Abstract
Despite research provides wide evidence that family-controlled firms face underinvestment and low growth problems, literature provides limited insight on what factors are able to incite investment spending in family firms. Building on agency and stewardship constructs as complementary frameworks, this study investigates whether board monitoring and CEO emotional attachment might affect investment spending within family firms. Empirical results show that family-controlled firms invest less than non-family firms. However, findings also show that, within family firms, board independence and the presence of a family CEO have a positive impact on the level of investments.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
The main index used to proxy for financial health is the leverage index. However, when we included the leverage index in the model, problems of multicollinearity arise. Therefore, we replaced the leverage ratio with the solvency ratio, which also captures the level of financial health.
References
Ahn S, Denis DJ, Denis DK (2006) Leverage and investment in diversified firms. J Financ Econ 79(2):317–337. https://doi.org/10.1016/j.jfineco.2005.03.002
Aivazian VA, Ge Y, Qiu J (2005) The impact of leverage on firm investment: Canadian evidence. J Corp Finan 11(1):277–291. https://doi.org/10.1016/S0929-1199(03)00062-2
Bianchi M, Enriques L (1999) Has the 1998 reform of Italian listed company law fostered institutional investor activism? CONSOB, Rome
Brunello G, Graziano C, Parigi BM (2003) CEO turnover in insider dominated boards: The Italian case. J Bank Finan 27:1027–1051. https://doi.org/10.1016/S0378-4266(02)00244-3
Chen HL, Hsu WT (2009) Family ownership, board independence, and R&D investment. Fam Bus Rev 22(4):347–362. https://doi.org/10.1177/0894486509341062
Chrisman JJ, Chua JH, Pearson AW, Barnett T (2012) Family involvement, family influence, and family centered non-economic goals in small firms. Entrepreneurship Theory Pract 36(2):267–293. https://doi.org/10.1111/j.1540-6520.2010.00407.x
Chua JH, Chrisman JJ, Steier LP, Rau SB (2012) Sources of heterogeneity in family firms: an introduction. Entrepreneurship Theory Pract 36(6):1103–1113. https://doi.org/10.1111/j.1540-6520.2012.00540.x
David P, Hitt MA, Gimeno J (2001) The influence of activism by institutional investors on R&D. Acad Manag J 44(1):144–157. https://doi.org/10.5465/3069342
Firth M, Lin C, Wong SM (2008) Leverage and investment under a state-owned bank lending environment: evidence from China. J Corp Finan 14(5):642–653. https://doi.org/10.1016/j.jcorpfin.2008.08.002
Kadapakkam PR, Kumar PC, Riddick LA (1998) The impact of cash flows and firm size on investment: the international evidence. J Bank Finan 22(3):293–320. https://doi.org/10.1016/S0378-4266(97)00059-9
Kaplan SN, Zingales L (1997) Do investment-cash flow sensitivities provide useful measures of financing constraints? Q J Econ 112(1):169–215. https://doi.org/10.1162/003355397555163
La Porta R, Lopez-de-Silanes F, Shleifer A, Vishny R (2000) Investor protection and corporate governance. J Finan Econ 58(1):3–27. https://doi.org/10.1016/S0304-405X(00)00065-9
Lamont O (1997) Cash flow and investment: evidence from internal capital markets. J Finan 52(1):83–109. https://doi.org/10.1111/j.1540-6261.1997.tb03809.x
Melis A (2000) Corporate governance in Italy. Corp Gov Int Rev 8(4):347–355. https://doi.org/10.1111/1467-8683.00213
Miller D, Le Breton-Miller L (2006) Family governance and firm performance: agency, stewardship, and capabilities. Fam Bus Rev 19(1):73–87. https://doi.org/10.1111/j.1741-6248.2006.00063.x
Prat A, Bandiera O, Guiso L, Sadun R (2010) Italian managers: fidelity or performance. In: Boeri T, Merlo A, Prat A (eds), The ruling class: management and politics in modern Italy. Oxford, Oxford University Press. https://doi.org/10.1111/j.1468-0335.2012.00927.x
Prencipe A, Bar-Yosef S, Dekker HC (2014) Accounting research in family firms: theoretical and empirical challenges. Eur Account Rev 23(3):361–385. https://doi.org/10.1080/09638180.2014.895621
Prencipe A, Markarian G, Pozza L (2008) Earnings management in family firms: evidence from R&D cost capitalization in Italy. Fam Bus Rev 21(1):71–88. https://doi.org/10.1111/j.1741-6248.2007.00112.x
Richardson S (2006) Over-investment of free cash flow. Rev Acc Stud 11(2–3):159–189. https://doi.org/10.1007/s11142-006-9012-1
Rizzotti D, Frisenna C, Mazzone R (2017) The impact of family owners’ monitoring on CEO turnover decisions and the role of trust. J Manag Gov 21(3):599–621. https://doi.org/10.1007/s10997-016-9367-z
Röller LH, Tombak MM (1993) Competition and investment in flexible technologies. Manag Sci 39(1):107–114. https://doi.org/10.1287/mnsc.39.1.107
Salvato C, Moores K (2010) Research on accounting in family firms: past accomplishments and future challenges. Fam Bus Rev 23(3):193–215. https://doi.org/10.1177/0894486510375069
Volpin PF (2002) Governance with poor investor protection: evidence from top executive turnover in Italy. J Financ Econ 64(1):61–90. https://doi.org/10.1016/S0304-405X(02)00071-5
Zahra SA (1996) Goverance, ownership, and corporate entrepreneurship: the moderating impact of industry technological opportunities. Acad Manag J 39(6):1713–1735. https://doi.org/10.5465/257076
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 Springer Nature Switzerland AG
About this chapter
Cite this chapter
Frisenna, C., Rizzotti, D. (2020). Family Ownership and Investment Decisions. An Empirical Analysis on the Role of Board Monitoring and CEO Emotional Attachment. In: Leotta, A. (eds) Management Controlling and Governance of Family Businesses. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-030-47741-7_12
Download citation
DOI: https://doi.org/10.1007/978-3-030-47741-7_12
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-47740-0
Online ISBN: 978-3-030-47741-7
eBook Packages: Business and ManagementBusiness and Management (R0)