem II,
it is expected that the principal-principal conflict between controlling shareholders
and minority shareholders tends to be more severe in family firms than in non-family
firms because of the lack of institutional monitoring (Young et al., 2008). However,
we contend that although family owners may expropriate minority shareholders to
some extent, they will not do so to sacrifice their large and long-term investment,
while non-family firms do not have such a constraining mechanism (Chua et al.,
1999; Chung & Luo, 2008). Compared with non-family firms, family owners are
motivated to continue their family business (Aguilera et al., 2008; Becht & Roel,
1999), develop longer time horizon (Dreux, 1990; Stein, 1989), and care about
family reputation and standing in the society (DeAngelo & DeAngelo, 2000). As a
contrast, the lack of market discipline for non-family firms is likely to induce
opportunistic behavior and decrease firm performance (Li, Wang, & Deng, 2008).
Further, it is also harder for non-family firms to raise necessary resources in an
underdeveloped institution, while family firms may be able to do so from family
connections at a lower cost (Anderson, Mansi, & Reeb, 2003). The above analysis
suggests that the reduction of agency costs and the access of family resources may
ultimately enable family firms to outperform non-family firms in an underdeveloped
institutional environment.
Conversely, when firms operate in a developed institutional environment, the
legal and regulatory systems afford strong constraints to managerial opportunism,
reducing the principal-agent cost difference (Agency Problem I) between family and
non-family firms. The legal and regulatory institutions also constrain the tendency of
majority family shareholders to expropriate the benefits of minority shareholders,
leading to insignificant differences in Agency Problem II between family and non-
W. Liu et al.
family firms. Consistent with RBV, developed institutions often abound with mature
financial and labor markets (e.g., adequate monetary and human supply) where both
family and non-family firms can acquire financial support and human resources
easily. Family resources and involvement may not significantly increase family firm
performance in a developed institutional environment since firms can rely on the
external market for critical resources and capabilities. Empirical studies find that
family firms outperform non-family firms more significantly in countries with
underdeveloped institutions such as continental European countries, but less
significantly in countries with more developed institutions such as Norway (Barth
et al., 2005). Thus:
Proposition 2 Family firms will more significantly outperform non-family firms in
an underdeveloped institutional environment than in a developed institutional
Institutional influences of family business
Family businesses vary in the modes and degrees of family involvement. Attempts to
capture the varying modes of family involvement have pointed to several important
governance characteristics, such as family ownership, family involvement in
management, and family control of the board (Villalonga & Amit, 2006). Previous
studies used to blur these three concepts; our research clarifies the three dimensions
and presents a model to address the multi-faceted nature of family business in
different institutions.
Institutions as antecedents of family business The institution-based view on corporate
governance contends that external institutions influence managerial choice of
governance structure and practice (Jiang & Peng, 2010; Peng & Jiang, 2010; Young
et al., 2008). As noted earlier, an underdeveloped institutional environmentin
particular, the weak formal regulatory regimes and restricted product and labor
marketsoften fails to provide market discipline and external support to firms. When
there are few rules and procedures to protect their interests and activities, firms are
motivated to reduce uncertainty by gaining control of the firm (Jensen, 1993). The
desire for power and control thus may lead to a high level of family ownership and
control (Jensen, 1993). The controlling family shareholders may even exploit the
institutional voids to gain control rights far greater than cash flow rights of the firm
through the use of cross-shareholdings and pyramids (Peng & Jiang, 2006,2010).
Moreover, when there is limited access to resources through formal channels
(e.g., labor markets or banks), firms are more likely to rely on kin networks and
family ties to obtain resources, such as human capital, social capital, financial
capital, and other intangible assets (Arregle et al., 2007; Dyer, 2006; Sirmon & Hitt,
2003). Thus, when operating in underdeveloped institutions, family firms are likely
to have higher levels of family ownership, involvement in management, and family
members on the board, since they can provide better internal control mechanisms
and better access to resources.
In contrast, when firms operate in developed institutions, such as strong
protection of shareholder rights or developed product and labour markets, they rely
Does family business excel in firm performance? An institution-based view
less on internal control mechanisms and informal family ties to operate business
because external governance mechanisms and formal channels are efficient enough
in supporting firm operation (Walsh & Seward, 1990). A lower level of family
involvement in business operation is more likely to be witnessed (Steier, 2009).
Proposition 3 There will be a negative relationship between the level of institutional
development and (1) family ownership concentration, (2) family involvement in
management, and (3) the proportion of family members on the board.
Institutions as a moderator between family business and performance
Family ownership concentration and performance across institutions The relation-
ship between family ownership concentration and family firm performance has never
been consistent (see Appendix II for a review). Both positive (Carney & Gedajlovic,
2002) and negative (Claessens et al., 2002) relationships have been reported.
Recently, scholars find that the relationship between family ownership concentration
and firm performance may be complex and nonlinear (Anderson & Reeb, 2003b;
Claessens et al., 2002; Thomsen & Pedersen, 2000). As the ownership stake
increases, the founding family may initially have greater incentives to monitor
managers and business activities, provide vital resources, and adopt appropriate
strategies to maximize firm values. This is particularly the case when the top
managers are also family members. The cost to align the goals of owners and
managers will decrease dramatically. However, as ownership increases beyond a
certain point, large family owners gain nearly full control of the company and are
powerful enough to use the firm to generate private benefits that are not shared by
minority shareholders (Claessens et al., 2000). Such entrenchment effects may even
mitigate the positive effects of the reduced monitoring cost, decreasing firm value
(Fama & Jensen, 1983).
Though informative, these studies have assumed away the institutional context.
We extend these arguments by further proposing that the strength of such
relationships may vary across institutions. In underdeveloped institutions, increased
ownership stake by family members may initially contribute to firm performance
since ownership concentration brings the benefits of a reduced Agency Problem I.
Increased ownership also increases the incentive of family owners to ensure business
operation. In addition, scare resources can be secured through family ties, which turn
to be a critical channel for resources in weak institutions. When family ownership
becomes large enough, due to the absence of legal and regulatory laws, the
concentrated ownership may foster opportunism and expropriation (e.g., altruism
toward kin, conflicting intentions and behaviors among family members), and may
even offset the positive alignment effects beyond a particular level of ownership,
suggesting a more significant and steeper inverted U-shape relationship.
Conversely, in developed institutions strong legal and regulatory systems provide
sufficient protection toward investors, making the benefits of a reduced Agency
Problem I less significant, while the developed financial and labor markets reduce a
firms dependence on family resources, making the resource provision function of
family business less important. The preference of family business toward inside
financing even imposes constraints, preventing them from gathering enough external
W. Liu et al.
resources to finance growth opportunities (Dunn & Hughes, 1995; Gallo & Vilaseca,
1996). Family opportunism and their expropriation of minority shareholders may
also be prevented effectively by the developed institutions (Burkart et al., 2003;La
Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2002). Accordingly, the inverted U-
shape relationship may not be as significant as that in underdeveloped institutions
(see Figure 2).
Proposition 4 There will be an inverted U-shape relationship between family
ownership concentration and family firm performance, and this relationship will be
stronger and more significant in an underdeveloped institutional environment than
that in a developed institutional environment.
Family management and performance across institutions The existing literature
differentiates family management from non-family management on the basis of CEO
appointment. It is believed that family firms run by family CEOs may perform
differently from family firms run by non-family CEOs (a hired CEO outside the
founding family). Both agency theory and RBV have been used to examine the
relationship between the presence of a family or non-family CEO and firm
performance; however, the results are highly inconclusive (see Appendix III for a
Studies adopting agency theory argue that there are significant advantages and
also disadvantages in appointing family members as CEOs (Anderson & Reeb,
2003b). Since the founding family both owns and manages the firm, Agency
Problem I can be reduced greatly. When a family member holds the CEO position,
Agency Problem II can be severe because family CEOs as inside shareholders may
have greater incentives to expropriate minority shareholders (Fama & Jensen, 1983).
It seems difficult to make any conclusions without considering the conditions under
which the reduced Agency Cost I may outweigh the increased Agency Cost II
associated with a family CEO.
Studies adopting the RBV emphasize a family CEOs easy access to unique
resources through kinship networks, such as human, social, and financial capital;
however, family capital can be detrimental to the firm if managed inappropriately.
Sons, daughters, and other relatives who are incompetent or unqualified may be
appointed as firm managers, hurting firm performance (Schulze, Lubatkin, & Dino,
Family Ownership Concentration
Low High
Family Firm
Less developed
More developed
Figure 2 Family ownership
concentration and family firm
performance in developed and
less developed institutions
Does family business excel in firm performance? An institution-based view
2003a). Altruism, non-merit-based compensation, and irrational strategic decisions
may also offset the benefits of these resource advantages (Gomez-Mejia, Nunez-
Nickel, & Gutierrez, 2001; Schulze, Lubatkin, & Dino, 2003b).
