Academic journal article Journal of Applied Management Accounting Research

CEO-Family vs. CEO-Nonfamily: Who Is a Better Value Creator in Family Business?

Academic journal article Journal of Applied Management Accounting Research

CEO-Family vs. CEO-Nonfamily: Who Is a Better Value Creator in Family Business?

Article excerpt

Introduction

Family enterprises are very dominant in the world, and plays an important role in a country, especially in improving the country's economic growth. The positive contribution of the Family company to the country's economic growth is the growth of GNP. Investors are facing a dynamic and changing international business environment; which forces them to adapt in preparing for inevitability of engaging with family-owned business (Global Business Guide Indonesia, 2016). Family businesses must adapt faster, innovate sooner and become more professional in the way they manage and run their business if they are to remain successful (PricewaterhouseCoopers, 2016). These are just some of the findings of the latest PwC survey of 2,802 family business executives in more than 50 countries worldwide, including Indonesia.

The majority of companies in Indonesia are family companies. Family Businesses in Indonesia have seen a much stronger growth than the global average over the last year; and are very bullish about future growth (PricewaterhouseCoopers, 2016). The Global Business Guide Indonesia Consulting (2016) reported that 95% of local businesses in Indonesia were family owned businesses.

Some of the well-known Indonesian founder-owners of family firms are Lim Sui Liong (owner of Salim group), Abidin (owner of Satnusa group), Achmad Bakrie (owner of Bakrie Group), and Alim Husain (owner of PT. Maspion). These companies are still owned by the founder. Those family owned companies are trying to sustain these businesses to pass to the next generation. In fact, some of Family companies have survivedthe economiccrisis's in 1998 and 2008. It has proved that the existence of Family companies has a positive contribution to regain the national economy condition. One of the keys to sustain these companies is the practice of Good Corporate Governance.

Family business provides a positive contribution in economic improvement in most countries around the world, especially in Asia. Several empirical studies in Asia showed that family companies have a high company value in Hong Kong, Australia, Singapore, Taiwan, China and Indonesia. Family-run enterprises in Indonesia have had a better performance than nonfamily companies. However, there is still little evidence in the research literature to examine the reasons behind this.

Some Family companies are run by family members and others are run by nonfamily members. The available literature indicates that family firms still fail to achieve the level of professionalism in control and decision making on behalf of the company vis-à-vis the founder's personal interests. The Family company appears, in general, to be less skilled in achieving the transition from a traditional management to professional management (Sharma, Chrisman and Chua, 1997).

Previous studies have shown that there are differences in the corporate performance results generated by a CEO which who is one of the family members when compared to the performance generated by a nonfamily member. Some of the Family companies which are run by CEO-Family have been found to be superior than CEO-Nonfamily (Minichilli, Corbetta, and MacMillan, 2010). This is in contrast with the view of Perez-Gonzalez (2006) which states that the Family Company which is run by CEO-nonfamily is better in managing the company than the Family Company run by CEO-family.

The average ownership structure in Indonesia's companies is mostly family owned. This would be detrimental to the minority shareholders because all power in decision-making and control is contained in the company's largest shareholder. If a company is controlled and managed by the Family, it will tend to work to maximize the wealth for itself as owner and manager. Companies managed by the nonfamily members tend to manage the company to pursue its own advantages which may be different interests of the owners. This will cause an agency conflict, which requires good corporate governance to ensure that the management of the company will significantly and positively affect the company's performance. …

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