Login | Register

Founder as Steward or Agent? A Study of Founder Ownership and Firm Value

Title:

Founder as Steward or Agent? A Study of Founder Ownership and Firm Value

Dawson, Alexandra, Paeglis, Imants and Basu, Nilanjan (2017) Founder as Steward or Agent? A Study of Founder Ownership and Firm Value. Entrepreneurship Theory and Practice . ISSN 1540-6520

[img]
Preview
Text (application/pdf)
Dawson_Paeglis_Basu_2018.pdf - Accepted Version
Available under License Spectrum Terms of Access.
492kB

Official URL: https://doi.org/10.1177/1042258717725522

Abstract

This study addresses the relationship between founder ownership and firm value in young and entrepreneurial businesses. We argue that a stewardship effect prevails when founders have low or high levels of ownership whilst an agency effect prevails at intermediate levels. Using a dataset of 1,269 firms with 11,645 firm–year observations, we find support for our hypothesis that there is a convex relationship between founder ownership and firm value. The agency effect at intermediate founder ownership is consistent with evidence indicating that these firms display lower leverage, greater unrelated diversification, and higher disproportionate board representation.

Divisions:Concordia University > John Molson School of Business > Finance
Concordia University > John Molson School of Business > Management
Item Type:Article
Refereed:Yes
Authors:Dawson, Alexandra and Paeglis, Imants and Basu, Nilanjan
Journal or Publication:Entrepreneurship Theory and Practice
Date:26 September 2017
Funders:
  • Social Sciences and Humanities Research Council of Canada (SSHRC)
  • Desjardins Centre for Innovation in Business Finance
  • Institut de Finance Mathematique de Montreal (IFM2)
Digital Object Identifier (DOI):10.1177/1042258717725522
ID Code:984433
Deposited By: ALEXANDRA DAWSON
Deposited On:20 Sep 2018 20:43
Last Modified:21 Sep 2018 15:48

References:

Adams, R., Almeida, H., Ferreira, D. (2009) Understanding the relationship between founder–CEOs and firm performance. Journal of Empirical Finance 16: 136–150.

Aguilera, R. V., Jackson, G. (2003) The cross-national diversity of corporate governance: Dimensions and determinants. Academy of Management Review 28: 447–465.

Amihud, Y., Lev, B. (1981) Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics 12: 605–617.

Anderson, R. C., Duru, A., Reeb, D. M. (2009) Founders, heirs, and corporate opacity in the United States. Journal of Financial Economics 92: 205–222.

Anderson, R. C., Reeb, D. M. (2003a) Founding family ownership and firm performance: Evidence from the S&P 500. Journal of Finance 58: 1301–1328.

Anderson, R. C., Reeb, D. M. (2003b) Founding family ownership, corporate diversification, and firm leverage. Journal of Law and Economics 46: 653–684.

Anderson, R. C., Reeb, D. M. (2004) Board composition: Balancing family influence in S&P 500 firms. Administrative Science Quarterly 49: 209–237.

Andrews, A. O., Welbourne, T. M. (2000) The people/performance balance in IPO firms: The effect of the Chief Executive Officer’s financial orientation. Entrepreneurship Theory and Practice 25: 93–106.

Aronoff, C. E. (1998) Megatrends in family business. Family Business Review 11: 181–185.

Arthurs, J. D., Busenitz, L. W. (2003) The boundaries and limitations of agency theory and stewardship theory in the venture capitalist/entrepreneur relationship. Entrepreneurship Theory and Practice 28: 145–162.

Barkema, H. G., Penning, J. M. (1998) Top management pay: Impact of overt and covert power. Organization Studies 19: 975–1003.

Bascle, G. (2008) Controlling for endogeneity with instrumental variables in strategic management research. Strategic Organization 6: 285–327.

Basu, N., Dimitrova, L., Paeglis, I. (2009) Family control and dilution in mergers. Journal of Banking and Finance 33: 829–841.

Beggan, J. K. (1991) Using what you own to get what you need: The role of possessions in satisfying control motivation. Journal of Social Behavior and Personality 6: 129–146.

Berger, P. G., Ofek, E., Yermack, D. L. (1997) Managerial entrenchment and capital structure decisions. Journal of Finance 52: 1411–1438.