Recent studies have found that the relationship between family CEOs and family
firm performance is subject to institutional environment. Researchers find that in
countries with underdeveloped legal and regulatory institutions to protect minority
shareholders, family management such as a family CEO may be beneficial, while in
countries with a strong legal system to prevent expropriation by majority
shareholders, non-family CEOs are optimal (Burkart et al., 2003; Peng & Jiang,
2010). The mixed evidence may also result from the ambiguous definition and
inconsistent operationalizations of a family CEO. Previous studies define and
operationalize a family CEO ambiguously: some define a family CEO as a founder
CEO, while others define a family CEO as including either a founder or a
descendant CEO. Considering the significant differences between founder-controlled
and descendant-controlled firms (Schulze et al., 2003a,2003b; Villalonga & Amit,
2006), we believe it is necessary to differentiate different types of CEOs and
examine how they influence firm performance. Specifically, we classify family firms
into those managed by founder, descendant, or outside CEO (Gedajlovic, Lubatkin,
& Schulze, 2004), and consider how their performance impacts vary across
Founder CEO. Family business literature recognizes the influential effects of
founders on firm performance. Compared with firms managed by outside CEOs,
founder CEO-managed firms enjoy the benefits of decreased principal-agent conflict
and greater access to unique resources. Compared with descendant CEOs, founder
CEO-managed firms enjoy many advantages, including the foundersgreater
obligation to preserve wealth for the next generation (Bruton, Ahlstrom, & Wam,
2003), tacit knowledge and experience (Lee, Lim, & Lim, 2003), and broad social
networks (Jayaraman, Khorana, Nelling, & Covin, 2000). Empirical studies confirm
that the performance of family firms run by founders actually outperform other firms
(Anderson et al., 2003; Anderson & Reeb, 2003b; Villalonga & Amit, 2006) (see
Appendix IV for a review).
We extend these arguments by further proposing that the positive effect of a
founder CEO on family firm performance may be stronger in an underdeveloped
institutional environment. Without the presence of strong institutions such as
regulative and legal systems, descendant CEOs and outside professional CEOs may
engage in deceptive, opportunistic, or self-interested behavior (Zhang & Ma, 2009).
Compared with descendant or outside CEOs, founder CEOs run the firm from
scratch to success. Their long tenure and central positions in the firm encourage
founders to exert greater commitment and motivation to firm operation (McConaughy,
2000). In addition, because of the underdeveloped strategic factor market, founder
CEOsmultiple access to resources may also create competitive advantages. In
countries with more developed legal and regulatory institutions to protect investors,
the advantages associated with a founder CEO may not be so distinctive, since even
when the family firm is run by an outside CEO, his or her behavior can be
effectively monitored and disciplined, and agency problems can be reduced to a
large extent. Thus, we expect that although family firms managed by founders
outperform those managed by descendant or outside managers in developed
W. Liu et al.
institutions (Anderson & Reeb, 2003b; Villalonga & Amit, 2006), such performance
differences will be stronger and more significant in underdeveloped institutions
(Willard, Krueger, & Fesser, 1992).
Proposition 5 Family firms managed by a founder CEO will experience higher
performance than those managed by descendants or outside CEOs. The performance
difference will be larger and more significant in an underdeveloped institutional
environment than that in a developed institutional environment.
Descendant CEO. Although descendant CEO-managed firms enjoy some benefits
of the reduced principal-agent conflict compared with those managed by outside
CEOs, the presence of a descendant CEO tends to contribute less to firm
performance, since the descendant CEO has been found to: (1) have less sense of
stewardship for the business and lack the motivation, commitment, and incentive to
sustain it (Andersson, Carlsen, & Getz, 2002); (2) be selected on the basis of family
ties rather than professional expertise and is very likely to be unqualified or
incompetent (Barth et al., 2005); (3) have difficulties taking over the tacit
knowledge, managerial skill (Morck & Yeung, 2003), and social capital from
founders (Steier, 2001); and (4) have greater concern about their own welfare and be
more likely to expropriate minority investors (Villalonga & Amit, 2006). Empirical
evidences on the performance impacts of descendant CEOs are mixed (see
Appendix IV for a review); some studies find that the performance of firms run by
descendants are actually below the average (Morck, Strangeland, & Yeung, 2000;
Villalonga & Amit, 2006), while some others find no significant performance
difference between firms run by descendants and firms run by other managers (Sraer
& Thesmar, 2007).
Taking the external institutional environment into account, we propose that a
developed legal and regulative mechanism can substitute for the ineffective internal
governance structure and to some extent mitigate the negative effects of a
descendant CEO, reducing the performance difference with firms managed by
founders or outsiders. In underdeveloped institutions, altruistic transfer of family
ownership and control to the descendants is more likely to occur. On the one hand,
parentsaltruism, in particular their inability to discipline underperforming children
who serve in management positions, leads to less effective monitoring of family
managers (Schulze et al., 2003b); on the other hand, the appointment of less-than-
qualified family members as CEOs may encourage free riding, shirking, and other
forms of opportunistic behaviors (Schulze et al., 2003b).
Proposition 6 Family firms managed by a descendant CEO will experience the
lowest performance compared with those managed by a founder CEO or an outside
non-family CEO. The performance difference will be larger and more significant in
an underdeveloped institutional environment than that in a developed institutional
Family control of the board and performance across institutions Firm boards take
the responsibilities of monitoring corporate management and provide resources and
services. In the family business literature, specific topics that have been investigated
include the performance implications of board size, the diffusion of inside and
Does family business excel in firm performance? An institution-based view
outside directors, patterns of board interlocks between firms, and board capital
(Boyd, 1990; Dalton, Daily, Johnson, & Ellstrand, 1999). Considering that the
investigation of family member involvement is the main focus of this paper and the
emphasis of corporate governance literature on the unique role of inside directors as
monitors (Fama & Jensen, 1983; Johnson, Daily, & Ellstrand, 1996), we
conceptualize board composition as the proportion of family members on the board
and explore its relationship with family firm performance.
Some studies find that a high proportion of family members on the board decreases
firm value (Daily, 1995; Daily & Dalton, 1994a,1994b),whileothersfindthatfamily
directors are in a better position to evaluate CEO strategic decision making, increasing
firm value (Cochran, Wood, & Jones, 1985; Kesner, 1987) (see Appendix Vfor a
review). The mixed effect of family memberspresence on the board might be
contingent on the institutional environment. First, we argue that the overall proportion
of family members on the board has a negative effect on firm performance. Board is in
a position to monitor firm operation and performance (Fama & Jensen, 1983). For the
board of directors to be effective, it must be independent of management. When there
are too many family members on the board, board independence and its monitoring
effect would be reduced, undermining the boardsresponsibilitytooversee,evaluate,
and discipline top management (Baysinger & Hoskisson, 1990). In addition, the
increased proportion of family members brings down the diversity of the board,
consequently providing redundant resources. Too many insiders on the board also
influence the legitimacy of the board (Hillman & Dalziel, 2003).
Second, we further propose that the strength of the negative main effect between
family control of the board and performance is subject to variations across
institutions. In developed institutions the inappropriate internal mechanisms (e.g.,
high proportion of family directors) may be partially substituted by external
mechanisms (Walsh & Seward, 1990). Institutions can work as counterbalance for
the internal governance mechanisms to resolve governance conflicts (Jensen, 1993;
Rediker & Seth, 1995; Suhomlinova, 2006) and they were found to matter more for
firms with poor governance structure (Klapper & Love, 2004). Strong institutional
laws and regulations can effectively constrain managerial opportunism, making the
monitoring role of the board less important, and the negative relationship between
the proportion of family members on the board and firm performance may be less
significant. Conversely, in underdeveloped institutions, the monitoring responsibility
of the board and functions of providing resources and services cannot be effectively
shouldered by the ineffective external governance mechanisms and markets, which
strengthen the negative relationship between the proportion of family members on
the board and family firm performance.
In addition, when the board is dominated by family members, it will undermine
the resource acquisition role of the board especially in underdeveloped institutions.
Firms often use board co-option as a way to secure external resources, including
information, access to finances, and important social interactions (Arregle et al.,
2007). For instance, Japanese firms often invite bank representatives to sit in their
boards to secure bank loans. When firms cannot get them in the open market, they
rely more on the board to get such critical resources (Johnson et al., 1996). Thus,
when the board is dominated by family members, it may impede family firms to
acquire resources through co-option from external stakeholders.
