Family Representatives in Family Firms

22 Pages Posted: 9 Apr 2013

See all articles by En‐Te Chen

En‐Te Chen

affiliation not provided to SSRN

John Nowland

City University of Hong Kong

Stephen Gray

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

Manuscript Type. Empirical. Research Question/Issue. Family control in family firms can extend beyond the direct involvement of family members, but identifying these mechanisms is difficult in most markets. We utilize unique disclosures made by Taiwanese firms to examine the role played by family representatives in listed family firms. Family representatives are non‐family members that represent the controlling family's indirect shareholdings in the firm. We examine whether family representatives are used in the same manner as family members and whether they provide net benefits or costs to shareholders. Research Findings/Insights. In our sample of listed family firms, we find that omitting family representatives understates the influence of controlling families by 46 percent. We show that family representatives are associated with net costs to shareholders, but to a lesser extent than family members. We also find that controlling 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 in larger firms with more fixed assets. Theoretical/Academic Implications. We apply agency theory to the use of family representatives and show that family representatives are being used by controlling families to extend their influence within their firms, increasing agency costs to minority shareholders. Practitioner/Policy Implications. For policymakers, our analysis shows that disclosure of family member and representative relationships within firms is important and value‐relevant to investors. Furthermore, our results suggest that firm performance could be improved by limiting the involvement of family members and family representatives in family firms.

Keywords: Corporate Governance, Family Firms, Family Members, Family Representatives, Firm Performance

Suggested Citation

Chen, En‐Te and Nowland, John and Gray, Stephen, Family Representatives in Family Firms (May 2013). Corporate Governance: An International Review, Vol. 21, Issue 3, pp. 242-263, 2013. Available at SSRN: https://ssrn.com/abstract=2247213 or http://dx.doi.org/10.1111/corg.12009

En‐Te Chen (Contact Author)

affiliation not provided to SSRN

John Nowland

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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

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