Financial Performance and Non‐Family CEO Turnover in Private Family Firms Under Different Conditions of Ownership and Governance

26 Pages Posted: 18 Sep 2017

See all articles by Francesca Visintin

Francesca Visintin

Università degli Studi di Udine

Daniel Pittino

Università degli Studi di Udine - Department of Economics

Alessandro Minichilli

Bocconi University - Department of Management and Technology

Date Written: September 2017

Abstract

Manuscript Type. Empirical. Research Question/Issue. Family firms, as insider‐controlled companies, should be less likely to exhibit CEO turnover after poor performance and may thus promote enhanced focus on long‐term goals. However, when a non‐family CEO is in charge, the relatively limited empirical evidence is contrasting. Some studies find that only family CEOs are immune from the threat of dismissal following poor financial performance, while other studies show that family firms discipline their CEOs for poor financial performance regardless of their family status. In this work, we try to reconcile these contrasting findings and investigate what ownership and governance conditions influence the owners’ pressure on the CEO to achieve short‐term financial results.

Research findings/insights. Drawing on a longitudinal dataset that covers the entire population of Italian medium and large family companies, we find that when family ownership is concentrated in the hands of few family shareholders or there is a low number of family members involved in the board of directors, non‐family CEOs are less likely to be dismissed after poor performance.

Theoretical/Academic Implications. Our study, adopting the behavioral agency theory as the guiding framework, highlights the importance for governance decisions of the potential goal divergence among principals in closely held ownership structures. Our results also add to the still scant literature on the relationship between family owners and non‐family CEOs.

Practitioner/Policy Implications. Our research suggests that, in the decision to hire a non‐family CEO, family business owners should not only assess their gaps in managerial skills but also carefully consider the ownership structure and family involvement conditions. On the side of professional non‐family managers, our results offer insights on ways to address the employment relationship with the controlling family.

Keywords: Corporate Governance, behavioral agency theory, non‐family CEOs, ownership structure, private family firms

Suggested Citation

Visintin, Francesca and Pittino, Daniel and Minichilli, Alessandro, Financial Performance and Non‐Family CEO Turnover in Private Family Firms Under Different Conditions of Ownership and Governance (September 2017). Corporate Governance: An International Review, Vol. 25, Issue 5, pp. 312-337, 2017, Available at SSRN: https://ssrn.com/abstract=3037234 or http://dx.doi.org/10.1111/corg.12201

Francesca Visintin (Contact Author)

Università degli Studi di Udine ( email )

Via Tarcisio Petracco, Palazzo antonini, 8
Udine, 33100
Italy

Daniel Pittino

Università degli Studi di Udine - Department of Economics ( email )

Via Tomadini 30
33100 Udine
Italy

Alessandro Minichilli

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

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