Determinant Factors of Founding-Family Firms’ Performance in Indonesia
DOI:
https://doi.org/10.33830/jfba.v1i2.2334.2021Keywords:
Founding-Family Firms, Firms’ Performance, Firm Reputation, Risk-Taking Behavior, Agency CostsAbstract
This research aims to examine the factors that moderate the effect of founding-family firms on performance. Moderating variables include firm reputation, risk-taking behavior, agency costs of managers-shareholders, and agency costs of majority-minority shareholders. Firms' performance includes accounting-based and market-based performance. This research uses 412 manufacturing firm-years listed on the Indonesian Stock Exchange as the research sample. The hypotheses test uses a random-effect regression as the main test and a common-effect regression test as an alternative test. Based on data analysis, firm reputation, risk-taking behavior, agency costs of mangers-shareholders, and agency costs of majority-minority shareholders moderates the effect of the founding family on performance. It indicates that founding-family firms can achieve higher performance if they promote a higher firm reputation, lower risk-taking behavior, and lower agency costs. This research fills the previous findings gap of performance in the founding-family firms. This research captures when founding-family firms can improve performance or experience performance reduction. To the best of the author's knowledge, this research is also the first research that provides a comprehensive picture of determinant factors of founding-family firms' in Indonesia.
References
Alves, C., & Gama, A. (2020). Family Business Performance: A Perspective of Family Influence. Review of Business Management, 22(1), 163–182. https://doi.org/10.7819/rbgn.v22i1.4040
Anderson, R. C., & Reeb, D. M. (2003). Founding-Family Ownership and Firm Performance: Evidence from the S&P 500. The Journal of Finance, 58(3), 1301–1328. https://doi.org/10.1111/1540-6261.00567
Andersson, F. W., Johansson, D., Karlsson, J., Lodefalk, M., & Poldahl, A. (2018). The Characteristics of Family Firms: Exploiting Information on Ownership, Kinship, and Governance Using Total Population Data. Small Business Economics, 51(3), 539–556. https://doi.org/10.1007/s11187-017-9947-6
Andres, C. (2008). Large Shareholders and Firm Performance—An Empirical Examination of Founding-Family Ownership. Journal of Corporate Finance, 14(4), 431–445. https://doi.org/10.1016/j.jcorpfin.2008.05.003
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81–106. https://doi.org/10.1111/0022-1082.00201
Armanto, B., Tiono, K. M., & Suthiono, H. (2014). The Stickiness of Selling, General, and Administrative Costs in the Indonesian Companies. International Research Journal of Business Studies, 7(1), 39–53. https://doi.org/10.21632/irjbs.7.1.39-53
Bambang, M., & Hermawan, M. S. (2012). Founding Family Ownership and Firm Performance: Empirical Evidence from Consumer Goods Industry in Indonesia. Journal of Applied Finance and Accounting, 4(2), 112–131.
Berrone, P., Cruz, C., Gomez-Mejia, L. R., & Larraza-Kintana, M. (2010). Socioemotional Wealth and Corporate Responses to Institutional Pressures: Do Family-Controlled Firms Pollute Less? Administrative Science Quarterly, 55(1), 82–113. https://doi.org/10.2189/asqu.2010.55.1.82
Block, J. (2010). Family Management, Family Ownership, and Downsizing: Evidence from S&P 500 Firms. Family Business Review, 23(2), 109–130. https://doi.org/10.1177/089448651002300202
Cao, Y., Myers, J. N., Myers, L. A., & Omer, T. C. (2015). Company Reputation and the Cost of Equity Capital. Review of Accounting Studies, 20(1), 42–81. https://doi.org/10.1007/s11142-014-9292-9
Chamidah, N., & Asandimitra, N. (2017). The Determinant of Agency Cost in Indonesia. International Journal of Economic Research, 14(1), 449–463.
Chattopadhyay, P., Glick, W. H., & Huber, G. P. (2001). Organizational Actions in Response to Threats and Opportunities. Academy of Management Journal, 44(5), 937–955. https://doi.org/10.2307/3069439
Cheng, Q. (2014). Family Firm Research – A Review. China Journal of Accounting Research, 7(3), 149–163. https://doi.org/10.1016/j.cjar.2014.03.002
Cole, S. (2013). The Impact of Reputation on Market Value. World Economics, 3(3), 47–68.