W. Liu et al.
Proposition 7 There will be a negative relationship between the proportion of family
members on the board and family firm performance. This relationship will be
stronger and more significant in an underdeveloped institutional environment than
that in a developed institutional environment.
Acontext freeassumption of prior studies on family business has been inadequate
to explain variations of family firm structures and performances across institutions
(Davis, 2005). Departing from prior studies, this research provides a fresh
institution-based view to re-examine the relationship between family businesses
and performance. We propose that some prior inconsistent findings may be
reconciled if we take the broader institutional environment into account. The
research suggests that institutions are more than background conditions, playing
critical roles in defining the governance characteristics of family business and
regulating their performance impacts. We believe that an adequate theory of family
business cannot be fully established without considering the institutional environ-
ment where the family businesses are embedded.
Family businesses are regulated by the opportunities and constraints imposed by
institutions. It is not surprising to see that some areas witness a greater abundance of
family business than others, such as East Asia (Steier, 2009). We argue that the
emergence of family business complements an underdeveloped institutional
environment in that the former provides necessary financial, legal, and governance
protections, while a developed institutional environment may have less demand for
this kind of family protection.
Our research suggests that family governance may be an effective substitute for
institutional voids, helping firms overcome some ill-functioning institutional
environments. Just as Steier (2009: 531) has noted, family is itself a primary
institution that will continue to be manifest in the governance of economic systems
throughout the world.It is expected that family firms will outperform non-family firms
more significantly in underdeveloped than in developed institutions, and the family
protection against agency costs will be more pronounced. We further differentiate the
family business into three dimensions: family ownership concentration, family
management (founder CEO or descendant CEO), and family control of the board. We
propose that family businesses can be a mixed blessing for firm performance in an
underdeveloped institutional environment. The positive returns from a founder CEO
will be enlarged in an underdeveloped area while the negative returns from a descendant
CEO will also be amplified. This suggests that the proper management of a family
business in an underdeveloped institutional environment is necessary to fully realize its
Our research makes three important contributions to the literature. First, it is one
of the few pieces of research that provides an institution-based view to examine the
relationships among institutions, family businesses, and firm performance. This
moves from the context-free model suggested in prior studies informed by agency
theory and RBV to a context-embedded model involving institutional context as a
critical factor to resolve the shortcomings in under-socialized economic perspectives
Does family business excel in firm performance? An institution-based view
of family business. It complements and enriches the family business literature by
drawing attention to the often overlooked importance of institutions (Hoskisson,
Eden, Lau, & Wright, 2000; Peng et al., 2009; Wright, Filatotchev, Hoskisson, &
Peng, 2005), and advancing our understanding of how institutional environments
influence family businesses and performance.
Second, our research has taken a fine-grained approach to investigate the relationship
between family business and firm performance. We go beyond prior studies by
explicitly examining three distinct dimensions of family businesses and untangling the
different effects of each on firm performance. This helps to explain the ambiguities in
family business studies and significantly advance the research in this area.
Last, our consideration of institutional environment helps capture the patterned
variations in family businesses across institutions and resolve some inconsistent or
controversial findings in prior studies. The classical question of whether family
businesses excel in firm performance cannot be adequately addressed if we fail to
acknowledge the critical role of their institutional environment. In a broad sense, our
work, from a family business perspective, contributes to the expanding literature on
the institution-based view (Peng et al., 2008,2009), which now has featured the
institution-based view of market entries (Meyer, Estrin, Bhaumik, & Peng, 2009), of
corporate diversification (Lee, Peng, & Lee, 2008), of corporate governance (Jiang
& Peng, 2010; Peng & Jiang, 2010; Young et al., 2008), and of entrepreneurship
(Lee, Yamakawa, Peng, & Barney, 2011).
This research has proposed an institution-based view to examine the relationships
among institutions, family businesses, and firm performance. It advances our
understanding of family business by introducing the critical role of institutional
environments. We hope that this will call attention to the embedded nature of family
businesses in institutions, and that future research will build on our work by
improving and reformulating the understanding of family businesses across different
institutional environments.
Appendix I Comparison of family vs. non-family firms*
Author Sample Conclusion Theory used
Anderson &
Reeb, 2003b
403 firms from S&P
500, 19921999
Family firms are significantly better
performers than non-family firms in terms
of ROA and TobinsQ;Inwell-regulated
and transparent markets, family owner-
ship in public firms reduces agency
problems without leading to severe losses
in decision-making efficiency.
Barth et al., 2005 Norway firms, 1996 Family-owned firms are less productive
than non-family-owned firms.
W. Liu et al.
Author Sample Conclusion Theory used
Claessens et al.,
East Asian firms In East Asian economies, the excess of
large shareholdersvoting rights over cash
flow rights reduces the overall value of the
firm, albeit not enough to offset the
benefits of ownership concentration.
Demsetz &
Villalonga, 2001
511 firms from all
sectors of the US
economy, 19761980
No statistically significant relation between
ownership structure and firm
Ownership structures differ across firms
because of differences in the
circumstances facing firms, such as
scale economies, regulation,andthe
stability of the environment in which
they operate.
Lins, 2003 1, 433 firms from 18
emerging economies.
Firm values are lower when a management
groups control rights exceed its cash-
flow rights. These effects are significantly
more pronounced in countries with low
shareholder protection.
Maury, 2006 1, 672 non-financial
firms in 13 Western
European countries
(1) Family control outperform non-family
control in terms of profitability in dif-
ferent legal regimes; (2) Family control
lowers the agency problem between
owners and managers, but gives rise to
conflicts between the family and minor-
ity shareholders when shareholder pro-
tection is low; (3) Family control
increase profitability in legal environ-
ments with strong governance regula-
Morck et al., 1988 371 Fortune 500 firms,
Younger founder-controlled firms are more
valuable; For older firms, TobinsQis
lower when the firm is run by a member
of the founding family than when it is
run by an officer unrelated to the founder.
Tobins Q first increases, then declines, and
finally rises slightly as ownership by the
board of directors rises.
Lubatkin, Dino,
& Buchholtz,
American family
businesses, 1995
Private ownership and owner management
not only reduce the effectiveness of
external control mechanisms, they also
expose firms to a self-controlproblem
created by incentives that cause owners to
take actions which arm themselves as
well as those around them.
Westhead &
Howorth, 2006
905 private firms in the
Closely held family firms did not report
superior firm performance.
Agency and
*Institutional effects are italicized.
Does family business excel in firm performance? An institution-based view
Appendix II Family ownership concentration and firm performance
Author Sample Conclusion Theory used
Anderson &
319 firms in S&P 500,
Firms benefit from the presence of founding
families; Firm gains from family control
starts to taper off when the ownership stake
exceeds 30%.
Agency theory
Carney &
106 publicly traded
Hong Kong firms in
Coupled ownership and control is positively
related to accounting profitability, dividend
payout levels and financial liquidity, and
negatively related to investments in capital
Agency theory,
based view
Claessens et
al., 2002
1,301 publicly traded
firms in eight East
Asian countries
Firm value increases with the cash-flow
ownership of the largest shareholder, falls
when the control rights of the largest
shareholder exceed its cash-flow ownership.
Agency theory
La Porta et
al., 2002
539 large firms from 27
wealthy economies
Lower valuations for firms in countries with
worse protection of minority; Higher firm
valuations in countries with better protection
of minority shareholders and in firms with
higher cash-flow ownership by the control-
ling shareholder.
Agency theory
Morck et al.,
371 Fortune 500 firms in
First increasing and then diminishing returns
to concentration and negative returns after
about 30% concentration.
Agency theory
Morck et al.,
Canadian public
Family ownership, particularly when in the
hands of the successors to the founder,
negatively affects firm performance.
Agency theory
Schulze et
al., 2003a
1,464 American family
businesses, 1995
During periods of market growth, the
relationship between the use of debt and the
dispersion of ownership among directors at
family firms is U-shaped.
Agency theory
Shleifer &
(1) Family ownership add value when the
political and legal systems of a country do
not provide sufficient protection against the
expropriation of minority shareholder; (2)
As ownership gets beyond a point, large
owners are wealthy enough to prefer to use
firms to generate private benefits of control
that are not shared by minority
Agency theory
Thomsen &
435 European largest
Family ownership is associated with a
negative MBV premium in the United
Kingdom, but not on the continent.
