家族所有權、經營權、控制權對集團企業經營績效與創新之影響 - 政大學術集成

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(1)國立政治大學科技管理與智慧財產研究所博士學位論文. 家族所有權、經營權、控制權對集團企業經營績效與創新之影響. 政治大. The Research of How Family Ownership, Control, and Management Affect Firms’ Performance and Innovation. 立. ‧. ‧ 國. 學 er. io. sit. y. Nat. n. 指導教授：溫肇東、沈榮欽 a v 博士. i l C n h e n g c h i U撰研究生：莊皓鈞. 中華民國一○四年六月十一日.

(2) 謝辭為了滿足自我對於學術的好奇，我於 2006 年進入了政治大學科技管理研究所就讀（2013 年改名為：科技管理與智慧財產研究所）。博士班的第一堂策略課，是由法國 INDEAD 畢業、任教於加拿大 York University 的沈榮欽老師（Jung-Chin Shen, York University）教授，他除了教授經典理論外，還介紹了新興的研究議題，包括家族企業、政商關係與集團企業。這類研究議題始於 1999 年 La Porta 等學者的研究，他們發現由家族或國家所控制的企業在全世界屬大多數，而所謂的現代企業則僅盛行於英國及美國，這開啟了我的研究視野。. 政治大團企業研究」資料（自 1972 年起）與「台灣經濟新報（TEJ）」的「公司治理」與立「集團企業」資料。在解讀、取得正確的資料上，我非常感謝 TEJ 徐郁婷小姐的協. 為瞭解台灣大型企業的發展策略與創新策略，著手收集「中華徵信所」歷年來的「集. ‧ 國. 學. 助。在創新方面，我也開始整理台灣大型企業在美國專利局（United States Patent and Trademark Office, USPTO）申請獲准的專利資料，並結合上述兩項資料庫做為我的. ‧. 博士論文的基礎。. y. Nat. 在研究過程中，沈老師提供了相關理論以及可能的統計分析工作，但缺乏實務經驗. sit. 的我，在理論建構上一直無法突破，最後是在我另一位指導老師溫肇東老師不斷地. n. al. er. io. 鼓勵，以及他所提供的實務線索下，而得以完成此份論文。. Ch. i n U. v. 在這漫長地研究路途上，我最感謝的是家人們默默地、無怨無悔地支持。除此之外，. engchi. 在我最低潮的時候，教導我如何面對自我的吳靜吉博士，對我的幫助更是不在話下；他幫助我建立自信，讓我能勇敢地堅持至完成學業。除此之外，我還必須感謝平常一同研討學術的高鴻翔、楊志常（Ken）兩位常常與我互相吐嘈求進步的同學，另外，楊燕枝學姐、胡欣怡學妹及游銘仁學弟，在研究上也常常提供我新的想法與知識，謝俊怡學弟對於我的人生方向也提供了許多建設性的建議。最後，所上的陳翠娥女士及溫老師的兩大得力助手周莉薇小姐及胡君華小姐，她們除了提供我行政上的協助外，也常常給我關懷。沒有這些人的一路相陪，我相我是無法完成學業。要感謝的人太多，恕我無法一一列舉。我對培育我成長的政大科管所只有無限的感激。.

(3) 中文摘要從企業績效來看，在需持續創新、風險與產業技術複雜性較高的電子業，家族企業若聘用專業經理人經營，企業績效較差，反之，在產業技術變化性與風險較低的傳統產業，家族企業聘用專業經理人經營，反而企業績效較佳，這顯示，在面臨高度風險的環境時，家族企業中經營權與所有權的分離才會導致代理問題。同樣地，在電子業中，家族企業的控制權與所有權分離程度越高，企業績效越差，反之，在傳統產業中，家族企業控制權與所有權分離程度越高，企業績效反而越佳。這個結果顯示，在需持續創新、風險與產業技術複雜性較高的產業中，家族企業必須同時面. 政治大從企業對創新這類風險性投資的策略來看，本論文的研究結果顯示，經營權與所有立權合一，企業所有者有能力及意願監督經營者，這將有助於企業投入較多的創新。. 臨兩種代理問題。. ‧ 國. 學. 反之，在控制權與所有權分離的情況下，因為投資的大部分是其他人的錢，企業的最終控制者能將創新的風險分散給外部股東，而較有意願投入創新。而家族控制者. ‧. 本身，因其規避風險的特質，而對上述兩類對創新有正向影響的治理機制有負向的調節效果（moderate）。但對家族成員而言，創新有助於企業的長期競爭優勢為了. Nat. sit. y. 家族的永續發展，在經營企業上應該會採取長遠觀點（long-term perspective），而. er. io. 有意願投入創新，為了解開這個難題，本研究進一步將創新分為利用型創新（exploitative innovation）及開創型創新（explorative innovation）兩類，分析結果發. n. al. Ch. i n U. v. 現，家族企業雖然投入創新的數目較少，但在比例上有較多是較開創的創新，這個. engchi. 結果顯示，家族企業雖然害怕風險，但相對於非家族企業仍較具有長期經營的觀點並較具開創性。關鍵字：家族企業、所有權結構、公司治理、企業績效、創新策略. I.

