Board of directors characteristics and performance in family firms and under the crisis

• Date: 05 February 2018
• DOI: https://doi.org/10.1108/CG-01-2017-0010
• Published date: 05 February 2018
• Pages: 119-142
• Author: Elisabete Simões Vieira
• Subject Matter: Strategy,Corporate governance

Board of directors characteristics and

performance in family firms and under

the crisis

Elisabete Simões Vieira

Abstract

Purpose –This paper aims to examinethe relationship between board of directors’characteristics and

performance in family businesses. It offers evidence to the questionof whether a family firm (FF) differs

from a non-familyfirm and looks at the possibility of asymmetricaleffects between periods of stability and

economicadversity.

Design/methodology/approach –A panel data approachwas applied to a sample of Portuguese firms

listedthe on Euronext Lisbon exchange between 2002and 2013.

Findings –The results show thatFFs are likely to have a lower proportion of independentmembers and

higher gender diversity on their boards than non-family firms. FF performance is positively related to

ownership concentrationand gender diversity. There are performance premiums for family businesses,

which have more gender diversity than their counterparts. These effects also depend on whether the

economy is in recession. The evidence suggests that the presence of women on the board and the

leverage and size of theFFs have a more significant impact on the performancein periods of economic

adversity.

Research limitations/implications –One limitationof this study is the small size of the sample as it was

drawn fromthe Euronext Lisbon exchange, a smallstock exchange market.

Originality/value –This study provides input into the academic discussion on corporate governance

and FF, an area which is in need of research. In addition, the authors examinethis issue in conjunction

with generalised economic adversity, focusing on the possible asymmetrical effects that the nature of

the board of directors may haveon performance in periods of stability and those of economic adversity.

The role of board of directorsis crucial to the understanding of corporatebehaviour and the setting of the

policy thatregulates corporate activities.

Keywords Performance, Family firms, Corporate governance, Board of directors, Crisis

Paper type Research paper

1. Introduction

In recent decades, a number of studies have pointed out that many of the world’s listed

companies are family firms (FFs) and that these play an important role in the economy

(Prencipe et al., 2014). Anderson and Reeb (2003),Villalonga and Amit (2006) and Chen

et al. (2008), respectively, found that 35, 37 and 46 per cent of their samples of US firms

may be classified as family businesses.An analysis of 27 countries by La Porta et al. (1999)

revealed that 50 per cent of the sample firms were family-controlled. Several other studies

found similar evidence (Faccio and Lang, 2002;Sraer and Thesmar, 2007;Esterin and

Prevezer, 2011;Culasso et al.,2012).

Agency theory offers a mixed perspective on agency problems in FFs (Setia-Atmaja et al.,

2009) because of the trade-off between the alignment and entrenchment effect (Shleifer

and Vishny, 1997). Interest in corporate governance practices has regained its relevance

Elisabete Simo

˜es Vieira is

Coordinator Professor at

GOVCOPP Unit Research,

Instituto Superior de

Contabilidade e

Administracao da

Universidade de Aveiro,

Universidade de Aveiro,

Aveiro, Portugal.

JEL classification –G30, G32,

C23

Received 10 January 2017

Revised 10 May 2017

19 July 2017

Accepted 21 July 2017

DOI 10.1108/CG-01-2017-0010 VOL. 18 NO. 1, 2018, pp. 119-142, © Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 119

after several companies collapsed during 2001-2002 and the 2008financial crisis. Although

the impact of corporate governanceon business performance has been addressed by both

theoretical and empirical studies, the effect of the nature of the board on firm performance

has not been widely studied andthe results are ambiguous.

Given this context, we wanted to analyse the impact of corporate governance on the

performance of Portuguese FFs and test whether this relationship is the same or different

with regard to other firms. Finally, we focus on the possibility of there being asymmetrical

effects on performance in periods of stability and those of economic adversity. Our panel

data of 63 non-financial Portuguese firms, listed on Euronext Lisbon between 2002 and

2013, show that ownership concentration and board diversity are positively associated with

FF performance. The performance premiums for businesses with more gender diversity on

the board are higher for FFs than they are for non-family firms (NFFs). In periods of

economic adversity, the presence of women on the board, leverage and firm size have a

stronger effect on FF performance.

This paper contributes to the literature on corporate governance in several ways. First, the

board is a key corporate governance mechanism and has supervisory, managerial and

advisory roles (e.g. Fama and Jensen, 1983). Second, it adds to our understanding of the

impact of gender diversity on FF performance, an area that has attracted less attention in

the literature. Third, it analyses whether FFs and NFFs differ with regard to this relationship.

From an investor point of view, it is important to understand whether the effect of corporate

governance on firm performance variesas a function of ownership structure. For regulators,

it is important to analyse corporate governance procedures as part of their work to improve

corporate governance mechanisms. Fourth, the study addresses the Portuguese market,

which, to the best of our knowledge, makes it the first to focus on the effects of corporate

governance on FF performance in Portugal. Although this is a domestic approach, it is of

broader interest because Portugalis characterised by:

na significant number of FFs – around 60 per cent of listed firms in Portugal are family

controlled (Faccio and Lang, 2002;Vieira, 2014);

nlow level of shareholder protection – as the country has a civil law system (La Porta

et al., 1999;Setia-Atmaja et al., 2009); and

nhigh level of ownership concentration.

According to Gonzalez et al. (2017), this makes it a useful environment for testing the affect

that powerful shareholders have on the association between ownership concentration and

dividend payout, over and above the traditional relationship. A concentrated ownership

structure may reduce agency costs between managers and shareholders (Mulyani et al.,

2016). The results from Portugal may well be different from those obtained in countries,

such as the USA and the UK, where outside investors are well protected by the legal

system, the level of transparency is high and equity ownership is relatively dispersed

(Gonza

´lez and Garcı

´a-Meca, 2014). Results from Portugal may offer a different

understanding about the efficiency of corporate governance strategies in institutional

settings that are not Anglo–Saxon in terms of jurisdiction (Kumar and Zattoni, 2013).

Furthermore, the relevance of, and sensitivity to, corporate governance rules have

increased in recent years, so this study should be useful to policymakers by providing new

insights for their strategy development. Additionally, we have applied a market measure to

performance, to see whether this measure is relevant in a country characterised as a bank-

based system with an underdevelopedcapital market.

Finally, the study also focuseson the crisis dimension by examining the effects of corporate

governance on firm performance under bothstable and adverse economic conditions, thus

contributing to our understandingof the role of corporate boards in a crisis. Portugal, as one

of the European countries more seriously affected by the recent financial downturn, makes

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