Who Monitors the Family?

Abstract

Founding families are in unique positions of power and control that enable them to expropriate wealth from minority shareholders. However, recent research suggests that in large publicly trade companies, firms with founding family presence outperform those with more dispersed ownership structures. This raises the question of who monitors the family and alleviates these shareholder-shareholder conflicts. Using the Standard and Poor's 500 firms from 1992 to 1999, we document significant corporate governance differences between family and non-family firms. We find that the salient element in limiting family opportunism in US firms is the relative influence of independent and family directors. Overall, rather than focusing on divergences in family ownership and control as reported in East Asian firms, investors in US firms appear to focus on the presence of independent monitors to counterbalance family influence.

Keywords: ownership, large-shareholders, family firms, boards

JEL Classification: G3