(4) ABSTRACT This dissertation concerns the effects of different governance structures on firms’ performance and innovativeness in business groups.. In the first study, the ambivalent needs of control and growth of family firms in business group are explored. This study finds that in general, the excess control rights and controlling shareholdings will increase firms’ performance. In addition, family firms with. 政治大 electronic industry. Lastly, active control, namely family members control management 立. such control structures will perform better in non-electronic industry while worse in. ‧ 國. 學. and chairman at the same time, will perform better in electronic industry while worse in non-electronic industry.. ‧. The second study focuses on comparing family and non-family group affiliated firms’. Nat. sit. y. incentives to do innovations in different governance structures. Adopting behavior agent. n. al. er. io. model, we propose that although family group affiliated firms are less innovativeness. i n U. v. than non-family group affiliated firms in general, they have larger share of exploratory. Ch. engchi. innovation than non-family firms. The empirical results support our hypotheses. However, in contrast to traditional agency perspective, the separations between ownership and control rights facilitate firms’ innovativeness. This finding may originate in pyramid ownership structure.. Keywords: Family business, ownership structures, corporate governance, firm performance, innovation strategies. II.

(5) Table of Contents. Preface ..................................................................................................................................... I 1.. 2.. Introduction: Family control, Performance and Innovation ....................................1 1.1. Family-controlled firm and performance ......................................................2. 1.2. Family-controlled firm and Innovation .........................................................5. How Do Family and Control Structures Affect Group Affiliated Firms’. Performance ............................................................................................................................8. 2.2. 2.4. Conclusion And Implication .........................................................................30. y. Nat. How Do Family Ownership, Control, and Management Affect Group-affiliated. sit. 3.. Results .............................................................................................................29. ‧. 2.5. Data And Methods .........................................................................................20. 學. 2.3. 政治大 Theory And Hypotheses ................................................................................10 立. Introduction ......................................................................................................8. ‧ 國. 2.1. n. 4.. al. er. io. Firms’ Innovativeness? ........................................................................................................40. i n U. v. 3.1. Introduction ....................................................................................................40. 3.2. Theory And Hypotheses ................................................................................43. 3.3. Data And Methods .........................................................................................50. 3.4. Results .............................................................................................................58. 3.5. Discussion And Conclusion ...........................................................................61. Ch. engchi. The Pros and Cons of Professional Managers and Other People’s Money: Final. Thoughts ................................................................................................................................64. I.

(6) Tables .....................................................................................................................................33 Table 1 研究架構 ......................................................................................................... IV Table 2-1 Variations in three control mechanisms .........................................................33 Table 2-2 Descriptive statistics Correlations ..................................................................34 Table 2-2 Descriptive statistics Correlations (Cont’d) ...................................................35 Table 2-3 the effects of different control-enhancing mechanisms on firm value of group-affiliated firms (Hausman and Taylor model)......................................................36. 政治大 group-affiliated firms in high-tech industries (Hausman and Taylor model) .................37 立 Table 2-4 the effects of different control-enhancing mechanisms on firm value of. ‧ 國. 學. Table 2-5 the effects of different control-enhancing mechanisms on firm value of group-affiliated firms in low-tech industries (Hausman and Taylor model) ..................38. ‧. Table 2-6 the summary of the effect of different control-enhancing mechanisms on firm performance ....................................................................................................................39. sit. y. Nat. io. er. Table 3-1 Time invariant test for control rights..............................................................67. al. iv n C Table 3-2 Descriptive statistics hCorrelations e n g c (Cont’d) h i U...................................................69 n. Table 3-2 Descriptive statistics Correlations ..................................................................68. Table 3-3 ZINB models for the effects of family, business group structures, and governance structures on group-affiliated firm innovation ............................................70 Table 3-4 Hausman-Taylor model for the effects of family on share of exploration and exploitation in innovation ...............................................................................................71 Table 3-4 Hausman-Taylor model for the effects of family on exploratory and exploitive innovations (Cont’d) ......................................................................................72. II.

