Top PDF The impact of family control on firm's return

The impact of family control on firm's return

The impact of family control on firm's return

Family firm is a field of growing interest. The aim of this article is to understand whether CEOs identity impacts family firm’s stock returns. From a sample of Portuguese and Spanish family firms findings show that who manages the firms result in significantly different risk exposure. Moreover, we find that the abnormal return found by Fahlenbrach (2009) to founder-controlled firms disappear when we use value- weighted portfolios and include two new factors: market aggregate illiquidity and debt intensity to the four-factor Carhart model. Finally, our results explain why the majority of family firm is controlled by its founder.
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Impact of Family Ownership Concentration on the Firm?s Performance (Evidence from Pakistani Capital Market)

Impact of Family Ownership Concentration on the Firm?s Performance (Evidence from Pakistani Capital Market)

Maury (2006) finds out that in the Western European Countries family control increase firm profitability, whereas legal environment protect minority shareholders against family opportunism. Ben-Amar & Andre (2005) find that a large proportion of Canadian public companies have controlling shareholders (families) that often exercise control over voting rights while holding a small fraction of cash flow rights. This separation of ownership from control rights is achieved through the concurrent use odd dual class voting shares and stock pyramids; While Canada is believed to offer good protection to minority shareholders, dominant shareholders are nevertheless able to obtain private benefit. The study concluded that in an environment with good legal and extra institutions protection minority shareholders where firms need to maintain good relationship with the investment community, the dominant shareholders can add value by the competencies and well played monitoring role. Methodological framework and data
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Pengaruh Family Control, Firm Size, Firm Risk, Dan Firm Life Cycle Terhadap Profitabilitas Dan Nilai Perusahaan Sektor Industri Barang Konsumsi

Pengaruh Family Control, Firm Size, Firm Risk, Dan Firm Life Cycle Terhadap Profitabilitas Dan Nilai Perusahaan Sektor Industri Barang Konsumsi

This study aims to examine the effect of family control, firm size, firm risk, and firm life cycle towards profitability and firm’s value. Sampels were taken from 27 consumer goods companies, listed in Indonesia Stock Exchange, ranging from 2010 – 2012. The hypotheses were tested using multiple regression analysis. In this study, profitability was measured by ROA (Return on Asset) and firm’s value was measured by Tobin’s q. The result were, family control and life cycle stage-growth had negative influence towards profitability and firm’s value while firm size and life cycle stage-mature had positive influence. Firm risk had no influence to both of profitability and firm’s value.
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Innovativeness and family-firm performance: The moderating effect of family commitment

Innovativeness and family-firm performance: The moderating effect of family commitment

Our model specifications include four control variables in order to avoid endogeneity due to omitted variable bias and as a control against potential confounding effects. All control variables were measured in the first wave of the survey. Prior studies have shown that the number of employees may have a systematic impact on a firms ability to develop and launch new products and on firm performance (Bowen et al., 2010; Damanpour et al., 2009). Thus, we use a dummy indicating whether the firm is large (250 employees or more) or medium- sized (50 – 249 employees) in order to provide a control for the effects of firm size. Further, the tenure of family ownership has previously been shown to affect both product development capabilities and firm performance (Pittino and Visintin, 2009). Therefore, we integrated a dummy variable that was assigned a value of 1 if the firm was run by the founding family, and a value of 0 if the firm was run by the second, third, or fourth generation. We also included a measure of the dynamism of the market in which the firm operates, as this has been shown to be a relevant contextual factor for the effectiveness of innovation processes (Davis et al., 2009; Eisenhardt and Tabrizi, 1995; Pisano, 1994). The five items constituting this scale are presen- ted in the Appendix A. Finally, the industry a firm operates in has been identified in earlier studies as a predictor of its ability to develop and launch new products and also of firm per- formance (Bowen et al., 2010; Damanpour et al., 2009). Accordingly, a categorical variable captures five main industry classifications for the sampled firms: manufacturing; con- struction; trade, hospitality, and tourism; transportation, warehousing and telecommunications; and services.
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The Impact of Total Quality Management on Firm s Organizational Performance

