Family Ownership and Corporate Performance

I Putu Sugiartha Sanjaya; Rayenda Khresna Brahmana; Wimpie Yustino Setiawan

doi:10.29040/jap.v22i2.3202

Family Ownership and Corporate Performance

I Putu Sugiartha Sanjaya, Rayenda Khresna Brahmana, Wimpie Yustino Setiawan

Abstract

The paper aims to investigate whether family ownership as controlling shareholder effect on firm performance. This paper uses ultimate (direct and indirect) ownership to identify a listed firm owned by family or non-family. Family ownership is majority shareholder for listed companies in Indonesia. Family ownership will be good impact (competitive advantage) or bad impact (private benefit) on companies. The study also motivates to study this topic because investigating on family ownership as controlling shareholder is limited in Indonesia. The study uses panel data or pooled data. The method for collecting data is archival. Unit of analysis of the study is organization. Sample of this study is 604 observations during 2001-2007. This study uses purposive sampling to collect data from the Indonesian Stock Exchange. This study collects and searches ultimate ownership on chain of ownership structure in manufacturing companies listed in the Indonesian Stock Exchange. This study uses ultimate ownership to identify family ownership or non-family ownership because the reality of ownership structure in public companies in Indonesia is concentrated. This study identifies direct and indirect ownerships on chain of ownership. Based on direct and indirect, this study can identify ultimate ownership whether are family or non-family ownership. This study uses return on assets to proxy firm performance. The return is operating income. To analysis data, this study uses multiple reggresion model. Dependend variable is firm performance and independen variable is family ownership. The results of this study are family ownership negatively affect to firm performance. It indicates that ownership by family reduce firm performance. These results suggest that entrenchment effect is more dominant than alignment effect on the family ownership. The research focus only for manufacturing industry and data is only from 2001-2007. The results of the study will impact for regulation to lead listed companies have to disclosure the ultimate owner because it is a potential agency problem in Indonesia. The results also give information for potential and existing investor to give more pay attention on financial statements because it is potential to mislead on the statements.

Keywords : Ultimate Ownership, Family, Firm Performance, Entrenchment Effect

Full Text:

PDF

References

Aminadav, G., & Papaioannou, E. (2016). Corporate Control Around the World. NBER Working Paper.

Anderson, R. & Reeb, D.M. (2003). Founding-family ownership and firm performance: evidence from the S&P 500. Journal of Finance. 58 (3): 1301–1308.

Barontini, R., & Caprio, L. (2004). The Effect of ownership structure and family control on firm value and performance: Evidence from Continental Europe. working paper. Universita Cattolica del Sacro Cuore.

Ben-Amar, W., & Andre, P. (2006). Separation of ownership from control and acquiring firm performance: The case of family ownership in Canada. Journal of Business Finance and Accounting. 33 (3-4): 517–543.

Bruton, G., Ahlstrom, D., & Wan, J. (2003). Turnaround in East Asian firms: Evidence from ethnic overseas Chinese communities. Strategic Management Journal. 24 (6): 519– 540.

Burkart. M., Panunzi, F., and Shleifer, A. (2002). Family firms. Working Paper. Harvard University.

Casson, M. (1999). The economics of the family firm. Economic History Review. 47 (1): 10– 23.

Chua, J. H., Chrisman, J.J., & Bergiel, E.B. (2009). An agency theoretic analysis of the professionalized family firm. Entrepreneurship Theory and Practice. 33 (2): 355–371. Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian Corporations. Journal of Financial Economics. 58 (1-2), 81-112.

Claessens, S., Djankov, S., Fan, J., & Lang, H.P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance. 57 (6): 2741–2771.

Davis, J. H., Schoorman, F.D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy Management Review. 22 (1): 20–47.

Davis, P. (1983). Realizing the potential of family business. Organizational Dynamics. 12 (1): 47–56.

Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership causes and consequences. Journal of Political Economy. 93 (6): 1155-1177.

Dharmadasa, P. (2014). Family Ownership and Firm Performance: Further Evidence from Sri Lanka and Japan. International Journal of Asian Business and Information Management. 5 (4): 34-47.

Eshel, I., Samuelson, L., & Shaked, A. (1998). Altruists, egoists, and hooligans in a local interaction model. American economic Review. 88 (1): 157–179.