Craig, J. B., Dibrell, C., & Davis, P. S. (2008). Leveraging Family-Based Brand Identity to Enhance Firm Competitiveness and Performance in Family Businesses. Journal of Small Business Management, 46(3), 351–371. https://doi.org/10.1111/j.1540-627X.2008.00248.x
Damayanti, T., Lindrianasari, Komalasari, A., Dewi, F. G., & Gamayuni, R. R. (2018). Entrenchment Effect and Financial Performance in Indonesia Family Listed Companies. Review of Integrative Business and Economics Research, 7(S2), 152–166.
Deloitte. (2019). Long-Term Goals, Meet Short-Term Drive: Global Family Business Survey 2019. Deloitte Development LLC.
Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying Managerial Ability: A New Measure and Validity Tests. Management Science, 58(7), 1229–1248. https://doi.org/10.1287/mnsc.1110.1487
Doukas, J. A., & Pantzalis, C. (2003). Geographic Diversification and Agency Costs of Debt of Multinational Firms. Journal of Corporate Finance, 9(1), 59–92. https://doi.org/10.1016/S0929-1199(01)00056-6
Dyer, W. G., & Whetten, D. A. (2006). Family Firms and Social Responsibility: Preliminary Evidence from the S&P 500. Entrepreneurship Theory and Practice, 30(6), 785–802. https://doi.org/10.1111/j.1540-6520.2006.00151.x
Faisal, Fachrudin, K. A., & Absah, Y. (2021). Analysis of Effect of Capital Expense Efficiency, Operating Expense Efficiency and Exchange Rate Difference to Financial Performance in PT.Telkomsel. International Journal of Research and Review, 8(2), 155–162.
Fama, E. F., & French, K. R. (2002). Testing Trade-Off and Pecking Order Predictions About Dividends and Debt. Review of Financial Studies, 15(1), 1–33. https://doi.org/10.1093/rfs/15.1.1
Gottardo, P., & Moisello, A. M. (2017). Family Firms, Risk-Taking and Financial Distress. Problems and Perspectives in Management, 15(2), 168–177. https://doi.org/10.21511/ppm.15(2-1).2017.01
Harjito, D. A., Santoso, A. R. C., & McGowan Jr., C. B. (2021). The Effect Of Corporate Governance And Corporate Strategy On Family Firm Performance In Indonesia. Ournal of Applied Business Research, 37(1), 11–16.
Hau, L. L. (2017). Free Cashflow and Firm Performance: Evidence from Sectoral Levels for Vietnamese Listed Firms. International Journal of Advanced Engineering, Management and Science, 3(4), 296–300. https://doi.org/10.24001/ijaems.3.4.2
Hoang, L. D., Tuan, T. M., Nha, P. V. T., Nha, P. V. T., & Phuong, T. T. (2019). Impact of Agency Costs on Firm Performance: Evidence from Vietnam. Organizations and Markets in Emerging Economies, 10(2), 294–309. https://doi.org/10.15388/omee.2019.10.15
Iltas, Y., & Demirgunes, K. (2020). Asset Tangibility and Financial Performance: A Time Series Evidence. Ahi Evran Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 6(2), 345–364. https://doi.org/10.31592/aeusbed.731079
Jabbary, H., Hajiha, Z., & Labeshka, R. H. (2013). Investigation of the Effect of Agency Costs on Firm Performance of Listed Firms in Tehran Stock Exchange. European Online Journal of Natural and Social Sciences, 2(3), 771–776.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), 323–329.