Agency theory
Zahra, 2003 409 US manufacturing
Family ownership and involvement in the
firm as well as the interaction of this
ownership with family involvement are
significantly and positively associated with
W. Liu et al.
Appendix III Family CEO and firm performance
Author Sample Conclusion Theory used
Anderson &
S&P 500 Industrial firms
from 19931999
A positive performance effect when family
members serve as CEOs relative to
unrelated CEOs; Family firms with family
CEOs experience the greatest reductions in
firm risk relative to non-family firms or to
family firms with outside CEOs.
Agency theory
Barontini &
675 publicly traded firms
in 11 Continental Europe
When a descendant takes the position of
CEO, family-controlled companies are not
statistically distinguishable from non-
family firms in terms of valuation and
Agency theory
Barth et al.,
Firms in Norway
Business and Industry
(NHO) in 1996
Family-owned firms managed by outside
CEOs are equally productive as non-
family-owned firms, while family-owned
firms managed by a person from the owner
family are significantly less productive.
Agency theory
Durand &
Survey by the Bank of
France in 1997
Owner-controlled firms have a greater
productive efficiency than agent-led firms.
Agency theory
et al., 2001
276 Spanish newspapers
over 27 years (1966
Non-family firms monitor CEOs better; Firm
performance and business risk are much
stronger predictors of chief executive
tenure when a firms owners and its
executive have family ties and that the
organizational consequences of CEO
dismissal are more favorable when the
replaced CEO is a member of the family
owning the firm.
Agency theory
82 founding family
controlled firms
Family CEOs have superior incentives for
maximizing firm value and, therefore, need
fewer compensation-based incentives.
Agency theory
Morck et al.,
Canadian firms Tobins Q increases when the founding
family holds one of the top two positions;
Heir-controlled firms showed low industry-
adjusted financial performance relative to
other firms of same ages and sizes.
Agency theory
Westhead &
905 independent private
companies in the UK
The management rather than the ownership
structure of a family firm was associated
with firm-performance. Private family
firms should avoid employing family
members in management roles.
Does family business excel in firm performance? An institution-based view
Appendix IV Founder CEO vs. descendant CEO and firm performance
Author Sample Conclusion Theory used
Jayaraman et al.,
US public corporations Founder management has no main effect
on stock returns over a 3-year holding
period, but that firm size and firm age
moderate the CEO founder statusfirm
performance relationship.
based view
Henderson, &
Mishra, 1998
US founding family
controlled firms
Descendant-controlled firms are more
efficient than founder-controlled firms.
Morck et al., 1988 371 Fortune 500 firms
in 1980
For older firms, Tobins Q is lower when
the firm is run by a member of the
founding family than when it is run by
an officer unrelated to the founder.
Morck et al., 2000 Canadian firms Firms controlled by heirs of the founder
show lower profitability than founder
and family outsider controlled firms in
the same industry; New wealth created
by founders enhances firm value, but
managerial entrenchment and distorted
incentive structures impede the growth
of firm value in descendant-inherited
US nonfinancial,
nonutility firms in
Firms where incoming CEOs are related
to the departing CEO, to a founder, or to
a large shareholder by either blood or
marriage underperform in terms of
operating profitability and market-to-
book ratios, relative to firms that
promote unrelated CEOs.
Villalonga & Amit,
Fortune 500 firms
during 19942000
Controlled by heirs of the founder show
lower profitability than founder and
family outsider controlled firms in the
same industry. The conflict between
family and non-family shareholders in
descendant-CEO firms is more costly
than the owner manager conflict in non-
family firms.
Appendix V Family control of the board and firm performance
Author Sample Conclusion Theory used
& Reeb,
Founding-family controlled
firms in S&P 500
In firms with continued founding-family
ownership and relatively few independent
directors, firm performance is significantly
worse than in non-family firms; A moder-
ate family board presence provides sub-
Agency theory
W. Liu et al.
Author Sample Conclusion Theory used
stantial benefits to the firm.
147 firms in Moodys
manuals and Compact
Disclosure database
Boards are smaller in a more uncertain
environment and have an increased
number of interlocks. This relationship
was stronger in high-performing firms.
Agency theory,
Inc. 500 firms Greater numbers of outsiders had
significantly less influence or importance.
The presence of outsiders may actually
reduce the influence of the board.
Schulze et
al., 2001
American family
businesses in 1995
Outsider representation on boards shows a
significant negative effect on firm
Agency theory
Firms with insider-dominated boards per-
formed better than firms with outsider-
dominated boards for the successful, large,
publicly-owned companies.
Agency theory,
Aguilera, R. V., Filatotchev, I., Gospel, H., & Jackson, G. 2008. An organizational approach to
comparative corporate governance: Costs, contingencies, and complementarities. Organization
Science, 19(3): 475492.
Aguilera, R. V., & Jackson, G. 2003. The cross-national diversity of corporate governance: Dimensions
and determinants. Academy of Management Review, 28(3): 447465.
Anderson, R., Mansi, S., & Reeb, D. 2003. Founding family ownership and the agency cost of debt.
Journal of Financial Economics, 68: 263285.
Anderson, R., & Reeb, D. 2003a. Founding-family ownership, corporate diversification, and firm
leverage. Journal of Law and Economics, 46: 653684.
Anderson, R., & Reeb, D. 2003b. Founding-family ownership and firm performance: Evidence from the
S&P 500. Journal of Finance, 58(3): 13011328.
Anderson, R., & Reeb, D. 2004. Board composition: Balancing family influence in S&P 500 firms.
Administrative Science Quarterly, 49(2): 209237.
Andersson, T., Carlsen, J., & Getz, D. 2002. Family business goals in the tourism and hospitality sector: A
cross-case analysis from Australia, Canada and Sweden. Family Business Review, 15(2): 89106.
Aoki, M. 2001. Toward a comparative institutional analysis. Cambridge: MIT Press.
Aronoff, C. E., & Ward, J. L. 1995. Family-owned businesses: A thing of the past or the model for the
future. Family Business Review, 8(2): 121130.
Arregle, J. L., Hitt, M. A., Sirmon, D. G., & Very, P. 2007. The development of organizational social
capital: Attributes of family firms. Journal of Management Studies, 44(1): 7395.
Barontini, R., & Caprio, L. 2006. The effect of family control on firm value and performance: Evidence
from Continental Europe. European Financial Management, 12(5): 689723.
Barth, E., Gulbrandsen, T., & Schone, P. 2005. Family ownership and productivity: The role of owner-
management. Journal of Corporate Finance, 11: 107127.
Baysinger, B. D., & Hoskisson, R. E. 1990. The composition of boards of directors and strategic control:
Effects on corporate strategy. Academy of Management Review, 15(1): 7287.
Bhagat, R. S., McDevitt, A. S., & McDevitt, I. 2010. On improving the robustness of Asian management
theories: Theoretical anchors in the era of globalization. Asia Pacific Journal of Management, 27(2):
Becht, M., & Roel, A. 1999. Blockholding in Europe: An international comparison. European Economic
Review, 43: 10491056.
Berle, A. A., & Means, G. C. 1932. The modern corporation and property. New York: Harcourt.
Does family business excel in firm performance? An institution-based view
Boyd, B. 1990. Corporate linkages and organizational environment: A test of the resource dependence
model. Strategic Management Journal, 11(6): 419430.
Bruton, G. D., Ahlstrom, D., & Wan, J. C. 2003. Turnaround in East Asian firms: Evidence from ethnic
overseas Chinese communities. Strategic Management Journal, 24: 519540.
Burkart, M., Panunzi, F., & Shleifer, A. 2003. Family firms. Journal of Finance, 58(5): 21672201.
Carney, M., & Gedajlovic, E. 2002. The coupling of ownership and control and the allocation of financial
resources: Evidence from Hong Kong. Journal of Management Studies, 39: 123146.
Carney, M., Gedajlovic, E., & Yang, X. 2009. Varieties of Asian capitalism: Toward an institutional theory
of Asian enterprise. Asia Pacific Journal of Management, 26(3): 361380.
Chandler, A. 1990. Scale and scope. Cambridge: Harvard University Press.
Chrisman, J. J., Chua, J. H., & Sharma, P. 2005. Trends and directions in the development of a strategic
management theory of the family firm. Entrepreneurship Theory and Practice, 29: 555575.
Chua, J. H., Chrisman, J. J., & Sharma, P. 1999. Defining the family business by behavior.
Entrepreneurship Theory and Practice, 23(4): 1939.
Chung, C., & Luo, X. 2008. Institutional logics or agency costs: The influence of corporate governance
models on business group restructuring in emerging economies. Organization Science, 19(5): 766784.
Claessens, S., Djankov, S., Fan, P. H., & Lang, H. P. 2002. Disentangling the incentive and entrenchment
effects of large shareholdings. Journal of Finance, 62(6): 27412771.