Faccio, M., & Lang, L.H.P. (2002). The Ultimate ownership of Western European Corporations. Journal of Financial Economics. 65 (3): 365–395.

FASB. (2010). Statement of Financial Accounting Concepts No. 8. the Financial Accounting Foundation. USA.

Febrianto, R. (2005). The Effect of Ownership Concentration on the Earnings Quality: Evidence from Indonesian Companies. Jurnal Riset Akuntansi Indonesia. 8 (2): 105- 120.

Fox, M. A., & Hamilton, R.T. (1994). Ownership and diversification: Agency theory or stewardship theory. The Journal of Management Studies. 31 (1): 69–81.

Hendriksen, E.S., & Breda, M.F.V. (1992). Accounting Theory. 5th edition. Richard D Irwin Inc. USA.

Hoskisson, R. E., Johnson, R.A., & Moesel, D.D. (1994). Corporate divestiture intensity in restructuring firms: Effects of governance, strategy, and performance. Academy of Management Journal. 37 (5): 1207–1251.

Ibrahim, H., & Samad, F.A. (2011). Agency cost, corporate governance mechanisms and performance of public listed family firms in Malaysia. S. Afr. J. Bus. Manage. 42 (3): 17-25.

Im, J., & Chung, Y. (2017). The effects of insider ownership and board composition on firm performance in the restaurant industry. Journal of Hospitality Financial Management. 25 (1): 4-16.

James, H. (1999). Owner as manager, Extended horizons, and family firm. International Journal of the Economics of Business. 6 (1): 41–56.

Jaskiewicz, P., Block, J.H., Combs, J.G., & Miller, D. (2017). The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance. Entrepreneurship Theory and Practice. 41 (1): 73-103.

Jensen, M. C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics. 3 (4): 305–360.

Klein, P., Shapiro, D., & Young, J. (2005). Corporate governance, family ownership and firm value: the Canadian evidence. Corporate Governance. 13 (6): 769-783.

Kresnawati, E. (2007). Pengaruh Konsentrasi Kepemilikan, Penggeseran Risiko dan Pentransferan Sumber Daya terhadap Ekspropriasi Pemegang Saham Minoritas Perusahaan Pengakuisisi: Pengujian Empiris terhadap Pergeseran Konflik Keagenan. Jurnal Riset Akuntansi Indonesia. 10 (2): 147-161.

Kurokawa, M., & Ogawa, H. (2011). The value of Japanese family business: Resilience from many crises in history. FBN 22 International Summit, The Family Business Network. 27-29 October 2011, Singapore.

La Porta, R., De-Silanes, F.L., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance. 54 (2): 471–517.

La Porta, R., De-Silanes, F.L., Shleifer, A., & Vishny, R. W. (2002). Investor protection and corporate valuation. Journal of Finance. 57 (3): 1147-1170.

Lam, T.Y., & Lee, S.K. (2012). Family ownership, board committees and firm performance: evidence from Hong Kong. Corporate Governance. 12 (3): 353-366.

Lubatkin, M. H., Schulze, W.S., Ling, Y., & Dino, R.N. (2005). Commentary: The effects of parental altruism on the governance of family-managed firms. Journal of Organizational Behavior. 26 (3): 313–330.

Masset, P., Uzelac, I., & Weisskopf, J.P. (2019). Family Ownership, Asset Levels, And Firm Performance in Western European Hospitality Companies. Journal of Hospitality & Tourism Research. 43 (6): 867–889.

Masulis, R. W., Pham, P. K., & Zein, J. (2011). Family business groups around the world: Financing advantages, control motivations, and organizational choices. Review of Financial Studies. 24 (11): 3556–3600.

McConaughy, M.L., Walker, M.C., Henderson Jr, G.V., & Mishra, C.S. (1998). Founding Family Controlled Firms: Efficiency and Value. Review of Financial Economics. 7 (1): 1–19.

Morck, R. Stangeland, D.A., & Yeung, B. (2000). Inherited wealth, corporate control and economic growth: The Canadian disease? in R. Morck (ed.), Concentrated Corporate Ownership (National Bureau of Economic Research): 319–369.

Ng, C. Y. M. (2005). An Empirical Study on the relationship between ownership and performance in a family-based corporate environment. Journal of Accounting, Auditing and Finance. 20 (2): 121-146.

