The Impact of Labor on the Performance of Founder-Family Firms

Journal of Financial Research, Vol. 47, 2024

Posted: 15 Jun 2021 Last revised: 20 May 2024

See all articles by Murali Jagannathan

Murali Jagannathan

SUNY at Binghamton - School of Management

Brett W. Myers

Texas Tech, Rawls College of Business

Xu Niu

James Madison University - College of Business

Date Written: October 17, 2023

Abstract

Firms managed by the scions of founders continue to be prevalent in the United States despite the increase in shareholder activism over the last few decades, calling into question the argument that such organizational structures reduce firm value. Founder-family successions are rare in high-growth industries where the benefits of selecting from a larger pool of managers is significant. Rather, they tend to happen in low-growth industries, in manufacturing/retail firms. Once we account for the differences in firm characteristics, we do not find that founder-family successions reduce firm value. We explore a mechanism that compensates for the costs of choosing from a smaller pool of managers and document evidence consistent with family firms benefiting from improved labor relations.

Keywords: founding family firm, family CEO succession, operating performance

JEL Classification: G32, G34

Suggested Citation

Jagannathan, Murali and Myers, Brett W. and Niu, Xu, The Impact of Labor on the Performance of Founder-Family Firms (October 17, 2023). Journal of Financial Research, Vol. 47, 2024, Available at SSRN: https://ssrn.com/abstract=3865081 or http://dx.doi.org/10.2139/ssrn.3865081

Murali Jagannathan

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-4639 (Phone)

Brett W. Myers

Texas Tech, Rawls College of Business ( email )

Lubbock, TX 79407
United States

Xu Niu (Contact Author)

James Madison University - College of Business

Harrisonburg, VA 22807
United States

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