Tensie Steijvers

Family Firm Types Based on the Professionalization Construct: Exploratory Research

This article responds to the calls from the research field to find effective ways to distinguish between different categories of family firms. The authors contribute to this literature by extending and refining previous family firm typologies. To attain this objective, the authors introduce the professionalization construct as basis for distinguishing family firms. As this construct is often approached in an oversimplified, one-dimensional manner, they first conduct an exploratory factor analysis to reveal its multidimensional nature. Based on these results, drawn from a representative sample of 532 Belgian family businesses, a cluster analysis facilitates a distinction between different “types” of family firms based on a multidimensional conceptualization of firm professionalization.

Collateral and Credit Rationing: A Review of Recent Empirical Studies as a Guide for Future Research

The relationship between firms and banks often suffers from informational opacity that may result in credit rationing. In theory, providing collateral to the bank can have a mitigating effect on these informational asymmetries and thus solve the credit-rationing problem. Even though collateral is already a widespread debt contract feature, recent trends predict that, in the future, collateral will become even more important for informationally opaque firms. The aim of this paper is twofold. First, we provide a review of the recently growing empirical research on collateral as a remedy for credit rationing. Second, we would like to pinpoint gaps and limitations in current empirical research. Most studies contend with a flawed research design by not distinguishing between business and personal collateral and excluding other information opaqueness reducing tools such as the strength of the relationship between borrower and lender, loan maturity and covenants. We also discuss the limitations of using a single equation estimation method and the usefulness of incorporating interaction effects into the estimation models. Finally, we provide suggestions for fruitful research avenues that would fill these gaps and enrich the empirical knowledge in this research domain. Copyright

Private Family Ownership and the Agency Costs of Debt

This article presents empirical evidence on the agency costs of debt in private family firms by examining the explicit (interest rate) as well as implicit (business and personal collateral) bank loan price simultaneously. Using a cross sectional sample of lines-of-credit of the NSSBF database, family firms appear to be more likely to pledge personal collateral which suggests that agency costs of debt are higher in family firms. Hence, personal collateral seems to be a better instrument than interest rates or business collateral for financial institutions to cope with the specific agency problems (e.g. self-control problems and negative effects of parental altruism) in family firms.

The Effect of Organizational Characteristics on the Appointment of Nonfamily Managers in Private Family Firms The Moderating Role of Socioemotional Wealth

This article examines the effect of organizational characteristics (firm innovativeness, firm internationalization, firm size) on the appointment of nonfamily managers in private family firms while taking into account the moderating role of socioemotional wealth (SEW). While these organizational characteristics increase the need for expertise, family firms cope with a limited pool of family managers. Therefore, new creative knowledge from nonfamily managers is needed. However, results from a sample of 145 Belgian family firms indicate that the positive effect of organizational characteristics on the integration of nonfamily managers decreases when family-related objectives reflected by SEW become more important for the firm.

CEO compensation in private family firms: pay-for-performance and the moderating role of ownership and management

Although classical agency theorists claim that pay-for-performance is not relevant in the context of private family firms, the authors provide empirical evidence of the opposite, using a sample of 529 privately held U.S. family firms. The results suggest that objective performance-based measures play a significant role in CEO compensation. Additionally, the authors find that in private family firms CEO compensation is more responsive to firm performance in firms with low ownership dispersion and in the controlling-owner stage. Furthermore, the positive pay-for-performance relation is slightly stronger for nonfamily CEOs than for family CEOs.

The Effect of Family Business Professionalization as a Multidimensional Construct on Firm Performance

In family business literature, business professionalization is often simplified into a binary characteristic, that is, the presence of a nonfamily manager. We contend that other professionalization features, which may act simultaneously, can influence firm performance. This study addresses professionalization as a multidimensional construct, as intended by general management literature, and assesses the impact on business performance based on these underlying dimensions. Using a representative sample of 523 private elgian family businesses, we identify five different dimensions of the professionalization construct by means of an exploratory factor analysis. Further regression results revealed significant positive effects of increasing nonfamily involvement, implementing human resource control systems, and/or decentralizing authority on firm performance. However, nonfamily involvement only seems to improve firm performance if there is sufficient decentralization of authority and an average or even low amount of formal financial control systems.