The Impact of Total Quality Management on Firm s Organizational Performance

From the table above, employee training and empowerment is found to positively and significantly affect financial performance. That relation looks strong: allocating firm resources to training on quality tools advanced statistical techniques, concepts of quality and firm’s processes may boost profitability. Besides, treating employees as a valuable resource increases their loyalty to the firm, motivates them and makes them proud of their jobs, leading to increases in work effort and performance. It also reduces absenteeism and job turnover and the associated costs. Educated employees will increase quality, reliability, and timely delivery of the products/services. With effective training, employees know the industry and the structure of the firm better. Effective training on quality also increases employees’ skills to work effectively and efficiently. Furthermore, it will improve employees’ loyalty to the firm, their motivation, and work-related performances. Employees’ training on delivering high quality and reliable products and/or services reduces customer complaints. Leadership commitment and quality control and inspection also seem to have a positive impact on financial performance. But that effect is not strong enough to be significant.
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Determinants of Firm Performance in Family Businesses

Determinants of Firm Performance in Family Businesses

Firm performance is measured in four different way, making use of the Return on Equity, Return on Assets, equity ratio, and the liquidity ratio. ROE gives a ratio that measured the business’ net income generated by the use of the equity of the business. The ROE is calculated by taking the net income of the business, divided by the book value of the firm’s equity. ROE is an indicator for the profitability of the business by how much profit can be made with the money of shareholders and is one of the most used accountancy measurements (Maury, 2006; Mazzi, 2011). ROA indicates also the profitability of the business, but calculated in a different way. It is a widely been used accountancy measurement and other studies have used it before (e.g. Ang, Cole, & Lin, 2000; Alfaraih, Alanezi, & Almujamed, 2012) The ROA is calculated by dividing the net income of the business by its average total assets. A higher ROA means that the business is working more effectively with its assets. ROAs ratios of 5% or higher are considered as good, but there are exceptions, specially per type of industry. The equity ratio is calculated as the total equity of the firm, divided by the total assets of the firm. The firm’s equity consist of shareholders fund and the firm’s reserves (e.g. legal or agio). By dividing this number by the value of the total assets of the firm, the outcome is an indicator for the financial leverage of the firm. This is a leverage what compares the assets financed by the shareholders, not by loans. That means that if the leverage, the outcome, is low, most of the assets is paid with the firm’s equity. Shareholders, investors, and banks prefer a low ratio. So for a good image of the firm a low ratio is the aim. Liquidity ratio (current assets divided by total liabilities) explains how well a firm can pays his liabilities immediately. A ratio above 1 indicates that the firm has more equity than debts, so in case of a sudden bankruptcy, the company is able to pay all of its debts, what means that the firm is in financial aspect a healthy company (Bradshaw & Brooks, 2007). The ROA and ROE are more indicators for the profitability, because it is based on the net
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A Control Group Study of Incubators’ Impact to Promote Firm Survival

A Control Group Study of Incubators’ Impact to Promote Firm Survival

Business assistance services (for example, marketing, accounting, human resources) constitute another cornerstone of incubation (Rice, 2002), in order to promote the under- standing of vital day-to-day business processes. These services assist the incubated firms in areas where they do not possess the relevant knowledge and expertise (e.g. Allen and McCluskey, 1990; European Commission, 2002; McAdam and McAdam, 2008). Man- aging resources and expertise, including business experiences, are key factors in identi- fying, combining and exploiting the economic potential of the resource endowment of the firm (Barney, 1991; Mahoney, 1995). A firm’s image, and its reputation, (Fischer and Reuber, 2007), are highly valuable intangible resources (Barney, 1991). Naturally, start-ups and young firms in particular do not possess any kind of reputation or legiti- macy in the market. This might have a negative effect on a variety of business interac- tions – for example, negotiations with suppliers, customers or financing institutions. Ob- taining the benefits of an image associated with an incubator location and acquiring
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Impact of Constructive Marketing Strategies on Return (Revenue & Profitability): A Case Study of Mcdonald?s

Impact of Constructive Marketing Strategies on Return (Revenue & Profitability): A Case Study of Mcdonald?s

McDonald’s introduced “New Tastes Menu” to increase its profit. Such strategy might work in the short run but is not likely to have a sustainable impact in the long run. T he reason being that its rivals will mi mic the strategies and in the long run its abnormal profit will disappear. Need exists to quote a example when si milar chain of events occurred in the year 1978 when McDonald’s successfully introduced a new product called Egg McMuffin in breakfast. In response to this other rivals in the fast -food business introduced their own breakfast items whic h adversely affected McDonald’s economic profits. T herefore, the manager of a firm in a monopolist ically competitive market must evaluate its products periodically to ensure that it is differentiated from other products in the market to compete with its rivals or stay ahead of them. For product differentiation it is advantageous to slightly or totally change or introduce a totally different product from ti me to time. T o have a bigger share of the market such companies spend quite a large on effective advertisements.
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Family firm research – A review

