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Why do family firms switch between family CEOs and non-family professional CEO?

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  • Hyung Cheol Kang
  • Jaemin Kim

Abstract

Purpose - – This study aims to examine whether a switching decision between a family CEO and a non-family professional CEO has a different effect on firm performance and what determines such a decision by family firms. Design/methodology/approach - – This study uses multiple regressions, Probit and univariate analyses, based the sample of family-controlled Chaebol firms in Korea for the 11-year period from 2001 to 2011. Findings - – Evidence found was consistent with the family entrenchment hypothesis: firms experiencing declining Q value are more likely to replace family CEOs with non-family CEOs, and that these firms, having switched to non-family CEOs, exhibit an improvement in firm performance as measured by the change in Q value. On the other hand, for those firms that replace non-family CEOs with family member CEOs, no evidence was found that the switching decision either decreases or increases firm performance. The results of Probit and univariate analyses suggest that firms switching to family CEOs tend to be larger, stock-exchange listed and more “central”, with more cash flow rights held by the controlling families and with relatively more equity holdings in the other affiliated firms of the same Chaebol group. In contrast, firms switching to non-family CEOs tend to be smaller, unlisted and less “central”, with less equity holdings in the other affiliated firms of the same Chaebol group. Originality/value - – This study sheds light on the different value implications and determinants of a decision between “family CEO” and “non-family CEO”.

Suggested Citation

  • Hyung Cheol Kang & Jaemin Kim, 2016. "Why do family firms switch between family CEOs and non-family professional CEO?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 15(1), pages 45-64, February.
    • Handle: RePEc:eme:rafpps:v:15:y:2016:i:1:p:45-64
    DOI: 10.1108/RAF-03-2015-0032
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    Citations

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    Cited by:

    1. Gam, Yong Kyu & Gupta, Paramita & Im, Jieun & Shin, Hojong, 2021. "Evasive shareholder meetings and corporate fraud," Journal of Corporate Finance, Elsevier, vol. 66(C).
    2. Martin R.W. Hiebl & Zhen Li, 2020. "Non-family managers in family firms: review, integrative framework and future research agenda," Review of Managerial Science, Springer, vol. 14(4), pages 763-807, August.
    3. Briano-Turrent, Guadalupe D.C. & Li, Mingsheng & Peng, Hongfeng, 2020. "The impact of family-CEOs and their demographic characteristics on dividend payouts: Evidence from Latin America," Research in International Business and Finance, Elsevier, vol. 51(C).
    4. Waldkirch, Matthias, 2020. "Non-family CEOs in family firms: Spotting gaps and challenging assumptions for a future research agenda," Journal of Family Business Strategy, Elsevier, vol. 11(1).

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