(7) Table 3-5 Hausman-Taylor model for the effect of governance structures on exploratory and exploitative innovations in non-family group affiliated firms .................................73 References .............................................................................................................................75. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. III. i n U. v.

(8) PREFACE 家族企業與非家族企業的發展差異，可歸因於其控制者或經營者對企業本身存在不同的認知：對家族成員而言，企業通常是家族財富的主要來源，為確保長期擁有此一財富，家族成員在投資經營上，會傾向於以保有對企業的「控制」權為主要原則，而專業經理人為了確保個人職位及津貼，反而會較著重於企業的財務績效。Chandler 將前者這類以個人或家族控制為主的經濟形態稱為「家庭資本主義（ family capitalism）」，代表性的經濟體為英國。他發現英國企業因控制家族不願意失去對. 政治大. 企業的控制權或經營權，而避免對外募集資金或採用專業經理人經營企業，於是導. 立. 致英國企業未能發展成所謂的「現代化企業（Modern Industrial Corporation）」、達. ‧ 國. 學. 到經濟規模，這也成了戰後英國產業發展不如美國的主因。. ‧. 上述觀察意味著專業經理人主導的現代化企業是較佳的組織形式，然而，近期的研. y. Nat. 究卻顯示，家族企業在全世界中仍屬多數，即使在美國，也有 1/3 的大型企業屬於. er. io. sit. 家族企業，甚至美國的實證研究結果更發現，這些企業中，家族企業的經營績效優於非家族企業。由於前述的研究結果是以已公開發行股票的企業為樣本（S&P 500），. n. al. Ch. i n U. v. 這些企業都是能利用資本市場並受市場監督的家族企業，因此本研究猜想，是不是. engchi. 採行適當治理模式的家族企業，會表現得比非家族企業更佳？另一方面，沿續 Chandler 的觀點，引入外部資金及外部專業人才等做法，雖有益於家族企業的達到經濟規模與引進人才，但進一步來看，企業的投資規模與對專業經理人的需求也可能會因其所在的產業而有差異，如引進專業經理人也可能帶來代理問題，台塑企業王文潮1在面對媒體詢問接班問題曾表示：「不少國外企業的專業經. 1. 商業周刊，第 1428 期，2015/03/25 I.

(9) 理人為了講求營運績效，都是在玩數字遊戲，甚至到最後把經營權拱手讓人。」，這個問題在技術複雜度高、變化快速的電子業，可能會更嚴重，如寶成、奇美進軍電子業採行專業經理人制，但成效不佳，另外，電子業的投資規模相對於傳統產業更高，因此，本研究分析了不同產業的家族企業採用自有資金、外部資金及外部專業經理人對企業經營績效的影響，並比較了這些因素對家族企業與非家族企業的影響。除此之外，一般咸認為創新能為企業帶來長期競爭優勢，因此本論文進一步探討影. 政治大. 響家族企業創新的因素。雖然，從企業的觀點出發，企業能透過創新來獲得長期競. 立. 爭優勢，但投資於創新相對於資本設備的投資風險更高，創新所需要的專業知識又. ‧ 國. 學. 往往非家族成員所能掌握，甚至在投資創新團隊時，為了吸引技術團隊的加入，家族控制者必須捨棄部分控制權，上述種種因素都使得家族企業較不願意創新。反之，. ‧. 企業做為家族的主要財富來源，其發展好壞將直接影響家族繁盛與否，基於家族的. sit. y. Nat. 長遠發展與自身的利益，家族成員應有意願從事有利於企業長期發展的投資，如創. n. al. er. io. 新。因此，本論文的第二部分，聚焦於探討家族企業的創新策略，分析家族企業如何克服其風險偏好而得以投資創新。. Ch. engchi. i n U. v. 從代理理論觀點來看，引入外部專業人才及外部資金等做法雖然能為企業帶來競爭力，但同時也為企業帶來嚴重的代理問題。在引入外部專業人才方面，家族企業採用專業經理人後，就使得經營權與所有權產生分離，當家族股東無法有效監督專業經理人時，經理人為鞏固自身的地位，往往會做出違反股東利益的決策。另一方面，大型家族集團企業公開發行、募集資金時，往往會透過金字塔結構或交叉持股等控制機制（control-enhancing mechanisms），來確保家族對企業的控制權，在控制權與. II.