Family firm research – A review

Another important source of potential family entrenchment is the difference between their control rights and cash-flow rights. Villalonga and Amit (2009) show that founding families are the primary type of blockholders to hold control rights in excess of their cash-flow rights in U.S. corporations. Based on 3006 U.S firm-year obser- vations from 515 firms between 1994 and 2000, they find that founding families on average own 15.3% of the shares (cash flow rights), but control 18.8% of the votes in those firms. The wedge is primarily due to the issuance of dual-class shares. For example, Google’s co-founders, Sergey Brin and Larry Page, own super-voting class B shares, which have 10 votes per share. Other high-tech firms, such as Facebook, have similar dual-class structures. Founding owners also obtain disproportionally higher control via disproportionate board representation, voting agreements, and pyramid ownership structures. Such a wedge provides them with the incentive and ability to pur- sue private benefits. While families may take actions that maximize their personal benefit, many of these actions can lead to suboptimal corporate decisions that reduce the value to minority shareholders.
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The indirect impact of the board of directors` composition on the firm`s performance: An international comparison

The indirect impact of the board of directors` composition on the firm`s performance: An international comparison

If this research contributes to the understanding of the determinants of the firm’s performance through R&D investment, it has, however, limits and still leaves many questions about the issue of investment open. In addition to BD roles, which we studied, the model should incorporate external and internal control mechanisms to represent a more complete reality. These mechanisms include: the ownership structure, the financial market, the labour market and the market for goods and services, etc, which have an impact on managerial discretion, and therefore on the choice of R&D investment, creator of value. Finally, we will consider a future theoretical and empirical improvement. It would be interesting to extend the theoretical framework to the contributions of cognitive governance and empirically examine modeling with Tunisian firms.
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Subject(s) to control: post-war return migration and state-building in 1970s South Sudan

Subject(s) to control: post-war return migration and state-building in 1970s South Sudan

The SSNA documents also do not demonstrate any clear processes on the ground; at most, they show the limited reach of the peacetime government. Most people who intended to come back to Sudan independently returned by mid–1973. 71 The “main” reception centres at Nimule, Kaya, and Lasu were in practice “a small hut”, with “a local committee”. 72 The principal impact of the RRRC and WFP projects was the disbursement of cash, food, and tools; an uneven, not necessarily well–targeted, and often poorly–managed process that resulted in some stores containing only cooking oil, or entirely rotten grain. 73 Distribution of the quantities of food aid that did make it outside of the stores at Juba was dependent on the local organisational powers of individual WFP and RRRC employees, chiefs, teachers and teacher–parent associations, women's unions, priests, and students, with concomitant tensions over distribution and corruption. 74
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Return to Computer Use and Organizational Practices of the firm

Return to Computer Use and Organizational Practices of the firm

The consensus in the computer-wage-premium literature appears to be that apart from a small return to experience with the technology, there is no sig- ni…cant return to the use of a computer (see for example chapter 6 in Levy and Murname (2004)). However, some recent results from production func- tion estimation seem to contradict these …ndings. This second approach uses …rm (or industry) level data to estimate production functions, generally within the manufacturing sector (see especially Bartel and Sicherman (1999), Berman, Bound, and Griliches (1994), Doms, Dunne, and Trostke (1997) and Autor, Katz, and Krueger (1998)). The focus of this literature (while initially about the relationship between the use of new technologies, productivity gains and relative demand for quali…ed workers) has recently moved to incorporate the additional impact of the …rm’s organizational practices (Brynjolfsson and Hitt (1995), Bertschek and Kaiser (2001), Black and Lynch (2001), Bresnahan, Bryn- jolfsson, and Hitt (2002), Hitt and Brynjolfsson (2002) and Brynjolfsson and Hitt (2003)).
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Return Differences Between Family and Non-Family Firms: Absolute and Index Differences

Return Differences Between Family and Non-Family Firms: Absolute and Index Differences