Claessens, S., Djankov, S., & Lang, H. P. 2000. The separation of ownership and control in East Asian
corporations. Journal of Financial Economics, 58: 81112.
Cochran, P. L., Wood, R. A., & Jones, T. B. 1985. The composition of boards of directors and incidence of
golden parachutes. Academy of Management Journal, 28: 664671.
Crouch, C. 2005. Capitalist diversity and change: Recombinant governance and institutional
entrepreneurs. Oxford: Oxford University Press.
Daily, C. 1995. The relationship between board composition and leadership structure and bankruptcy
reorganization outcomes. Journal of Management, 21: 10411056.
Daily, C., & Dalton, D. 1994a. Bankruptcy and corporate governance: The impact of board composition
and structure. Academy of Management Journal, 37: 16031617.
Daily, C., & Dalton, D. 1994b. Corporate governance and the bankrupt firm: An empirical assessment.
Strategic Management Journal, 15: 643654.
Dalton, D., Daily, C., Johnson, J., & Ellstrand, A. 1999. Number of directors and financial performance: A
meta-analysis. Academy of Management Journal, 42: 674686.
Davis, G. 2005. New directions in corporate governance. Annual Review of Sociology, 31(1): 143162.
DeAngelo, H., & DeAngelo, L. 2000. Controlling stockholders and the disciplinary role of corporate
payout policy: A study of the Times Mirror company. Journal of Financial Economics, 56(2): 153
Demsetz, H., & Villalonga, B. 2001. Ownership structure and corporate performance. Journal of
Corporate Finance, 7(3): 209233.
Dharwadkar, R., George, G., & Brandes, P. 2000. Privatization in emerging economies: An agency theory
perspective. Academy of Management Review, 25: 650669.
Dreux, D. R. 1990. Financing family businesses: Alternatives to selling out or going public. Family
Business Review, 3: 225243.
Dunn, B., & Hughes, M. 1995. Family businesses in the United Kingdom. Family Business Review, 8(4):
Durand, R., & Vargas, V. 2003. Ownership, organization, and private firmsefficient use of resources.
Strategic Management Journal, 24: 667675.
Dyer, W. G. 2006. Examining the family effecton firm performance. Family Business Review, 19(4):
Faccio, M., & Lang, H. P. 2002. The ultimate ownership of Western European corporations. Journal of
Financial Economics, 65: 365395.
Fama, E. F., & Jensen, M. C. 1983. Separation of ownership and control. Journal of Law and Economics,
26: 301325.
Ford, R. H. 1988. Outside directors and the privately-owned firm: Are they necessary?. Entrepreneurship
Theory and Practice, 13(1): 4957.
Gallo, M. A., & Vilaseca, A. 1996. Finance in family business. Family Business Review, 9: 387402.
Gedajlovic, E. R., Lubatkin, M. H., & Schulze, W. S. 2004. Crossing the threshold from founder
management to professional management: A governance perspective. Journal of Management
Studies, 41: 9881012.
W. Liu et al.
Gomez-Mejia, L. R., Larraza-Kintana, M., & Makri, M. 2003. The determinants of executive
compensation in family-controlled public corporations. Academy of Management Journal, 46(2):
Gomez-Mejia, L. R., Nunez-Nickel, M., & Gutierrez, I. 2001. The role of family ties in agency contracts.
Academy of Management Journal, 44(1): 8195.
Habbershon, T. G., Williams, M. L., & MacMillan, I. 2003. A unified systems perspective of family firm
performance. Journal of Business Venturing, 18(4): 451465.
Hall, P. A., & Soskice, D. 2001. Varieties of capitalism: The institutional foundations of comparative
advantage. Oxford: Oxford University Press.
Heugens, P. P. M. A. R., van Essen, M., & van Oosterhout, J. 2009. Meta-analyzing ownership
concentration and firm performance in Asia: Towards a more fine-grained understanding. Asia Pacific
Journal of Management, 26(3): 481512.
Hill, C. W. L. 1995. National institutional structures, transaction cost economizing and competitive
advantage: The case of Japan. Organization Science,6:1191131.
Hillman, A., & Dalziel, T. 2003. Boards of directors and firm performance: Integrating agency and
resource dependence perspectives. Academy of Management Journal, 28(3): 383396.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of
Management Journal, 43: 249267.
Jayaraman, N., Khorana, A., Nelling, E., & Covin, J. 2000. CEO founder status and firm financial
performance. Strategic Management Journal, 21(12): 12151224.
Jensen, M. C. 1993. The modern industrial revolution, exit and the failure of internal control systems.
Journal of Finance, 48: 831880.
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs, and
ownership structure. Journal of Financial Economics, 3: 305360.
Jiang, Y., & Peng, M. W. 2010. Principal-principal conflicts during crisis. Asia Pacific Journal of
Management. doi:10.1007/s10490-009-9186-8.
Johnson, J., Daily, C., & Ellstrand, A. 1996. Boards of directors: A review and research agenda. Journal of
Management, 22: 409438.
Kesner, I. F. 1987. Directorsstock ownership and organizational performance: An investigation of
Fortune 500 companies. Journal of Management, 13(3): 499507.
Klapper, L. F., & Love, I. 2004. Corporate governance, investor protection, and performance in emerging
markets. Journal of Corporate Finance, 10(5): 703728.
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 1999. Corporate ownership around the world. Journal of
Finance, 54(2): 471517.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. 1998. Law and finance. Journal of
Political Economy, 106: 11131155.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. 2002. Investor protection and corporate
valuation. Journal of Finance, 57: 11471170.
Lee, D. S., Lim, G. H., & Lim, W. S. 2003. Family business succession: Appropriation risk and choice of
successor. Academy of Management Review, 28(4): 657666.
Lee, K., Peng, M. W., & Lee, K. 2008. From diversification premium to diversification discount during
institutional transitions. Journal of World Business, 43(1): 4765.
Lee, S.-H., Yamakawa, Y., Peng, M. W., & Barney, J. B. 2011. How do bankruptcy laws affect
entrepreneurship development around the world? Journal of Business Venturing, Forthcoming.
Li, H. X., Wang, Z. J., & Deng, X. L. 2008. Ownership, independent directors, agency costs and financial
distress: Evidence from Chinese listed companies. Corporate Governance, 8(5): 622636.
Lins, K. V. 2003. Equity ownership and firm value in emerging markets. Journal of Financial and
Quantitative Analysis, 38: 159184.
Litz, R. A. 1995. The family business: Toward definitional clarity. Family Business Review,8:7181.
Lyman, A. R. 1991. Customer service: Does family ownership make a difference?. Family Business
Review, 4(3): 303324.
Maury, B. 2006. Family ownership and firm performance: Empirical evidence from Western European
corporations. Journal of Corporate Finance, 12(2): 321341.
McConaughy, D. L. 2000. Family CEO vs. non-family CEOs in the family-controlled firm: An
examination of the level and sensitivity of pay to performance. Family Business Review, 13(2): 121
McConaughy, D. L., Walker, M. C., Henderson, G. V., & Mishra, C. S. 1998. Founding family controlled
firms: Efficiency and value. Review of Financial Economics,7:119.
Does family business excel in firm performance? An institution-based view
Meyer, K. E., Estrin, S., Bhaumik, S., & Peng, M. W. 2009. Institutions, resources, and entry strategies in
emerging economies. Strategic Management Journal, 30(1): 6180.
Meyer, K. E., & Peng, M. W. 2005. Probing theoretically into Central and Eastern Europe: Transactions,
resources, and institutions. Journal of International Business Studies, 36(6): 600621.
Miller, D., & Shamsie, J. 1996. The resource-based view of the firm in two environments: The Hollywood
film studios from 19361965. Academy of Management Journal, 39: 519543.
Morck, R., Shleifer, A., & Vishny, R. 1988. Management ownership and market valuation: An empirical
analysis. Journal of Financial Economics, 20: 293316.
Morck, R., & Steier, L. 2005. The global history of corporate governance: An introduction. In R. Morck
(Ed.). A history of corporate governance around the world: Family business groups to professional
advisors:164. Chicago: University of Chicago Press.
Morck, R., Strangeland, D., & Yeung, B. 2000. Inherited wealth, corporate control, and economic growth.
In R. Morck (Ed.). Concentrated corporate ownership. Chicago: University of Chicago Press.
Morck, R., & Yeung, B. 2003. Agency problems in large family business groups. Entrepreneurship
Theory and Practice, 27(4): 367382.
North, D. C. 1990. Institutions, institutional change and economic performance. Cambridge: Harvard
University Press.
Oliver, C. 1997. Sustainable competitive advantage: Combining institutional and resource-based views.
