Family Representatives in Family Firms
Corporate Governance: An International Review, Forthcoming
42 Pages Posted: 22 Feb 2012 Last revised: 7 Nov 2012
Date Written: February 22, 2012
Prior research on family involvement in family firms has generally focused on the involvement of family members. In this study we use unique hand-collected data from Taiwanese family firms to highlight the role played by family representatives, non-family members employed by the controlling family to represent the shareholdings of other entities within the family business group. We find that family representatives constitute an average of 46% of total family involvement. In addition, we find that families use family members and family representatives differently. Family members are more involved in older family firms and in firms founded by the family. Family representatives are more involved in acquired and second generation family firms, and when more monitoring is required but is not overly difficult. We hypothesise that while both family members and representatives entrench the control of the family, family representatives are less of an agency concern to minority shareholders. Consistent with these expectations, we find that family members have a stronger negative relationship with firm performance than family representatives. This is particularly the case for descendent family member directors and excess family member directors (those that occupy board seats beyond the family’s ownership position). For policymakers and investors, our results suggest that firm performance could be improved by limiting the involvement of family members and family representatives. In particular, restricting the proportion of board seats the family can hold to be proportionate to their ownership position. For academics, our analysis suggests that the results of studies that solely focus on family member involvement are unlikely to be representative of the overall influence that controlling families have in their firms.
Keywords: family firms, family involvement, family members, family representatives, firm performance
Suggested Citation: Suggested Citation