(Shack, 2001). Family firms tend to use their capital expansion plans to their advantage thereby ensuring the steady flow of special dividends. However, by ignoring the needs of the business and other shareholders their operating and stock market performance can be affected (DeAngelo & DeAngelo, 2000). Large shareholders tend to exert a lot of control over the company and can use it to their advantage by extracting private benefits. In the event of a potential bid for large block holdings a premium is paid to account for these private benefits. This might dissuade potential bidders and as a consequence reduce firm value (Barclay and Holderness, 1989). Shleifer & Vishny (1997) find that large shareholders often want to be part of management without the requisite qualifications or experience, thus reducing firm value. Managers have the best knowledge of a company’s opportunity set and can take important investment decisions to help the growth of the business. However, in the presence of large shareholders who exert inordinate amount of control over the firm these managerial efforts can be dampened (Burkart, Gromb, & Panunzi, 1997). Binder Hamlyn (1994) 4 undertook a study of the difference between the performance of family firms and their non-family counterparts. The data set included 667 private unquoted firms in the UK over a six year time period (1988-1993). These firms had sales revenue between £2.5 and £25 million. The sales growth and average absolute employment growth is higher for the non-family firms than the family-firms. In fact, the sales growth of non-family firms is four times higher than family firms.
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Family Succession and Firm Performance: Evidence from Italian Family Firms

Family Succession and Firm Performance: Evidence from Italian Family Firms

A very large number of firms around the world is of small size, and these are run by families. Despite this evidence, so far the literature on family firms has focused on large, publicly traded companies, mainly because of the difficulty of obtaining reliable data on smaller firms. With the aim to shed light on this important sector of the economy, a unique dataset containing information on the family successions for a large sample of Italian firms was assembled. The significant presence of small-sized and medium-sized family-run businesses in the Italian manufacturing industry makes the country well suited for an empirical analysis of the impact of family successions. This study may provide more general insights for those countries where the firms’ ownership and management are typically inherited, and cultural values encourage the maintenance of firms inside the founder’s family.
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Family management and firm performance in family SMEs: the mediating roles of management control systems and technological innovation

Family management and firm performance in family SMEs: the mediating roles of management control systems and technological innovation

Following this approach, we overcome the excessive traditional dependence on basic input–output models. In particular, our findings suggest that the utilization of MCS and the attainment of TI mediate the relationship between family management and firm performance. We emphasize that the utilization of MCS can assist in reducing specific agency costs in family-managed firms and in finding the right balance between economic and non-economic goals, improving the attainment of TI outputs and firm performance. Furthermore, we recognize that it is crucial to consider heterogeneity in family firms. Specifically, family management becomes an important attribute that may condition the use of MCS and the occurrence of TI, ultimately influencing firm performance. In short, this study contributes to the debate on the antecedents of performance in family firms, pointing out that firm performance is not dependent only on the firm’s decision to hire family or nonfamily managers but results also show that the utilization of MCS and the achievement of TI are essential to illuminate the performance deviations between family-managed and nonfamily-managed firms and even among family-managed firms because of heterogeneity.
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Family governance and family firm outcomes

Family governance and family firm outcomes

To explain the extent of a family’s influence on family firms, Klein et al. (2005) identify family influence dimensions: power, experience, and culture. According to Chrisman et al. (2005), the power dimension involves sources and amount of authority a family has in a family firm. Experience dimension describes the level and type of family involvement in a family business and the extent to which this involvement lasts through generations. Culture is composed of family members’ values and the extent to which these values shape the organizational values in family firms. Chrisman et al. (2005, p. 244) suggest that these three dimensions indicate "a family’s ability and willingness to influence the direction of a business, as well as the depth to which a family’s influence is likely to have affected business decision making." In the Special Issue, Sanchez-Marin et al. (2016) demonstrate that these family influence dimensions have differential impact on tax aggressiveness tendencies in family firms.
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How Do Family Ownership, Control and Management Affect Firm Value?

How Do Family Ownership, Control and Management Affect Firm Value?

