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Are US Family Firms Subject to Agency Problems? Evidence from CEO Turnover and Firm Valuation
Xia Chen, University of British Columbia
Qiang Cheng, University of British Columbia
Zhonglan Dai, University of Texas at Dallas
ABSTRACT. This paper investigates the impact of the founding family’s presence on the extent of agency problems related to CEO turnover decisions and on firm valuations after poor performance. We hypothesize that the agency problem arising from the expropriation by large shareholders in family CEO firms and the agency problem arising from the separation of ownership and control in non-family firms lead to a lower CEO turnover-performance sensitivity, compared to professional CEO family firms (family firms managed by a hired CEO outside the founding family). Professional CEO family firms are subject to lesser agency problems due to the separation of family ownership and management as well as the founding family’s monitoring of management. The empirical findings are consistent with our predictions. We further find that the more severe agency problems in family CEO firms and non-family firms manifest themselves in lower firm value after poor performance, relative to professional CEO family firms.
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