Family Representatives in Family Firms

Corporate Governance: An International Review, Forthcoming

42 Pages Posted: 22 Feb 2012 Last revised: 7 Nov 2012

See all articles by En-Te (John) Chen

En-Te (John) Chen

Queensland University of Technology; Financial Research Network (FIRN)

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

John Nowland

City University of Hong Kong

Date Written: February 22, 2012

Abstract

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

Chen, En-Te and Gray, Stephen and Nowland, John, Family Representatives in Family Firms (February 22, 2012). Corporate Governance: An International Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2009232 or http://dx.doi.org/10.2139/ssrn.2009232

En-Te Chen

Queensland University of Technology ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
61-7-3864-2658 (Phone)
61-7-3864-1500 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Stephen Gray

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

John Nowland (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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