This table reports regression coefficients on family firm dummy variables from different regressions of Tobin’s q on those dummies and several control variables. The family firm dummies take on a value of one only for the family firms in the category indicated in each column heading. Type I family firms have a family-CEO (founder or descendant) and control-enhancing mechanisms such as multiple share classes, pyramids, cross-holdings, and voting agreements. Type II family firms have control-enhancing mechanisms but no family-CEO. Type III family firms have a family-CEO but no control-enhancing mechanisms. Family firms that have a non-family-CEO and no control-enhancing mechanisms are included with non-family firms in the Type IV category. The dependent variable in all regressions is Tobin’s q, except in the industry-adjusted q model. Tobin’s q is measured as the ratio of the firm’s market value to total assets, using Compustat data for both share price and total shares outstanding for companies with one single class of stock. For firms with multiple share classes, proxy data are used for total shares outstanding of all classes of shares (publicly traded and non-tradable). Industry-adjusted q is the difference between the firm’s q and the asset-weighted average of the imputed q’s of its segments, where a segment’s imputed q is the industry average q, and q is measured as the ratio of market value to assets. Industry averages are computed at the most precise SIC level for which there is a minimum of five single-segment firms in the industry-year. All regressions except for the univariate OLS model include the following control variables: Governance index (number of charter provisions that reduce shareholder rights), Non-family blockholder ownership, Proportion of non-family outside directors, Market risk (beta), Diversification, R&D / Sales, CAPX / PPE, Dividends / Book value of equity, Debt / Market value of equity, Log of assets, and Log of age. All regressions except for the univariate OLS model and the industry-adjusted q model also include year dummies for all sample years except 1994. The multivariate OLS regression and the random effects regression also include 52 industry dummies for all two-digit SIC codes in the sample except SIC code no. 1. The treatment effects regressions are estimated, using Heckman’s two-step procedure, as five separate regressions on subsamples that include only the family firms in the category indicated in each column heading, and the 2,015 Type IV (non-family) firms. The first-stage probit model includes all variables listed above as well as Idiosyncratic risk, and excludes the industry dummies that completely determine family ownership for its category. The second-stage equation excludes Idiosyncratic risk and Log of age. The full sample comprises 2,808 firm-year observations from 508 Fortune-500 firms listed in U.S. stock markets during 1994-2000.
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On The Impact Of Firm Size On Risk And Return: Fresh Evidence From The American Stock Market Over The Recent Years

On The Impact Of Firm Size On Risk And Return: Fresh Evidence From The American Stock Market Over The Recent Years

Schwert (2002) came to the same conclusion for the period ranging from 1982 to 2002. His study focuses on the Dimensional Fund Advisor's performances. According to Schwert, the excess monthly return estimator, measured by the Jensen alpha, is set between -0.2% and 0.4%. However, neither of these figures are significantly different to 0. The size effect seems to have disappeared, or at least seems less pronounced than during the period ranging from 1926 to 1982.

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All in the family? CEO choice and firm organization

All in the family? CEO choice and firm organization

Family firms are the most prevalent firm type in the world, particularly in emerging economies. Dynastic family firms tend to have lower productivity, though what explains their underperformance is still an open question. We collect new data on CEO successions for over 800 firms in Latin America and Europe to document their corporate governance choices and, crucially, provide causal evidence on the effect of dynastic CEO successions on the adoption of managerial best practices tied to improved productivity. Specifically, we establish two key results. First, there is a preference for male heirs: when the founding CEO steps down they are 30pp more likely to keep control within the family when they have a son. Second, instrumenting with the gender of the founder’s children, we estimate dynastic CEO successions lead to 0.8 standard deviations lower adoption of managerial best practices, suggesting an implied productivity decrease of 5 to 10%. To guide our discussion on mechanisms, we build a model with two types of CEOs (family and professional) who decide whether to invest in better management practices. Family CEOs cannot credibly commit to firing employees without incurring reputation costs. This induces lower worker effort and reduces the returns to investing in better management. We find empirical evidence that, controlling for lower skill levels of managers, reputational costs constrain investment in better management
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Impact of Financial Factors on Karachi Stock Exchange Listed Firm,s Performance

Impact of Financial Factors on Karachi Stock Exchange Listed Firm,s Performance

We analyze the effect of leverage on corporate operating performance using a panel database of 10,375 firms in 39 countries. Our results show that firms with higher leverage ratios prior to the onset of industry economic distress experience a decline in operating profits consistent with the idea that there are significant indirect costs of financial distress that are greater than the control benefits of debt. However, this conclusion is far from being the same in all countries (González, 2013). In countries with a high level of protection of shareholder rights and a strong system of legal enforcement, there is a negative effect of leverage on corporate operating performance when industries experience poor performance. This effect reveals the predominance of financial distress costs over the benefits of debt. (Víctor M.González, 2013).
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