Berle, A. A., Means, G. C. (1932) The modern corporation and private property, New York: Macmillan.

Bhojraj, S., Lee, C., Oler, D. K. (2003) What’s my line? A comparison of industry classification schemes for capital market research. Journal of Accounting Research 41: 745–774.

Boeker, W., Karichalil, R. (2002) Entrepreneurial transitions: Factors influencing founder departure. Academy of Management Journal 45: 818–826.

Bowen, H. P. (2012) Testing moderating hypotheses in limited dependent variable and other nonlinear models secondary versus total interactions. Journal of Management 38: 860–889.

Bruton, G., Filatotchev, I., Chahine, S., Wright, M. (2010) Governance, ownership structure and performance of IPO firms: The impact of different types of private equity investors and institutional environments. Strategic Management Journal 31: 491–509.

Certo, S. T., Daily, C. M., Cannella, A. A., Dalton, D. R. (2003) Giving money to get money: How CEO stock options and CEO equity enhance IPO valuations. Academy of Management Journal 46: 643–653.

Certo, S. T., Covin, J. G., Daily, C. M., Dalton, D. R. (2001) Wealth and the effects of founder management among IPO-stage new ventures. Strategic Management Journal 22: 641–658.

Chahine, S., Filatotchev, I., Zahra, S. A. (2011) Building perceived quality of founder‐involved IPO firms: Founders effects on board selection and stock market performance. Entrepreneurship Theory and Practice 35: 319–335.

Chen, K. C., Chen, Z., Wei, K. J. (2009) Legal protection of investors, corporate governance, and the cost of equity capital. Journal of Corporate Finance 15: 273–289.

Corbetta, G., Salvato, C. (2004) Self-serving of self-actualizing? Models of man and agency costs in different types of family firms: A commentary on comparing the agency costs of family and non-family firms: Conceptual issues and exploratory evidence. Entrepreneurship Theory and Practice 28: 355–362.

Dalton, D. R., Daily, C. M., Certo, S. T., Roengpitya, R. (2003) Meta-analyses of financial performance and equity: Fusion or confusion? Academy of Management Journal 46: 13–26.

Dalton, D. R., Hitt, M. A., Certo, S. T., Dalton, C. M. (2007) The fundamental agency problem and its mitigation: Independence, equity, and the market for corporate control. Academy of Management Annals 1: 1–64.

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

Demsetz, H. (1983) The structure of ownership and the theory of the firm. Journal of Law and Economics 26: 375–390.

Demsetz, H. (1986) Corporate control, insider trading, and rates of return. The American Economic Review 76: 313–316.

Demsetz, H., Lehn, K. (1985) The structure of corporate ownership: Causes and consequences. Journal of Political Economy 93: 1155–1177.

Denis, D. J., Denis, D. K., Sarin, A. (1997) Agency problems, equity ownership, and corporate diversification. Journal of Finance 52: 135–160.

Durnev, A., Kim, E. H. (2005) To steal or not to steal: Firm attributes, legal environment, and valuation. Journal of Finance 60: 1461–1493.

Elsayed, K. (2007) Does CEO duality really affect corporate performance? Corporate Governance: An International Review 15: 1203–1214.

Evans, D. S. (1987) Reviewed tests of alternative theories of firm growth. Journal of Political Economy 95: 657–674.

Faccio, M., Lang, L. H. P., Young, L. (2001) Dividends and expropriation. American Economic Review 91: 54–78.

Fahlenbrach, R. (2009) Founder–CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis 44: 439–466.

Fama, E. F. (1980) Agency problems and the theory of the firm. Journal of Political Economy 88: 288–307.

Fama, E. F., French, K. R. (1997) Industry costs of equity. Journal of Financial Economics 43: 153–193.

Fama, E. F., French, K. R. (1998) Taxes, financing decisions, and firm value. Journal of Finance 53: 819–843.

Fama, E. F., Jensen, M. (1983) The separation of ownership and control. Journal of Law and Economics 26: 301–325.

Fan, J. P., Wong, T. J. (2002) Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics 33: 401–425.

