Academic journal article Asian Social Science

Family Involvement in Ownership, Management, and Firm Performance: Moderating and Direct-Effect Models

Academic journal article Asian Social Science

Family Involvement in Ownership, Management, and Firm Performance: Moderating and Direct-Effect Models

Article excerpt


This study aims to provide an empirical evidence on the moderating effect of family involvement in management (family CEO and founder CEO) on the relationship between family ownership and firm's performance. From a sample of 75 public listed companies (375 firm-year observations) in Saudi Arabia, we use a five-year interval (2007-2011) and two firm performance indicators (market to book value (MBV) and return on assets (ROA)) to test five hypotheses. The hypotheses that there is a direct impact of family ownership and founder CEO on ROA and MBV were supported respectively. The hypothetical moderating impact of family CEO and founder CEO have been partially confirmed with MBV. Overall, the findings highlight the importance of occupying CEO positions in family firms by family members, especially the founders for gaining better performance. However, the results are robust when only family firms are examined separately.

Keywords: family business, family ownership, family CEO, founder CEO, firm performance, Saudi Arabia, moderating effect

(ProQuest: ... denotes formulae omitted.)

1. Introduction

The current global economic system is saturated with family businesses, the most common type of business in industrialized as well as developing countries (Astrachan & Shanker, 2003; Zahra & Sharma, 2004). As a result, the topic of family business takes a special place in academicians and practitioners' writings, as evidenced by the amount of research dedicated to it (e.g., Astrachan & Shanker, 2003; Rutherford, Kuratko, & Holt, 2008). On the basis of these activities, family firm performance is considered an important variable in the context of financial and management research (Sacristan-Navarro, Gomez-Anson, & Cabeza-Garcia, 2011) and commonly known as a distinct and important field of study (Walsh, 2007).

Recently, many gaps in family business research have been reported (Collins & O'Regan, 2011). Among these gaps is the link between family involvement and its effect on the performance, which is still under debate (Filatotchev, Lien, & Piesse, 2005). Any current evidence extending knowledge that causes the inconsistent empirical literature is valuable (Sacristan-Navarro et al., 2011), as these inconsistencies have made the link between family involvement in ownership and firm performance more "complex and very probably moderated or mediated by factors..." (Mazzi, 2011, p. 166). Literarily, testing for moderating-effect is called for when contradictory findings surround the relationship between a predictor and criterion, which in turn, opens the question on whether the relationship between the two variables is depending on a third variable ( Dawson, 2013; O'Boyle, Pollack, & Rutherford, 2012; Baron & Kenny, 1986).

Researchers urged to provide a rational answer on the question of the moderation effect. O'Boyle et al. (2012), for example, took the initiative of answering such question by conducting a meta-analysis technique to analyse 78 related articles. They postulate a number of hypothetical moderating effects of some conceptual moderators (i.e., firm type, firm size, and culture) and methodological moderators (i.e., family involvement definition and publication characteristics). Neither the moderating hypotheses nor the direct-effect of family involvement in ownership were supported. However, they suggest future research to examine new moderators on the proposed relationship in order to break down the findings' puzzle. In the same vein, Barth, Gulbrandsen, and Schone (2005) suggested that future researchers concentrate on who runs the firm as opposed to who owns it; many supports have been reported for the impact of family ownership on the firms' performance. One possible explanation for why the results were inconsistent may be related to the lack of understanding of the moderating effect of a family CEO and founder CEO. Jiang and Peng (2011) were the only ones who investigated the moderating effect of family CEOs on the family ownership-firm performance relationship in Asia, in which family CEOs were found to positively moderate the relationship in some countries (e. …

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