Strategic Management Journal, 18: 679713.
Peng, M. W., & Jiang, Y. 2006. Family ownership and control in large firms: The good, the bad, the
irrelevantand why. William Davidson Institute working paper no. 840, William Davidson Institute,
University of Michigan, Ann Arbor, Michigan.
Peng, M. W., & Jiang, Y. 2010. Institutions behind family ownership and control in large firms. Journal of
Management Studies, 47: 253273.
Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. 2009. The institution-based view as a third leg for a
strategy tripod. Academy of Management Perspectives, 23(3): 6381.
Peng, M. W., Wang, D. Y. L., & Jiang, Y. 2008. An institution-based view of international business
strategy: A focus on emerging economies. Journal of International Business Studies, 39(5): 920936.
Perez-Gonzalez, F. 2006. Inherited control and firm performance. American Economic Review, 96(5):
Pollak, R. 1985. A transaction cost approach to families and households. Journal of Economic Literature,
23: 581608.
Priem, R. L., & Butler, J. E. 2001. Is the resource-based viewa useful perspective for strategic
management research?. Academy of Management Review, 26: 2240.
Rediker, K. J., & Seth, A. 1995. Boards of directors and substitution effects of alternative governance
mechanisms. Strategic Management Journal, 16: 8599.
Schulze, W. S., Lubatkin, M. H., & Dino, R. N. 2003a. Exploring the agency consequences of ownership
dispersion among the directors of private family firms. Academy of Management Journal, 46(2): 179
Schulze, W. S., Lubatkin, M. H., & Dino, R. N. 2003b. Toward a theory of agency and altruism in family
firms. Journal of Business Venturing, 18(4): 473490.
Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. 2001. Agency relationships in family
firms: Theory and evidence. Organization Science, 12: 99116.
Shleifer, A., & Vishny, R. W. 1997. A survey of corporate governance. Journal of Finance, 52(2): 737
Sirmon, D. G., & Hitt, M. A. 2003. Managing resources: Linking unique resources, management, and
wealth creation in family firms. Entrepreneurship Theory and Practice, 27(4): 339358.
Sraer, D., & Thesmar, D. 2007. Performance and behavior of family firms: Evidence from the French
stock market. Journal of the European Economic Association, 5(4): 709751.
Steier, L. 2001. Next-generation entrepreneurs and succession: An exploratory study of modes and means
of managing social capital. Family Business Review, 14: 259276.
Steier, L. P. 2009. Familial capitalism in global institutional contexts: Implications for corporate
governance and entrepreneurship in East Asia. Asia Pacific Journal of Management, 26(3): 513535.
Stein, J. 1989. Efficient capital markets, inefficient firms: A model of myopic corporate behavior.
Quarterly Journal of Economics, 104(4): 655669.
Suhomlinova, O. 2006. Towards a model of organizational co-evolution in transition economies. Journal
of Management Studies, 43: 15371554.
Thomsen, S., & Pedersen, T. 2000. Ownership structure and economic performance in the largest
European companies. Strategic Management Journal, 21(6): 689705.
W. Liu et al.
Vance, S. C. 1964. Board of directors: Structure and performance. Eugene, OR: University of Oregon
Villalonga, B., & Amit, R. 2006. How do family ownership, management, and control affect firm value?.
Journal of Financial Economics, 80(2): 385417.
Walsh, J. P., & Seward, J. K. 1990. On the efficiency of internal and external corporate control
mechanisms. Academy of Management Review, 15(3): 421458.
Westhead, P., & Howorth, C. 2006. Ownership and management issues associated with family firm
performance and company objectives. Family Business Review, 19(4): 301316.
Willard, G. E., Krueger, D. A., & Feeser, H. R. 1992. In order to grow, must the founder go: A comparison
of performance between founder and non-founder managed high-growth manufacturing firms.
Journal of Business Venturing, 16: 181194.
Williamson, O. E. 1985. The economic institutions of capitalism. New York: Free Press.
Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. 2005. Strategy research in emerging
economies: Challenging the conventional wisdom. Journal of Management Studies, 42(1): 134.
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. 2008. Corporate governance in
emerging economies: A review of the principal-principal perspective. Journal of Management
Studies, 45(1): 196220.
Zahra, S. A. 2003. International expansion of US manufacturing family businesses: The effect of
ownership and involvement. Journal of Business Venturing, 18(4): 495512.
Zahra, S., Hayton, J., & Salvato, C. 2004. Entrepreneurship in family vs. non-family firms: A resource-
based analysis of the effect of organizational culture. Entrepreneurship Theory and Practice, 28: 363
Zhang, J., & Ma, H. 2009. Adoption of professional management in Chinese family business: A multilevel
analysis of impetuses and impediments. Asia Pacific Journal of Management, 26(1): 119139.
Weiping Liu (PhD, City University of Hong Kong) is a visiting scholar in the Department of
Management, Hong Kong University of Science and Technology. Her main research areas include product
innovation and strategic management in transition economies.
Haibin Yang (PhD, University of Texas at Dallas) is an assistant professor of management at the City
University of Hong Kong. His research interests are strategic networks, acquisitions, and entrepreneurship.
Guangxi Zhang (MEd, Zhejiang University) is a doctoral student at the City University of Hong Kong.
Her research interests are innovation, strategic networks, and acquisitions.
Does family business excel in firm performance? An institution-based view
... As a consequence, research on family businesses would be enriched by a better understanding of the external conditions that may affect the performance and development of family firms. The relationship between national institutions, strategy, and performance is a rapidly growing area of research that fits into the genre of literature known as institution-based view (Carney, Gedajlovic, Heugens, van Essen, & Van Oosterhout, 2011;Liu et al., 2012;Peng & Jiang, 2010;van Essen, Heugens, Otten, & Van Oosterhout, 2012). A basic forecast of this literature is that family firms will be prevalent in less developed economic regions (Chang, Chrisman, Chua, & Kellermanns, 2008) because they enjoy competitive advantages when there are underdeveloped legal frameworks and inefficient public administration (Gedajlovic et al., 2012). ...
... Contending theories suggest that the quality of the institutional environment can either positively or negatively moderate the performance of family firms Gedajlovic et al., 2012;Liu et al., 2012). ...
... Family firms perform worse than non-family firms, but it seems that, in a context of low institutional efficiency, family governance helps firms to overcome some ill-functioning institutional environments and, thus, to offset the performance gap with non-family managed firms. This result is consistent with the proposition of Liu et al. (2012), which says that family firms will more significantly outperform non-family firms in an underdeveloped institutional environment than in a developed institutional environment. ...
Full-text available
The main aim of this research is to investigate the influence the institutional environment has on the difference in performance between Italian family firms run by a family member and firms run by a professional manager. By using total factor productivity (TFP) as a measure of performance, we find that family-run firms are less productive than firms run by outside managers when institutional quality is high, but that the results are less obvious when institutional quality is low. The difference in performance is not significant, but by using the level of corruption as a measure of institutional quality, older family firms are found to be more productive than firms run by outside managers. rd of directors and their characteristics. We performed a set of regression analysis to evaluate whether the participation of women in the firm’s board of directors and the presence of connections among boardrooms enhance the financial performance measured through Tobin’s Q and Return On Asset (ROA). Empirical results contribute to extend scientific literature about this topic and to provide interesting practical contributions on the role of gender minority and the connections among companies on firms’ performance. Parallel, this research develops topics related to text mining (that is the automatic extraction of quantitative information from text-documents) referring to all the firms’ disclosures, produced in the Italian language.
... Yet, achieving their full growth potential, among other things, depends on the extent to which they are engaged in international business activities (Kontinen and Ojala, 2010;Kotorri and Krasniqi, 2018). In their quest for growth and internationalisation, the institutional setting is crucial for family firms as they are sensitive to the institutional environment (Soleimanof et al., 2018;Peng and Jiang, 2010;Aquilera and Craspi-Caldera, 2012;Liu et al., 2012). In transitional economies, institutions are weakly installed or even deficient due to the lack of clear rules of the game and the ability of the governmental bodies to enforce such rules (Krasniqi and Desai, 2017;Puffer et al., 2010;Ahlstron and Bruton, 2010). ...
... If institutional deficiencies exist, then the firms need to develop reaction strategies to respond to these institutional deficiencies accordingly (Liu et al., 2012;Peng and Jiang, 2010), such as involvement in international markets (Gao et al., 2010;Ngo et al., 2016;Makhmadashoev and Crone, 2014;Reçica et al., 2019). From this point of view, this research aims to analyse the effects of the economic institutions' settings, i.e. fiscal policy, property rights and contractual enforcement practices, on family firms' performance and examine if and how internationalisation provides advantages for their survival and success. ...