Filatotchev, I., Wright, M., Arberk, M. (2006) Venture capitalists, syndication and governance in initial public offerings. Small Business Economics 26: 327–350.

Formanek, R. (1991) Why they collect: Collectors reveal their motivations. Journal of Social Behavior and Personality 6: 275–286.

Gomez-Mejia, L., Nunez-Nickel, M., Gutierrez, I. (2001) The role of family ties in agency contracts. Academy of Management Journal 44: 81–95.

Gompers, P. A., Ishii, J., Metrick, A. (2010) Extreme governance: An analysis of dual class firms in the United States. Review of Financial Studies 23: 1051–1088.

Heckman, J. (1979) Sample selection as a specification error. Econometrica 47: 153–161.

Holderness, C., Sheehan, D. (1988) The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of Financial Economics 20: 317–346.

Hoskisson, R. E., Hitt, M. A., Johnson, R. A., Grossman, W. (2002) Conflicting voices: The effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies. Academy of Management Journal 45: 697–716.

Jain, B. A., Tabak, F. (2008) Factors influencing the choice between founder versus non-founder CEOs for IPO firms. Journal of Business Venturing 23: 21–45.

Jayaraman, N., Khorana, A., Nelling, E., Covin, J. (2000) CEO founder status and firm financial performance. Strategic Management Journal 21: 1215–1224.

Jensen, M. C. (1986) Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review 76: 323–339.

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

Johnson, S., La Porta, R., Lopez de Silanes, F., Shleifer, A. (2000) Tunneling. American Economic Review 90: 22–27.

Johnson, B., Magee, R., Nagarajan, N., Newman, H. (1985) An analysis of the stock price reaction to sudden executive deaths: Implications for the management labor market. Journal of Accounting and Economics 7: 151–174.

Kor, Y. Y., Mahoney, J. T. (2000) Penrose’s resource-based approach: The process and product of research creativity. Journal of Management Studies 37: 109–139.

Lane, P. J., Cannella, A. A., Lubatkin, M. H. (1998) Agency problems as antecedents to unrelated mergers and diversification: Amihud and Lev reconsidered. Strategic Management Journal 19: 555–578.

La Porta, R., Lopez-De-Silanes, F., Shleifer, A. (1999) Corporate ownership around the world. Journal of Finance 54: 471–518.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W. (2000) Agency problems and dividend policies around the world. Journal of Finance 55: 1–33.

Larraza-Kintana, M., Wiseman, R. M., Gomez-Mejia, L. R., Welbourne, T. M. (2007) Disentangling compensation and employment risks using the behavioral agency model. Strategic Management Journal 28: 1001–1019.

Lau, D. C., Murnighan, J. K. (1998) Demographic diversity and faultlines: The compositional dynamics of organizational groups. Academy of Management Review 23: 325–340.

Le Breton-Miller, L., Miller, D. (2009) Agency vs. stewardship in public family firms: A social embeddedness reconciliation. Entrepreneurship Theory and Practice 33: 1169–1191.

Lechler, T. (2001) Social interaction: A determinant of entrepreneurial team venture success. Small Business Economics 16: 263–278.

Lewis, M., Brook, J. (1974) Self, other, and fear: Infants reactions to people. In: Lewis, M., Rossenblum, L. S. (eds) The origins of fear, New York, NY: Wiley, pp. 165–194.

Li, K., Prabhala, N. (2007) Self-selection models in corporate finance. In: Espen Eckbo, B. (ed.) Handbook of corporate finance: Empirical corporate finance, Amsterdam: Elsevier.

Litwinski, L. (1947) The psychology of “mine”. Philosophy 22: 240–251.

Manjon-Antolin, M. C., Arauzo-Carod, J. M. (2008) Firm survival: Methods and evidence. Empirica 35: 1–24.

McConnell, J. J., Servaes, H. (1990) Additional evidence on equity ownership and corporate value. Journal of Financial Economics 27: 595–612.

Miller, D., Le Breton-Miller, I., Lester, R. H., Cannella, A. A. (2007) Are family firms really superior performers? Journal of Corporate Finance 13: 829–858.

Morck, R., Yeung, B. (2003) Agency problems in large family business groups. Entrepreneurship Theory and Practice 27: 367–382.

