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A Rose by Any Other Name: Are Family Firms Named After Their Founding Families Rewarded More for Their New Product Introductions?

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Abstract

The authors explore the relation between the way different family firms are named, and the shareholder value impact of these firms’ new product introductions. Using an event study of 1,294 product introduction announcements of 107 publicly listed U.S. family firms, the authors find that the presence of the founding family’s name as part of a family firm’s name acts as a valuable firm resource, increasing the abnormal stock returns surrounding the firm’s new product introductions. Superior returns to family-named firms’ new product introductions are partially mediated by these firms’ history of ethical product-related behavior: family-named firms, particularly those with corporate branding, and those wherein a founding family member holds the CEO or chairman position, are more likely to exhibit a history of avoiding such product-related controversies as product safety issues, and deceptive advertising. The authors highlight the managerial and theoretical contributions of this research.

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Notes

  1. This definition has been used by several recent academic studies on family firms such as Anderson and Reeb (2003), Anderson et al. (2003), Villalonga and Amit (2006), Ali et al. (2007), and Kashmiri and Mahajan (2010).

  2. Note that our FN versus NFN classification only applies to family firms. For example EMC, Gap, Molex, and Nike are classified as NFN firms because (1) These firms are family firms given that members of the founding Egan, Fisher, Krehbiels, and Knight families are directors, executive officers or blockholders of these firms respectively, and (2) even though these firms are family firms, they are not named after their founding families. We do not classify firms such as Disney, Procter & Gamble, and McDonald’s as FN firms because although they are named after their founding families, their founding families no longer own or manage them. Thus these firms are not family firms to begin with.

  3. Papers using KLD have appeared in many peer-reviewed journals such as the Journal of Business Ethics, International Journal of Research in Marketing, Academy of Management Journal, Administrative Science Quarterly, Strategic Management Journal, Journal of Management, and Academy of Management Review (e.g., Bird et al. 2007; Bouquet and Deutsch 2008; Brower and Mahajan 2013; Kashmiri and Mahajan 2010; Turban and Greening 1996; Briscoe and Safford 2008; Hull and Rothenberg 2008; Neubaum and Zahra 2006, and Marquis et al. 2007).

  4. Such events include dividend increases and decreases, earnings announcements, earnings forecasts by management, merger activity, stock offerings, stock repurchases, stock dividends, capital expenditure announcements, divestitures, exchange listing of common stock, convertible debt issuance, and change in CEO or in the top management team.

  5. If a firm had more than one founder, we averaged the age of the founders.

  6. The key independent variable family-name presence did not change for any firm over the 3 years preceding the introduction of a focal product. Similarly, corporate branding and family influence did not change for during the period of our observation. For other independent variables, as a robustness check, we used their values three years prior to the year the focal product was introduced. For e.g.., if a product was introduced in 2007, we used the values of the other independent variables such as globalization, diversification, etc., in the year 2004. We did not find any significant change in our overall results.

  7. In these models, the values of the independent variables were measured for the year the new product was announced, since these were the most current values, investors were expected to take into account while reacting to firms’ new product announcements. As a robustness check, we measured these values for the year t − 1 i.e, 1 year prior to the focal product announcement, and found that our overall conclusions remained the same.

  8. Event study methodology treats each event of a firm as independent, and calculates abnormal return of each event of a firm after taking into account the historical stock price of the firm at the time the event took place. Given this inherent assumption of independence of observations as part of the event study methodology, even though some firms had multiple events, we do not report standard errors clustered by firms in the models with abnormal return as the dependent variable (Tables 5, 6). Nevertheless, our main conclusions remain the same even if we analyze errors clustered by firms in those models.

  9. In separate analysis based on the Carhart-4 factor model, we found that for the median market capitalization in our sample at the time of a new product announcement, having a firm name based on the founding family was associated with an additional increase in market capitalization of $19.02 million.

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Acknowledgments

The authors thank Raji Srinivasan, Jade DeKinder, Raghunath Rao, Andrew Henderson, Violina Rindova, and the marketing faculty at University of Texas at Austin, for their insightful comments.

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Authors and Affiliations

  1. Department of Marketing, School of Business Administration, University of Mississippi, Holman 336, University Circle, University, MS, 38677, USA

    Saim Kashmiri

  2. Department of Marketing, McCombs School of Business, University of Texas at Austin, 1 University Station, B6700, Austin, TX, 78712, USA

    Vijay Mahajan

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  1. Saim Kashmiri
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Correspondence to Saim Kashmiri.

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Kashmiri, S., Mahajan, V. A Rose by Any Other Name: Are Family Firms Named After Their Founding Families Rewarded More for Their New Product Introductions?. J Bus Ethics 124, 81–99 (2014). https://doi.org/10.1007/s10551-013-1861-5

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