Founder Control, Opacity and Value Creation in Family Firms

51 Pages Posted: 28 Jun 2016 Last revised: 1 Dec 2020

See all articles by Wei Hsu

Wei Hsu

University of Texas at Arlington - Department of Accounting

Yvonne Lee

University of Texas at Arlington - Department of Accounting

Nandu J. Nagarajan

University of Texas at Arlington

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Date Written: August 4, 2017

Abstract

The extant literature on family-controlled firms in the U.S. presents a mixed picture on how family control affects opacity and value creation. In this study, we show that the mixed results arise from the differences among family firms with regard to the presence of founders and the extent of decision rights held by them. Specifically, we find that family firms in which founders are present and have significant decision rights (influence), are more transparent and have higher valuations, compared to similar non-family firms. In further analysis, we show that founders improve the operating efficiency of their firms and this partly explains the additional value creation in founder firms. We find all these effects to be stronger when founders have greater decision rights (influence). In contrast, non-founder family firms are more opaque than their non-family counterparts. Furthermore, we document cross-sectional variations in the impact of Founder-CEOs on opacity and value based on their tenure and horizon. For Founder-CEOs, firm opacity increases (decreases) and value decreases (increases) with founder tenure (founder horizon).

Keywords: Founder, Family firm, Opacity, Firm Value

JEL Classification: G3, M41

Suggested Citation

Hsu, Wei and Lee, Yvonne and Nagarajan, Nandu J. and Srinidhi, Bin, Founder Control, Opacity and Value Creation in Family Firms (August 4, 2017). Available at SSRN: https://ssrn.com/abstract=2801713 or http://dx.doi.org/10.2139/ssrn.2801713

Wei Hsu

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

Yvonne Lee

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

Nandu J. Nagarajan

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

Bin Srinidhi (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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