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. https://doi.org/10.1016/0304-405X(76)90026-X
Jiang, F., Jiang, Z., Kim, K. A., & Zhang, M. (2015). Family-Firm Risk-Taking: Does Religion Matter? Journal of Corporate Finance, 33, 260–278. https://doi.org/10.1016/j.jcorpfin.2015.01.007
Juniarti, N. A. (2015). The Negative Impact of Family Ownership Structure on Firm Value in the Context of Indonesia. International Journal of Business and Globalisation, 15(4), 446. https://doi.org/10.1504/IJBG.2015.072517
Kalash, I. (2019). Firm Leverage, Agency Costs and Firm Performance: An Empirical Research on Service Firms in Turkey. Journal of the Human and Social Science Researches, 8(1), 624–636. https://doi.org/10.15869/itobiad.513268
Kalm, M., & Gomez-Mejia, L. R. (2016). Socioemotional Wealth Preservation in Family Firms. Revista de Administração, 51(4), 409–411. https://doi.org/10.1016/j.rausp.2016.08.002
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The Quality of Government. Journal of Law, Economics, & Organization, 15(1), 222–279.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (2000). Agency Problems and Dividend Policies around the World. The Journal of Finance, 55(1), 1–33. https://doi.org/10.1111/0022-1082.00199
Lee, J., & Roh, J. J. (2012). Revisiting Corporate Reputation and Firm Performance Link. Benchmarking: An International Journal, 19(4/5), 649–664. https://doi.org/10.1108/14635771211258061
Levenburg, N. M. (2006). Benchmarking Customer Service on the Internet: Best Practices from Family Businesses. Benchmarking: An International Journal, 13(3), 355–373. https://doi.org/10.1108/14635770610668839
Li, S., & Zuo, X. (2020). Agency Costs in Family Business: A Review. Journal of Service Science and Management, 13(2), 377–387. https://doi.org/10.4236/jssm.2020.132025
Lin, L., & Lin, D. (2013). Agency Costs of Free Cash Flow and Bidders’ Long-run Takeover Performance. Universal Journal of Accounting and Finance, 1(3), 95–102.
Martin-Reyna, J. S., & Duran-Encalada, J. (2015). Effects of Family Ownership, Debt and Board Composition on Mexican Firms Performance. International Journal of Financial Studies, 3(1), 56–74. https://doi.org/10.3390/ijfs3010056
Martin, G., Gómez–Mejía, L. R., Berrone, P., & Makri, M. (2017). Conflict between Controlling Family Owners and Minority Shareholders: Much Ado about Nothing? Entrepreneurship Theory and Practice, 41(6), 999–1027. https://doi.org/10.1111/etap.12236
McKinley, W., Latham, S., & Braun, M. (2014). Organizational Decline and Innovation: Turnarounds and Downward Spirals. Academy of Management Review, 39(1), 88–110. https://doi.org/10.5465/amr.2011.0356
Miller, K. D., & Bromiley, P. (1990). Strategic Risk and Corporate Performance: An Analysis of Alternative Risk Measures. Academy of Management Journal, 33(4), 756–779. https://doi.org/10.2307/256289
Muriithi, J. (2017). Analysis of the Effect of Operating Costs on Financial Performance of Occupational Pension Schemes in Kenya. Research Journal of Finance and Accounting, 8(1), 40–49.
Ntoung, A. T. L., Vila Biglieri, J. E., Outman, B. C., Masárová, E., Babounia, A., & Kome, C. M. (2017). Family Firms and Performance Empirical Analysis from Spain. Corporate Ownership and Control, 14(4), 380–395. https://doi.org/10.22495/cocv14i4c2art4
Olaniran, O., Namusonge, G. . S., & Muturi, W. (2016). The Role of Risk-taking on Performance of Firms on Nigerian Stock Exchange. International Journal of Research in Business Studies and Management, 3(3), 36–44.
PricewaterhouseCoopers. (2019). Family Business Survey 2018: Indonesia Report. PriceWaterhouseCoopers LLP.
Sageder, M., Mitter, C., & Feldbauer‐Durstmüller, B. (2018). Image and Reputation of Family Firms: A Systematic Literature Review of the State of Research. Review of Managerial Science, 12(1), 335–377. https://doi.org/10.1007/s11846-016-0216-x
Saidat, Z., Bani-Khalid, T. O., Al-Haddad, L., & Marashdeh, Z. (2020). Does Family CEO Enhance Corporate Performance? The Case of Jordan. Economics & Sociology, 13(2), 43–52. https://doi.org/10.14254/2071-789X.2020/13-2/3
Sánchez, M. G., & de Vega, M. E. M. (2018). Corporate Reputation and Firms’ Performance: Evidence from Spain. Corporate Social Responsibility and Environmental Management, 25(6), 1231–1245. https://doi.org/10.1002/csr.1634
Sanjaya, I. P. S. (2016). Impact of Cash Flow Right Leverage of Controlling Shareholder on Performance in Indonesia. Jurnal Akuntansi, XX(3), 363–374.