Perez-Gonzalez, F. (2006). Inherited control and firm performance. American Economic Review. 96 (5): 1559–1588.

Prabowo, M., & Simpson, J. (2011). Independent directors and firm performance in family- controlled firms: evidence from Indonesia. Asian-Pacific Economic Literature. 25 (1): 121-132.

Reuer, J. J., & Ragozzino, R. (2006). Agency hazards and alliance portfolios. Strategic Management Journal. 27 (1): 27–43.

Saidat, Z., Seaman, C., Silva, M., Al-Haddad, L., & Marashdeh, Z. (2020). Female Directors, Family Ownership and Firm Performance in Jordan. International Journal of Financial Research. 11 (1): 206-219.

Sanjaya, I. P. S. (2010). Entrenchment and alignment effect on earnings management. The Indonesian Journal of Accounting Research. 13 (3): 247-264.

Sanjaya, I. P. S. (2011a). Agency problem in Indonesia: The case of firms in manufacturing industry in Indonesia Stock Exchange. Journal of International Business and Economics. 11 (1): 94-103.

Sanjaya, I. P. S. (2011b). The influence of ultimate ownership on earnings management: Evidence from Indonesia. Global Journal of Business Research. 5 (5): 61-69.

Sanjaya, I. P. S. (2012). The employee stock ownership program phenomena: Evidence from Indonesia. Review of Business and Finance Studies. 3 (2): 9-20.

Schulze, W., Lubatkin, M.H., Dino, R., & Buchholtz, A.K. (2001). Agency relationship in family firms: Theory and evidence. Organization Science. 12 (2): 99–116.

Schulze, W., Lubatkin, M.H., & Dino, R. (2003). Toward a theory of agency and altruism in family firms. Journal of Business Venturing. 18 (4): 473–490.

Septiyanti, R. (2007). Pengaruh Risiko Ekspropriasi pada Hubungan Antara Struktur Corporate Governance dan Pengungkapan Informasi serta Implikasinya pada Nilai Perusahaan. Disertasi. Universitas Gadjah Mada.

Shleifer, A., & Vishny, R. (1986). Large shareholders and corporate control. Journal of Political Economy. 94 (3): 461–488.

Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance. 52 (2): 737–783.

Siregar, B. (2008). Ekspropriasi Pemegang Saham Minoritas dan Struktur Kepemilikan Ultimat. Jurnal Riset Akuntansi Indonesia. 11 (3): 237-263.

Smith, B. F., & Amoako-Adu, B. (1999). Management Succession and Financial Performance of Family Controlled Firms. Journal of Corporate Finance. 5 (4): 341– 368.

Stark, O., & Falk, I. (1998). Transfers, empathy formation, and reverse transfers. American Economic Review. 88 (2): 271–276.

Villalonga, B., & Amit, R. (2006). How Do Family Ownership, Control and Management Affect Firm Value? Journal of Financial Economics. 80 (2): 385–417.

Villalonga, B., & Amit, R. (2010). Family Control of Firms and Industries. Financial Management. 39 (3): 863–904.

Villalonga, B., & Amit, R. (2020). Family ownership. Oxford Review of Economic Policy. 36 (2): 241–257

Weidenbaum, M. 1996. The Chinese family business enterprise. California Management Review. 38 (4): 141–156.

Wellalage, N. H., Locke, S., & Scrimgeour, F. (2012). Does one size fit all? An empirical investigation of board structure on family firms’ financial performance. Afro-Asian Journal of Finance and Accounting. 3 (2): 182–194.

Westhead, P., & Cowling, M. (1998). Family firm research: The need for a methodological rethink. Entrepreneurship Theory and Practice. 23 (1): 31–56.

Yeh, Y. H., & Woidtke, T. (2005). Commitment or entrenchment? Controlling shareholders and board composition. Journal of Banking and Finance. 29 (7): 1857–1885.

Yeh, Y.H., Lee, T.S., & Woidtke, T. (2001). Family control and corporate governance: evidence from Taiwan. International Review of Finance. 2 (1-2): 21-48.

Zahra, S. A. (2005). Entrepreneurial risk taking in family firms. Family Business Review. 18 (1): 23–40.

DOI: http://dx.doi.org/10.29040/jap.v22i2.3202