Full-text available
Purpose Kosovo has experienced a radical shift from a centrally planned economy to a market economy and built institutions from scratch. During the institutional building process, due to inconsistencies in institutional reforms, firms faced several challenges in competing in the domestic market and engaging in exporting activities. The purpose of the study is threefold. First, to examine how institutional settings influence family firms’ success; second, how and which types of strategic behaviours family firms pursue in response to institutional deficiencies and third, whether and how internationalisation helps the firms overcome the difficulties resulting from deficiencies of the institutions. Design/methodology/approach This study employs a qualitative document analysis technique using secondary and primary data to examine the impact of institutional settings on firm internationalisation and related firm reactions. Findings Findings suggest that fiscal policy, weak protection of property rights and contractual enforcement negatively influenced family firms because of unfair competition, unpredictable business environment and additional costs due to deficient institutions. The authors found that internationalisation provided benefits for the firms in handling the problems posed by the institutions. The firms focused on three main strategies to respond to weak institutions: improving product quality, diversifying and differentiating products and setting competitive prices. Originality/value This study contributes to the literature and explains how and which economic institutions influence firm internationalisation and how engagement in international business activities provides an advantage in responding to deficient institutions in the home country.
... (2) The independent board comprises all independent directors who can function as internal auditors for the company at the board level (Liu et al., 2012). We expect a positive effect on listed firms' performance in India or the choice of sustainability report format. ...
Full-text available
This study aims to determine how sustainability reporting disclosures and report format affect company performance in India's mandatory reporting environment. The study employed feasible generalised least square, panel-correlated standard errors and probit regression. The sample size is 80, and the study period is between 2010 and 2020. We find that utilizing Business Responsibility Reporting (BRR) criteria as sustainability disclosures, have a positive and statistically significant relationship with business value (Tobin's q) and market performance (SPR). Similarly, Global Reporting Initiative (GRI) sustainability reporting disclosures positively influence the SPR and adversely affect Tobin's q. The study shows that BRR sustainability reporting disclosure and mandatory reporting have an interactive and positive influence on Tobin's q. Also, we see that the stand-alone sustainability reporting format positively influences market performance (SPR). Lastly, we see that a firm with a mandatory reporting responsibility will choose a report format (i.e. stand-alone) to disclose its sustainability activities. The implication from the study shows that firms that continue to employ GRI sustainability reporting in India should be aware that it does not send out sound signals that can lead to a rise in firm value or improve long-term performance.
... Family businesses is also a determinant that appears to grant firms a competitive advantage through "Familiness" capitals (Liu et al., 2012), although, for most of them being a family business was not the real motive to engage exports, it has been clearly a real advantage in term of flexibly, proximity to the employees and freedom of financial investment. ...
International trade and global openness have been Morocco’s main objectives during the past decades. However, the abrupt changes of the world economy and the increasing competition are hindering firms’ internationalization and export success. The purpose of this research study is to explore the determinants of export performance in small and medium-sized Moroccan enterprises (SMEs).
... Elle varie suivant les pays et les cultures (Harms, 2014) Le premier groupe de chercheurs s'attardent au mode de gouvernance mis en oeuvre pour qu'une entreprise soit qualifiée de PME familiale. Ces auteurs s'intéressent à la fois ou à l'un des aspects touchant la propriété, le pouvoir et la gestion courante de l'entreprise (Comblé et Colot, 2006;Liu et al., 2010;Bauweraerts et Colot, 2014;Ramadani et Hoy, 2015). Un deuxième groupe de chercheurs qui s'inscrit dans la même logique, place cependant l'accent sur les aspects successoraux notamment la transmission d'au moins une génération et que le mode de gestion d'une génération à l'autre ne soit pas totalement différent (Lorrain, 2005;Rautiainen et al., 2010;Missonier et Gundolf, 2017;Adama et Feudjo, 2019). ...
Full-text available
Les PME familiales dominent la sphère économique mondiale. Leur contribution au bien-être humain est sans équivoque. Cependant, dans les pays en développement, ces entreprises font face à une panoplie de contraintes qui fragilisent leur rayonnement, retardent leur essor et amoindrissent leur chance de survie. Au regard de leurs spécificités, elles disposent néanmoins des ressources stratégiques qui leur permettent de résister à la turbulence de l’environnement. C’est dans ce cadre que notre étude cherchait à identifier les facteurs qui entravent la dynamique entrepreneuriale des PME familiales du Kivu et déceler les actions mises en œuvre pour se maintenir face à ces épisodes difficiles. Pour atteindre cette visée, une enquête quantitative a été conduite auprès de 493 PME familiales. Elle a été précédée d’une exploration auprès des parties prenantes qui interviennent dans ce domaine. Les résultats indiquent que quatre variables influencent significativement la dynamique entrepreneuriale des PME familiales du Kivu. Ces facteurs se rapportent notamment à l’ingérence de la famille dans les affaires, à la disponibilité du support logistique, à l’accès au financement ainsi qu’à la qualité de la gouvernance fiscale. Ensuite, ces mêmes variables exercent une influence sur la performance desdites entreprises. Plus intéressant, lorsque la participation stratégique des membres familiaux est active, l’effet positif s’améliore, alors que l’incidence négative s’amoindrit. La même tendance se confirme en présence des familles harmonieuses. Après avoir validé le concept d’agilité organisationnelle dans le champ des PME familiales, les résultats montrent également que pour faire face à la vélocité de l’écosystème entrepreneurial, les PME familiales se déploient de plusieurs manières : l’adaptation aux besoins des clients, la flexibilité de la main d’œuvre, la simplicité du circuit informationnel, la coopération avec les fournisseurs, la veille du marché, l’attachement organisationnel et l’innovation. Cette posture agipreneuriale s’explique par ailleurs par six variables, à savoir l’expérience de l’entrepreneur, le secteur d’activité, la prise de risque, l’évolution du marché, la génération aux affaires ainsi que le capital social. Finalement, les pratiques agiles et les stratégies concurrentielles choisies par les PME familiales exercent une influence positive sur leur performance. La stratégie adoptée est alors un médiateur partiel entre les relations étudiées, alors que la turbulence de l’environnement modère la relation entre stratégies et performance. Mots clés : PME familiale, dynamique entrepreneuriale, agilité organisationnelle, performance perçue, turbulence.
... Elle varie suivant les pays et les cultures (Harms, 2014) Le premier groupe de chercheurs s'attardent au mode de gouvernance mis en oeuvre pour qu'une entreprise soit qualifiée de PME familiale. Ces auteurs s'intéressent à la fois ou à l'un des aspects touchant la propriété, le pouvoir et la gestion courante de l'entreprise (Comblé et Colot, 2006;Liu et al., 2010;Bauweraerts et Colot, 2014;Ramadani et Hoy, 2015). Un deuxième groupe de chercheurs qui s'inscrit dans la même logique, place cependant l'accent sur les aspects successoraux notamment la transmission d'au moins une génération et que le mode de gestion d'une génération à l'autre ne soit pas totalement différent (Lorrain, 2005;Rautiainen et al., 2010;Missonier et Gundolf, 2017;Adama et Feudjo, 2019). ...
Family-owned SMEs dominate the global economic sphere. Their contribution to the human well-being is unequivocal. However, in developing countries, these enterprises face a range of constraints that weaken their influence, delay their growth and reduce their chances of survival. Given their specificities, they nevertheless have strategic resources that allow them to resist the turbulence of the environment. It is within this framework that our study fucused on identifying the factors that hinder the entrepreneurial dynamics of family SMEs in Kivu and to detect the actions implemented to maintain themselves in the face of these difficult episodes. In order to achieve this objective, a quantitative survey was conducted among 493 family SMEs, preceded by an exploratory study. The results indicate that four variables significantly influence the entrepreneurial dynamics of family SMEs in Kivu. These factors relate to family interference in business, availability of logistical support, access to financing and the quality of institutional governance. Second, these same variables influence the perceived performance of these firms. More interestingly, when the strategic participation of family members is active, the positive effect improves, while the negative impact diminishes. The same scenario is confirmed in the presence of harmonious families. After validating the concept of organizational agility in the context of family SMEs, the results also show that in order to cope with the velocity of the entrepreneurial ecosystem, family operators deploy themselves in several ways: adaptation to the needs of customers, flexibility of the workforce, simplicity of the informational circuit, cooperation with suppliers, market intelligence, organizational attachment and innovation. This agipreneurial posture is explained by six variables: the experience of the entrepreneur, the sector of activity, the risk taking, the evolution of the market, the generation to business as well as the social capital. Finally, agile practices and competitive strategies chosen by family SMEs have a positive influence on their performance. The strategic orientation adopted is a partial mediator between the relationships studied, while the turbulence of the environment moderates the relationship between strategies and perceived performance. In the conclusion, the contribution, limitations and theoretical and practical implications of this research are pinpointed.