Morck, R. K., Shleifer, A., Vishny, R. (1988) Management ownership and market valuation: An empirical analysis. Journal of Financial Economics 20: 293–315.

Napier, R., Gershenfeld, M. (1993) Groups, theory and experience, Boston, MA: Houghton Mifflin.

Nelson, T. (2003) The persistence of founder influence: Management, ownership, and performance effects at initial public offering. Strategic Management Journal 24: 707–724.

Oswald, S. L., Jahera, J. S. Jr. (1991) The influence of ownership on performance: An empirical study. Strategic Management Journal 12: 321–326.

Pierce, J. L., Kostova, T., Dirks, K. T. (2001) Toward a theory of psychological ownership in organizations. Academy of Management Review 26: 298–310.

Pierce, J. L., Kostova, T., Dirks, K. T. (2003) The state of psychological ownership: Integrating and extending a century of research. Review of General Psychology 7: 84–107.

Ritter, J. (1984) The hot issue market of 1980. Journal of Business 57: 215–241.

Romanelli, E. (1989) Environments and strategies of organization start-up: Effects on early survival. Administrative Science Quarterly 34: 369–387.

Salas, J. M. (2010) Entrenchment, governance, and the stock price reaction to sudden executive deaths. Journal of Banking and Finance 34: 656–666.

Sanders, W. G., Carpenter, M. A. (2003) Strategic satisficing? A behavioral-agency theory perspective on stock repurchase program announcements. Academy of Management Journal 46: 160–178.

Sharma, P. (2004) An overview of the field of family business studies: Current status and directions for the future. Family Business Review 17: 1–36.

Short, H., Keasey, K. (1999) Managerial ownership and the performance of firms: Evidence from the UK. Journal of Corporate Finance 5: 79–101.

Slovin, M. B., Sushka, M. E. (1993) Ownership concentration, corporate control activity, and firm value: Evidence from the death of inside blockholders. Journal of Finance 48: 1293–1321.

Stock, J., Yogo, M. (2005) Testing for weak instruments in IV regressions. In: Andrews, D., Stock, J. (eds) Identification and inference for econometrics models: Essays in honor of Thomas Rothenberg, Cambridge, UK: Cambridge University Press, pp. 80–108.

Stulz, R. (1988) Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics 20: 25–54.

Thomsen, S., Pedersen, T. (2000) Ownership structure and economic performance in the largest European companies. Strategic Management Journal 21: 689–705.

van Essen, M., Carney, M., Gedajlovic, E. R., Heugens, P. P. M. A. R. (2015) How does family control influence firm strategy and performance? A meta-analysis of US publicly listed firms. Corporate Governance: An International Review 23: 3–24.

Villalonga, B. (2004) Does diversification cause the “diversification discount”? Financial Management 33: 5–27.

Villalonga, B., Amit, R. (2006) How do family ownership, control, and management affect firm value? Journal of Financial Economics 80: 385–417.

Villalonga, B., Amit, R. (2009) How are US family firms controlled? Review of Financial Studies 22: 3047–3091.

Walters, B. A., Kroll, M., Wright, P. (2010) The impact of TMT board member control and environment on post-IPO performance. Academy of Management Journal 53: 572–595.

Wasserman, N. (2006) Stewards, agents, and the founder discount: Executive compensation in new ventures. Academy of Management Journal 49: 960–976.

Welbourne, T. M., Andrews, A. O. (1996) Predicting the performance of initial public offerings: Should human resource management be in the equation? Academy of Management Journal 39: 891–919.

Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., Jiang, Y. (2008) Corporate governance in emerging economies: A review of the principal–principal perspective. Journal of Management Studies 45: 196–220.

Zelner, B. A. (2009) Using simulation to interpret results from logit, probit, and other nonlinear models. Strategic Management Journal 30: 1335–1348.

Zwiebel, J. (1995) Block investment and partial benefits of corporate control. Review of Economic Studies 62: 161–185.
All items in Spectrum are protected by copyright, with all rights reserved. The use of items is governed by Spectrum's terms of access.

Repository Staff Only: item control page

Downloads per month over past year

Research related to the current document (at the CORE website)
- Research related to the current document (at the CORE website)
Back to top Back to top