Research Papers

Papers

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2012 Family Governance Report: Sources and Outcomes of Family Conflict

Raphael Amit and Rachel Perl
July 2012
 
In this study, which focuses on family businesses, we investigate the relationship between the family domain and the business domain. More specifically, we examined the sources of conflict among family members, i.e. family conflict, and how this type of conflict affects Top Management Team dynamics. In understanding the source of family conflict, we found that clarity of family business leadership and perceptions of procedural fairness were associated with decreased family conflict. Need norm and equity norm—resources distribution norms which describe how family resources are distributed among family members—were  both associated with increased family conflict. When examining the effect of family conflict on the Top Management Team, we found that family conflict decreases Top Management Team commitment, Top Management Team information sharing and Top Management Team risk-taking propensity.
 
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Family Control of Firms and Industries

Belén Villalonga, Raphael Amit
Autumn 2010

ABSTRACT
We test what explains family control of firms and industries and find that the explanation is largely contingent on the identity of families and individual blockholders. Founders and their families are more likely to retain control when doing so gives the firm a competitive advantage, thereby benefiting all shareholders. In contrast, nonfounding families and individual blockholders are more likely to retain control when they can appropriate private benefits of control. Families are more likely to maintain control when the efficient scale is small, the need to monitor employees is high, investment horizons are long, and the firm has dual-class stock.

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Top Management Teams in Family-Controlled Companies: 'Familiness', 'Faultlines', and Their Impact on Financial Performance
Alessandro Minichilli, Guido Corbetta and Ian C. MacMillan
March 2010

ABSTRACT
This article examines the affect of family management on performance of the company. We examine how familiness can provide further insights beyond the classical demographic measures of top management teams (TMTs) in explaining variations in firms' financial performance. We combine arguments on the 'bright' and 'dark' side of family involvement in the firm; we complement positive predictions on family involvement with negative predictions and develop family firm-specific measures of TMTs' familiness. Results indicate that while the presence of a family CEO is beneficial for firm performance, the coexistence of 'factions' in family and non-family managers within the TMT has the potential to create schisms among the subgroups and consequently hurt firm performance. We find support for a hypothesized U-shaped relationship between the ratio of family members in the TMT and firm performance. Additional evidence related to interactions between firm listing and CEO type on firm performance is then presented and discussed.

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The Role of Institutional Development in the Prevalence and Value of Family Firms
Raphael Amit, Yuan Ding, Belén Villalonga, and Hua Zhang
November 2009

ABSTRACT
We investigate the role played by institutional development in the prevalence and value of family firms, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across the Chinese provinces with homogeneity in cultural norms, law, and regulation. By decomposing family firms into their ownership, control, and management elements, we are able to test the specific predictions of the investor protection and internal markets explanations. Using hand-collected data from publicly listed Chinese firms, we find that, when institutional efficiency is low, family ownership and management increase value, while family control in excess of ownership reduces value. When institutional efficiency is high, none of these effects are significant. We conclude that institutional development plays an important role in the prevalence and value of family firms.

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How are U.S. Family Firms Controlled?
Belén Villalonga, Raphael Amit
August 2008

ABSTRACT
In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash flow rights. We analyze how they achieve this wedge, and at what cost. Indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates any wedge (a pyramid). The primary sources of the wedge are dual-class stock, disproportional board representation, and voting agreements. Each control-enhancing mechanism has a different impact on value. Our findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world.

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Social Wealth Creation via Experimental Entrepreneurial Philanthropy
Ian C. MacMillan
July 25, 2005

ABSTRACT
Governments and philanthropists in the United States and other rich nations spend billions of dollars each year supporting philanthropic causes that attend to the manifold social problems of the world. Some of their effects - perhaps on the order of hundreds of millions of dollars each year - go towards supporting start-up firms and small entrepreneurial businesses, a strategy linked to the belief that the creation and growth of new enterprises fuels the growth of the economy, particularly through employment. To date, however, few people have considered the role that entrepreneurial activity can play beyond improving employment. Based on our research, we contend that such activity can directly confront social problems and create new societal wealth.

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How Do Family Ownership, Control, and Management Affect Firm Value?
Belén Villalonga, Raphael Amit
Journal of Financial Economics 80, pp 385-417. May 2006

ABSTRACT
Using proxy data on all Fortune 500 firms during 1994-2000, we find that family ownership creates value only when the founder serves as the CEO of the family firm or as its Chairman with a hired CEO. Dual share classes, pyramids, and voting agreements reduce the founder's premium. When descendants serve as CEOs, firm value is destroyed. Our findings suggest that the classic owner-manager conflict in non-family firms is more costly than the conflict between family and non-family shareholders in founder-CEO firms. However, the conflict between family and non-family shareholders in descendant-CEO firms is more costly than the owner-manager conflict in non-family firms.

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Funded Projects

The WGFA has helped fund the following research projects on Family Business and Wealth Management:

 » Research projects underway