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Are family ownership and control in large firms good, bad, or irrelevant?

Asia Pacific Journal of Management volume 28, pages 15–39 (2011)Cite this article

Abstract

Family ownership and control play an important role in large firms in Asia. There is a puzzle regarding the relationship between concentrated family ownership and control on the one hand and firm performance on the other hand. Three positions suggest that such concentration may be good, bad, or irrelevant for firm performance. This article reports two studies to shed further light on this puzzle. Study 1 uses 744 publicly listed large family firms in eight Asian countries (Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand) to test competing hypotheses on the impact of family ownership and control on firm performance. On a country-by-country basis, our findings support all three positions. On an aggregate, pooled sample basis, the results support the “irrelevant” position. Using 688 firms in the same eight countries, Study 2 endeavors to answer why Study 1 obtains different results for different countries. We theorize and document that Study 1 findings may be systematically associated with the level of (minority) shareholder protection afforded by legal and regulatory institutions. Study 2 thus provides critical insights on a cross-country, institution-based theory of corporate governance.

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Notes

  1. The third mechanism, shares with superior voting rights, is popular in Europe and Latin America (Khanna & Yafeh, 2007). But it is not commonly used in Asia (La Porta et al., 1999), and thus is not considered here.

  2. Among major Asian economies, only China and Japan are omitted. China is not included because most listed firms there are state-owned and family ownership and control of large listed firms are very rare (Luo, Wan, & Cai, 2011; Peng, 2004; Wang & Judge, 2011; Wu, Xu, & Phan, 2011). However, most recently family-owned firms have been listed (Ding, Zhang, & Zhang, 2008). Japan is excluded because as the only developed economy in the region, Japan has the highest percentage of professional managers heading its large firms (Claessens et al., 2000: 92). Also, given the size of the Japanese economy and the disproportionate amount of attention on Japan by researchers, there is a potential issue that including Japan may bias the aggregated results across Asia (Heugens et al., 2009).

  3. In South Korea, a number of leading members of prominent business families have been jailed since 1997.

  4. “What is the best way to avoid losing out as a minority shareholder in Asia?” Two prominent consultants answer in an influential book on Asian business, Big in Asia, “Don’t be one” (Backman & Butler, 2003: 235).

  5. Judicial efficiency is the assessment by Business International Corporation of “the efficiency and integrity of the legal environment as it affects business” (La Porta et al., 1998: 1124). Rule of law and corruption, assessed by International Country Risk Services, focuses on the law and order tradition of the country. Corruption is the extent of corruption in the government—particularly the extent to which businesses have to pay bribes (La Porta et al., 1998). All of these measures are calculated well before the 1997 Asian financial crisis.

  6. However, this contrast is not as strong in some “mid-range” countries, such as Thailand. Although La Porta et al. (1998: 1130) classify Thailand as a common law country, the CIA World Factbook (2005) suggests that Thailand has a civil law system “with influences of common law.” Thus, it is not surprising that the findings out of Thailand are not as strong in either direction as those out of Hong Kong or Indonesia.

  7. While the institutional origins variables advocated by La Porta et al. (1998) have been influential, there is some debate regarding their validity (Davis, 2005; Rajan & Zingales, 2003).

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Authors and Affiliations

  1. College of Business and Economics, California State University, East Bay, 25800 Carlos Bee Boulevard, Hayward, CA, 94542, USA

    Yi Jiang

  2. School of Management, University of Texas at Dallas, Box 830688, SM 43, Richardson, TX, 75083, USA

    Mike W. Peng

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  1. Yi Jiang
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Correspondence to Yi Jiang.

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This research was initiated when both authors were at the Ohio State University. It was supported in part by a National Science Foundation CAREER Grant (SES 0552089) and UTD Provost’s Distinguished Professorship. All views and errors are ours and not those of the underwriters. This article draws on a major portion of SSRN Working Paper “Family Ownership and Control in Large Firms: The Good, the Bad, the Irrelevant—and Why” by Peng and Jiang (Abstract No. 938173, also posted as the University of Michigan William Davidson Institute working paper no. 840). Earlier versions were presented at AOM (New Orleans, August 2004), SMS (Orlando, October 2005), AIB/JIBS Research Frontiers Conference (San Diego, December 2006), HEC Montreal, HKU, HKUST, Illinois, LSE, NUS, Ohio State, Rice, UT Dallas, UT El Paso, and Western Washington—the last presentation supported by the Saturna Capital Scholar-in-Residence Program in May 2008. Most recently, it was presented at the APJM Special Issue Conference at Simon Fraser University in October 2009. We thank S. Globerman and D. Shapiro (Guest Editors) for editorial guidance, R. Aguilera, A. Ali, M. Anderson, R. Bagozzi, K. Brouthers, L. Brouthers, H.-J. Chiu, T. Day, A. Delios, G. Dess, S. Estrin, E. Gedajlovic, R. Kieschnick, C. Konstans, A. Kriauciunas, K. Law, J. Lawler, S.-H. Lee, M. Leiblein, J. T. Li, A. Low, K. Meyer, R. Murray, C. Pan, S. Radhakrishnan, T. Roehl, Y.-S. Su, and H. Yeung for helpful comments. K. Oh, R. Pinkham, and S. Sauerwald provided assistance. A portion of the data used was collected by L. Lang and colleagues at the Asian Corporate Governance Archival Data Center, Chinese University of Hong Kong, for which we are grateful.

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Jiang, Y., Peng, M.W. Are family ownership and control in large firms good, bad, or irrelevant?. Asia Pac J Manag 28, 15–39 (2011). https://doi.org/10.1007/s10490-010-9228-2

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Keywords

  • Family ownership
  • Family firms
  • Institution-based theory of corporate governance
  • Principal-principal conflicts