The determinants of cash holdings in private family firms

We present empirical evidence on traditional and family firm–specific determinants of cash holdings in the under‐researched context of private family firms. We examine, from an agency theoretic perspective, how and to what extent the relation between family firm management and cash holdings is moderated by the ownership structure. Results reveal that descendant CEOs appear to maintain higher cash holdings than founder CEOs. This effect seems to be stronger if there is a low ownership dispersion. Moreover, outside CEOs maintain higher cash holdings than family CEOs if the family firm is owned by a single owner.

Management Control Systems In Family Firms: A Review Of The Literature And Directions For The Future

Family firms play a significant role in the global economy. Although family firm literature has devoted much time and effort to investigating topics concerning corporate governance, leadership, ownership and succession, accounting issues have received relatively scant attention. In this paper, we assemble and critically review extant literature on the choice of management controls. This is an essential topic for firms as management control systems (MCS) are used to make sure subordinates behave in function of the goals of the firm. Family firms, however, have distinct features, such as differences in governance structures and goals, which can have a significant impact on whether and how MCS are used. We conclude this review paper by providing avenues for future research that can advance our understanding of both the determinants and the outcomes of the choice of MCS.

The demand for auditor services in wholly family-owned private firms: the moderating role of generation

Former audit demand studies generally consider wholly family-owned private firms as a homogeneous group of firms that incur minimal agency costs. Family firm literature, however, argues that these firms might incur significant agency costs as well and we therefore examine audit demand in this particular type of firm. As we examine private family firms from the USA, which have no audit requirement, we broaden the concept of audit demand to the demand for auditor services, which encompasses audits, reviews and compilations. Consistent with former audit demand studies, we hypothesise a negative association between management ownership and the demand for auditor services, but only for first-generation private family firms. We hypothesise that this relation turns positive for subsequent generation private family firms due to entrenching behaviour caused by weakened altruistic feelings between the family shareholders. Our results support this hypothesis, but only regarding the demand for reviews and compilations. Therefore, our findings suggest that reviews and compilations seem to be sufficient and more cost-effective in this specific context to mitigate shareholder–manager agency costs compared to more expensive audits. Moreover, results suggest that the level of shareholder–debtholder agency costs do seem to be a driver for the demand for audits.

Tax Aggressive Behaviour in Private Family Firms - The Effect of the CEO and Board of Directors

Tax aggressiveness is defined as downward management of taxable income through tax planning activities which can be legal or illegal or may lie in between. Given that taxes are an important cost for each firm, tax aggressiveness may be desired by its shareholders. In this paper, we investigate to what extent CEO ownership and governance (e.g. composition of the board of directors) affect tax aggressive behavior decisions in private family firms. More specifically, we extend prior knowledge by studying how board’s monitoring behavior may moderate the relationship between the CEO’s involvement in the firm and tax aggressive behaviour of the firm. The data, collected through a private survey, consist of 600 Finnish family and non family SMEs and is a panel with observations from the years 2000-2005. The model is estimated based on robust Ordinary Least Squares estimations including several moderating effects. In this paper, we find that private family firms appear to be less tax aggressive than private non family firms. Even though tax aggressive behaviour provides tax savings and allows the CEO to mask rent extraction (e.g. earnings management, perquisite consumption, excessive salaries…) to the detriment of other shareholders, the non financial costs being the possible reputation damage and loss of socioemotional wealth seem to outweigh the benefits. Within the group of private family firms, results show that family firms with a lower CEO ownership share are more eager to engage in tax aggressive behaviour. This result highlights the importance of the unique agency conflict between the CEO (agent and possibly principal) and (other) shareholders (principals) in determining family firms’ tax reporting. Finally, our results show that the presence of an outside director in the board of directors improves the monitoring effectiveness which reduces the tax aggressive behavior of those private family firms with low CEO ownership shares.