IDEAS home Printed from https://ideas.repec.org/a/taf/ujbmxx/v56y2018i4p618-657.html
   My bibliography  Save this article

Managerial Incentives and Investment Policy in Family Firms: Evidence from a Structural Analysis

Author

Listed:
  • Betty H. T. Wu
  • Mieszko Mazur

Abstract

This paper provides evidence that CEO incentive pay mediates the effect of family preferences on corporate investment policy. Our study focuses on the option portfolio volatility sensitivity vega, which motivates the risk‐taking behavior of undiversified managers. After controlling for factors that affect incentive pay and investment policy simultaneously, we find that one‐third of underinvestment in riskier R&D projects in active family firms can be attributed to a significantly lower vega. Passive family firms allocate more capital to R&D as opposed to active family firms, and are more active in M&A deal making. In contrast to many prior studies, pay incentives and families are not associated with capital expenditures. Overall, our empirical results suggest that CEO pay incentives induce investment policy contingent on firm risk. Family CEO incentive pay manifests the family preference for lower risk, especially in firms with higher firm risk. Nonetheless, after replacing family CEOs with outside professionals, investments in both R&D and M&A increase, which is consistent with the family preference for extended investment horizons. Interestingly, such a preference seems not to be manifested in incentive pay.

Suggested Citation

  • Betty H. T. Wu & Mieszko Mazur, 2018. "Managerial Incentives and Investment Policy in Family Firms: Evidence from a Structural Analysis," Journal of Small Business Management, Taylor & Francis Journals, vol. 56(4), pages 618-657, October.
  • Handle: RePEc:taf:ujbmxx:v:56:y:2018:i:4:p:618-657
    DOI: 10.1111/jsbm.12308
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jsbm.12308
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1111/jsbm.12308?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vivien Lefebvre, 2023. "Turning 30 and myopic? Temporal orientation and the firm lifecycle," Post-Print hal-04563638, HAL.
    2. Danilo Bertoni & Daniele Cavicchioli & Laure Latruffe, 2023. "Impact of business transfer on economic performance: the case of Italian family farms," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 48(2), pages 186-213.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ujbmxx:v:56:y:2018:i:4:p:618-657. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/ujbm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.