... Further, the case study method is particularly appropriate as it provides in-depth knowledge through persuasive and memorable narratives and rich descriptions (Pettigrew, 1997;Thomas, 2010;Watson, 2009), which fits the purpose of exploring and extending the existing theoretical development of the social phenomenon (Eisenhardt, 1989). In particular, in exploring the differences of entrepreneurial behaviour in family businesses, the case study approach is increasingly prevalent as it fills voids in the extant family business literature (Liu, Yang and Zhang, 2012;Pagliarussi and Rapozo, 2011) by comparing common dimensions across real-life cases (Arcese et al., 2021;Banki, Ismail and Muhammand, 2016;Chirico and Nordqvist, 2010;Hall, Melin and Nordqvist, 2001) and emphasising behaviours shaped not only by individual-and group-level factors but also by institutional contexts (De Massis and Foss, 2018;Fletcher, De Massis and Nordqvist, 2016). ...
This paper explores how Guanxi shapes different levels of entrepreneurial behaviour of family businesses in China. Extant research draws on network theory, suggesting that firms focusing on less intimate social relationships are more entrepreneurial than those focusing on intimate social networks. However, this notion of networks neglects Guanxi’s indigenous cultural roots that promote intimacy in social relationships, thus limiting our understanding of why some firms in China demonstrate a higher level of entrepreneurial behaviour than others. Through an in‐depth multi‐case study analysis of eight family firms in China, we find that Guanxi is a multi‐dimensional concept that can only be effective through intimate relationship building. This study contributes to the social network literature on entrepreneurial behaviour by incorporating the gift exchange theoretical perspective and demonstrating that political Guanxi in China can only facilitate entrepreneurial behaviour when it is built around a significant level of intimacy. We also contribute to family business research by demonstrating that family ties are multi‐dimensional. Different cultural values may inform different dimensions of family ties via differences in family business governance structures, which can give rise to different levels of entrepreneurial outcomes. This study offers theoretical and practical implications alongside avenues for future research.
... (3) Independent board of directors and board size (Inoue and Lee, 2011;Liu et al., 2012) affect decisions to undertake CSR activities, and we expect a positive effect on debt financing. Good corporate governance and higher internal supervision lead to more long-term debt financing (Tosun and Senbet, 2020). ...
Full-text available
Purpose The study aims to examine whether corporate social responsibility (CSR) disclosure does improve debt financing of listed firms with sustainable development agendas coupled with high chief executive officer (CEO) tenure in India. Design/methodology/approach Employing panel regression based on fixed effect and instrumental variable regression with fixed effect assumptions, the study examined data from the Bombay stock exchange from the period 2010 to 2019. Findings The study demonstrates that the disclosure of current exchange capital and moral capital cannot cause a firm to access short-term and long-term debt financing. However, lag investment in moral capital causes a positive effect on short-term debt financing. The second findings show that CEO tenure has a positive and statistically significant association with short-term debt financing and an insignificant association with long-term debt financing. The third findings show that the interaction of current CSR disclosure (moral and exchange capital) and CEO tenure is insignificant in affecting short-term and long-term debt finance. However, the interaction of lag CSR disclosure (moral and exchange capital) and CEO tenure positively affect short-term debt financing. The study addresses any endogeneity concerns arising from the CSR disclosure-debt financing association. Research limitations/implications This study uses a single country to examine the inter-relationship between CEO tenure and debt financing and CSR measured by moral capital and exchange capital, thereby limiting the study's results for generalisation. Practical implications The observation is that moral capital investment and disclosure do not guarantee new entrants the chance to access debt financing, but subsequent and lag CSR disclosure ensures access. Originality/value No studies examine morality from CSR disclosure on debt financing. This study shows that decoupling CSR into exchange capital and moral capital in accessing debt financing presents new inputs for scholarly debate on CSR.
Purpose This study aims to examine the potential disparities in environmental, social and governance (ESG) reporting among emerging Chinese enterprises (ECEs). ECEs are subject to a set of internationally oriented ESG requirements imposed by the regulator of a global financial center that is exposed to diverse stakeholders. The authors also consider ECEs’ underlying institutional ownership, which exhibits influence over governance as a salient component of ESG. Design/methodology/approach This study is based on a random sample of 500 ECEs listed on the Stock Exchange of Hong Kong (SEHK) – the global financial center of China. ESG reporting is measured by using the key performance indicators of the SEHK’s ESG Reporting Guide. The data are collected from annual reports that contain ESG disclosures or standalone ESG/sustainability reports published during the 2018–2019 fiscal year. The authors adopt binary logistic regressions and Chi-square tests to test the proposed hypotheses. Findings The authors find that ECEs’ heterogeneous institutional ownership and the extent of overseas development are associated with their disclosures on climate change. ECEs with international institutional ownership are found to be a significant factor for reporting aligned with the United Nations sustainable development goals (SDGs), using external assurance and stakeholder engagement, rather than state-owned enterprises (SOEs) and private companies. The authors also document that the presence of independent nonexecutive directors (INEDs) is significantly associated with reporting on meeting the SDGs and its use of external assurance, while the presence of female directors is a significant factor influencing disclosure emphasis on energy-saving initiatives. Practical implications The authors provide an empirical study of ECEs beyond the focus on SOEs that are expected to produce comprehensive ESG reporting in addressing a broader international community of stakeholders apart from the regime of their home country. The authors document the pertinence of ECEs’ institutional ownership and governance diversity to ESG reporting. In particular, international stakeholders need to recognize such underlying differences among ECEs rather than viewing them as a homogeneous group. Social implications The authors suggest that policymakers and practitioners in Asian countries consider increasing the presence of INEDs and gender diversity on ECE boards to enhance ESG reporting, which reinforces the findings of prior international studies suggesting such governance practices. Originality/value This study contributes to the existing body of knowledge about ESG reporting by documenting the underlying heterogeneity within ECEs, which are subject to a set of internationally oriented standards, as evidenced by their disparities in ESG reporting.
Applying the new economics of organization and relational theories of the firm to the problem of understanding cross‐national variation in the political economy, this volume elaborates a new understanding of the institutional differences that characterize the ‘varieties of capitalism’ found among the developed economies. Building on a distinction between ‘liberal market economies’ and ‘coordinated market economies’, it explores the impact of these variations on economic performance and many spheres of policy‐making, including macroeconomic policy, social policy, vocational training, legal decision‐making, and international economic negotiations. The volume examines the institutional complementarities across spheres of the political economy, including labour markets, markets for corporate finance, the system of skill formation, and inter‐firm collaboration on research and development that reinforce national equilibria and give rise to comparative institutional advantages, notably in the sphere of innovation where LMEs are better placed to sponsor radical innovation and CMEs to sponsor incremental innovation. By linking managerial strategy to national institutions, the volume builds a firm‐centred comparative political economy that can be used to assess the response of firms and governments to the pressures associated with globalization. Its new perspectives on the welfare state emphasize the role of business interests and of economic systems built on general or specific skills in the development of social policy. It explores the relationship between national legal systems, as well as systems of standards setting, and the political economy. The analysis has many implications for economic policy‐making, at national and international levels, in the global age.
The paper examines the impact of ownership structure on company economic performance in 435 of the largest European companies. Controlling for industry, capital structure and nation effects we find a positive effect of ownership concentration on shareholder value (market‐to‐book value of equity) and profitability (asset returns), but the effect levels off for high ownership shares. Furthermore we propose and support the hypothesis that the identity of large owners—family, bank, institutional investor, government, and other companies—has important implications for corporate strategy and performance. For example, compared to other owner identities, financial investor ownership is found to be associated with higher shareholder value and profitability, but lower sales growth. The effect of ownership concentration is also found to depend on owner identity. Copyright © 2000 John Wiley & Sons, Ltd.
Using proxy data on all Fortune-500 firms during 1994–2000, we find that family ownership creates value only when the founder serves as CEO of the family firm or as Chairman with a hired CEO. Dual share classes, pyramids, and voting agreements reduce the founder's premium. When descendants serve as CEOs, firm value is destroyed. Our findings suggest that the classic owner-manager conflict in nonfamily firms is more costly than the conflict between family and nonfamily shareholders in founder-CEO firms. However, the conflict between family and nonfamily shareholders in descendant-CEO firms is more costly than the owner-manager conflict in nonfamily firms.