Family Business, Corporate Governance, and Firm Performance

• Author: Praveen Kumar,Alessandro Zattoni
• Date: 01 November 2016
• DOI: http://doi.org/10.1111/corg.12186
• Published date: 01 November 2016

Editorial

Family Business, Corporate Governance, and Firm

Performance

Praveen Kumar and Alessandro Zattoni

Family control is diffused not only among small and me-

dium enterprises, but also among large listed companies

(La Porta, Lopez-de-Silanes, & Shleifer, 1999;Zattoni & Judge,

2012). As ownership structure inf‌luences the most important

decisions in a company (Kumar & Zattoni, 2015; Zattoni,

2011), it is not surprising to see a growing number of studies

aimed at addressing the consequences of family ownership

on f‌irm internalprocesses and policies, and ultimately on f‌irm

performance. In fact, the high concentration of shares in the

hands of one shareholder (or someshareholders tied by family

relationships) makes it particularly intriguing to explore this

topic from a governance perspective.

The extant literature shows that family ownership can pro-

duce both positiveand negative consequencesfor f‌irm perfor-

mance. On the one hand, scholars emphasize that family

shareholders may use their privileged and powerful position

to extract privatebenef‌its of control at the expense of minority

shareholders.For example, they may entrench theircontrol on

corporate assets through control-enhancing mechanisms

(Zattoni, 1999) or may promote related-party transactions to

transfer wealthfrom the f‌irm to the family (Villalonga & Amit,

2006). On the otherhand, the literature arguesthat family con-

trol can have a positive impact on strategies and f‌irm perfor-

mance. For example, the long-term orientation of

shareholderscan allow family companies to accumulatevalu-

able and scarce resources (Habbershon, Williams, & MacMil-

lan, 2003), or the relative freedom from short-term focus on

f‌inancial markets allows them to take strategic decisions that

deviate fromindustry peers (Miller,Le Breton-Miller,& Lester,

2012). Overall, the empirical evidence supports a positive

impact of family control on f‌irm performance, indicating that

the positive implications of familycontrol overcome the nega-

tive ones (Gomez-Mejia, Cruz, Berrone, & de Castro, 2011).

Corporate governance (CG) mechanisms, and above all

boards of directors, may play a crucial role in mitigating

the potential negative consequences of family control and

promoting their positive effects. Empirical evidence shows

that boards of directors of family f‌irms are usually domi-

nated by insiders, i.e., family members or directors having

social ties with them (Gersick, Davis, Hampton, & Lansberg,

1997). From this perspective, the nomination of independent

directors who balance family representation can be a partic-

ularly effective mechanism in mitigating tensions among

majority and minority shareholders and promoting f‌irm per-

formance (Anderson & Reeb, 2004). In addition, boards of

directors of family f‌irms are characterized by high effort

norms and use of knowledge and skills that improve their

ability to perform board control and strategy tasks, and ulti-

mately f‌irm performance (Zattoni, Gnan, & Huse, 2015). At

the same time, they tend to inhibit cognitive conf‌licts and

so may undermine their effectiveness in performing their

tasks (Zattoni et al., 2015).

Recent studies have also contributed to our knowledge

about family business, corporate governance, and f‌irm per-

formance by considering the role of national institutions.

For example, Stevens, Kidwell, and Sprague (2015) show

how family dynamics and na tional institutions m ay explain

family attitudes toward effective stewardship or misappro-

priation of minorities. Jansson and Larsson-Olaison (2015)

underline that family f‌irms are exposed to national-level mar-

ket control mechanisms because their reputation and track

record inf‌luence, positively or negatively, the market value

of the companies they control. Rees and Rodionova (2015)

highlight the point that family-controlled companies tend to

maximize f‌irm f‌inancial value at the expense of corporate so-

cial responsibility outcomes, but this result is contingent on

national institutions as results are different in liberal- and

coordinated-market economies. These studies provide clear

evidence that governance variables –at both national and

f‌irm levels –may play a signif‌icant role in affecting the rela-

tionship between family control and f‌irm performance

(Kumar and Zattoni, 2013; 2016).

The four papers in this issue make signif‌icant contributions

to the CG literature by adding to our knowledge on family

business and their corporate governance practices in particu-

lar. The f‌irst paper by Minichilli, Brogi, and Calabrò investi-

gates the performance of family-controlled f‌irms before,

during, and after the f‌inancial crisis. The authors also aim to

© 2016 JohnWiley & Sons Ltd

doi:10.1111/corg.12186

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Corporate Governance: An International Review, 2016, 24(6): 550–551