The governance‐performance relations in publicly listed family controlled firms: an empirical analysis

Purpose – Combining ownership and management might lead concentrated shareholders, such as families, to wealth expropriation. The lack of external monitors and disciplinary agents potentially permits them to pursue this path. Thus, monitoring activity is one of the major drawbacks in family controlled firms. The purpose of this paper is to provide an integrated analysis of the governance roles of various block‐holders, institutional investors and corporate boards in firm performance in the context of publicly‐listed family‐controlled firms. Design/methodology/approach – Using a multi‐industry data set of 208 firms listed on the Milan Stock Exchange (MSE), this study employs the generalized method of moments (GMM) to address the issue of endogeneity on panel data over the period 200‐2006. Findings – The results show that family firms have better accounting performance than non‐family firms. So, active family involvement in management positions seems to reduce managerial opportunism. However, higher accounting performance does not translate into an increase in valuation levels, and thus might not accrue to minority shareholders. Additionally, the results also show an alignment incentive between a coalition of large shareholders (two families) and firm value. Research limitations/implications – This study provides empirical evidence consistent with a block‐holder coalition framework that sustains an incentive alignment effect of the coalition of large shareholders (two families) and the firm value. Additionally, the results also support evidence that board dominance is another channel through which families can extract private benefits. Originality/value – This study contributes to understanding that the family firm performance depends on the efficiency of various governance mechanisms. Thus, it offers insights to policy makers to verify board appointment mechanisms used by family firms. Since external board members might be vetted and approved by the family or other dominant block‐holders, what is the extent of their independence from the dominant owners?