Setia-Atmaja, L., Tanewski, G. A., & Skully, M. (2009). The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms. Journal of Business Finance & Accounting, 36(7–8), 863–898. https://doi.org/10.1111/j.1468-5957.2009.02151.x
Simamora, A. J. (2021). Managerial Ability in Founding-Family Firms: Evidence from Indonesia. International Journal of Productivity and Performance Management, ahead-of-p(ahead-of-print). https://doi.org/10.1108/IJPPM-07-2020-0388
Singh, M., & Davidson III, W. N. (2003). Agency Costs, Ownership Structure and Corporate Governance Mechanisms. Journal of Banking & Finance, 27(5), 793–816. https://doi.org/10.1016/S0378-4266(01)00260-6
Sitthipongpanich, T. (2017). Family Ownership and Free Cash Flow. International Journal of Managerial Finance, 13(2), 133–148. https://doi.org/10.1108/IJMF-06-2014-0088
Staw, B. M., Sandelands, L. E., & Dutton, J. E. (1981). Threat Rigidity Effects in Organizational Behavior: A Multilevel Analysis. Administrative Science Quarterly, 26(4), 501–524. https://doi.org/10.2307/2392337
Susanto, A. B., Wijanarko, H., Susanto, P., & Mertosono, S. (2007). The Jakarta Consulting Group on Family Business. The Jakarta Consulting Group.
Tabor, W., Chrisman, J. J., Madison, K., & Vardaman, J. M. (2018). Nonfamily Members in Family Firms: A Review and Future Research Agenda. Family Business Review, 31(1), 54–79. https://doi.org/10.1177/0894486517734683
Tsai, H.-F., & Luan, C.-J. (2016). What Makes Firms Embrace Risks? A Risk-Taking Capability Perspective. BRQ Business Research Quarterly, 19(3), 219–231. https://doi.org/10.1016/j.brq.2016.01.002
Vieira, E. F. S. (2014). The Effect on the Performance of Listed Family and Non-Family Firms. Managerial Finance, 40(3), 234–253. https://doi.org/10.1108/MF-06-2013-0134
Vieira, E. F. S. (2020). The Earnings Announcements Consequences in Public Family Firms. International Journal of Banking, Accounting and Finance, 11(1), 71. https://doi.org/10.1504/IJBAAF.2020.104484
Warta Ekonomi. (2014). Ini 20 Perusahaan Paling Dikagumi Versi Fortune. WartaEkonomi.Co.Id. https://www.wartaekonomi.co.id/read26863/ini-20-perusahaan-paling-dikagumi-versi-fortune
Warta Ekonomi. (2015). Inilah Pemenang “Indonesia Most Admired Companies 2015.” WartaEkonomi.Co.Id. https://www.wartaekonomi.co.id/read53551/inilah-pemenang-indonesia-most-admired-companies-2015
Yung, K., & Chen, C. (2018). Managerial Ability and Firm Risk-Taking Behavior. Review of Quantitative Finance and Accounting, 51(4), 1005–1032. https://doi.org/10.1007/s11156-017-0695-0
Zahra, S. A. (2018). Entrepreneurial Risk Taking in Family Firms: The Wellspring of the Regenerative Capability. Family Business Review, 31(2), 216–226. https://doi.org/10.1177/0894486518776871
Zattoni, A., Gnan, L., & Huse, M. (2015). Does Family Involvement Influence Firm Performance? Exploring the Mediating Effects of Board Processes and Tasks. Journal of Management, 41(4), 1214–1243. https://doi.org/10.1177/0149206312463936
Zhang, W., & Cao, L. (2016). Family Involvement, Internal Control and Agency Costs – Evidences from China’s listed Family Firms. Perspectives in Science, 7, 45–51. https://doi.org/10.1016/j.pisc.2015.11.009