(10) 所有權分離的情況下，反而帶來使用他人的錢（other people’s money）的問題，而產生內部股東剝削外部股東的疑慮。進一步來看，產生代理問題的主因在於代理關係中行動者雙方對風險的偏好不同。傳統代理理論假設企業的所有權人風險中立，外部經理人則傾向規避風險，這使得彼此追求的利益不同，而導致利益衝突。另一方面，在所有權與控制權分離的問題上，過去理論雖然並未明確假設內部股東與外部股東的風險偏好差異，但目前家族企業的研究顯示，家族控制股東較外部股東不偏好風險，他們為維護家族財富. 政治大. （Socioemotional Wealth Preservation），會採取不利企業發展的決策。因此，本研. 立. 究認為治理結構本身不會帶來代理問題，企業進行風險決策的時候才會發生代理問. ‧ 國. 學. 題：在高風險情境下，代理關係中行動者雙方因對風險偏好不同，外部經理人（或家族控制者），出於自身利益考量而做出不利於家族股東（或外部股東）的決策，. ‧. 因此導致了代理問題。據此，本論文提出 Table 1 所示之研究架構。. y. Nat. io. sit. 實證上本論文分析結果應證了上述論點。從企業績效來看，在需持續創新、風險與. n. al. er. 產業技術複雜性較高的電子業，家族企業若聘用專業經理人經營，企業績效較差，. Ch. i n U. v. 反之，在產業技術變化性與風險較低的傳統產業，家族企業聘用專業經理人經營，. engchi. 反而企業績效較佳，這顯示，在面臨高度風險的環境時，家族企業中經營權與所有權的分離才會導致代理問題。同樣地，在電子業中，家族企業的控制權與所有權分離程度越高，企業績效越差，反之，在傳統產業中，家族企業控制權與所有權分離程度越高，企業績效反而越佳。這個結果顯示，在需持續創新、風險與產業技術複雜性較高的產業中，家族企業必須同時面臨兩種代理問題。. III.

(11) 從企業對創新這類風險性投資的策略來看，本論文的研究結果顯示，經營權與所有權合一，企業所有者有能力及意願監督經營者，這將有助於企業投入較多的創新。反之，在控制權與所有權分離的情況下，因為投資的大部分是其他人的錢，企業的最終控制者能將創新的風險分散給外部股東，而較有意願投入創新。而家族控制者本身，因其規避風險的特質，而對上述兩類對創新有正向影響的治理機制有負向的調節效果（moderate）。但對家族成員而言，創新有助於企業的長期競爭優勢為了家族的永續發展，在經營企業上應該會採取長遠觀點（long-term perspective），而. 政治大（exploitative innovation）及開創型創新（explorative innovation）兩類，分析結果發立有意願投入創新，為了解開這個難題，本研究進一步將創新分為利用型創新. 現，家族企業雖然投入創新的數目較少，但在比例上有較多是較開創的創新，這個. ‧ 國. 學. 結果顯示，家族企業雖然害怕風險，但相對於非家族企業仍較具有長期經營的觀點. ‧. 並較具開創性。. n CORPORATE GOVERNANCE STRUCTURES •. Controlling shareholders’ ownership. •. Owner Manager /Professional manager. •. Ch. engchi U. y. sit. io. al. FAMILY/ NON-FAMILY. er. Nat. TABLE 1 研究架構. v ni. FIRM VALUE •. In electronic industries. •. In non-electronic Industries. INNOVATION • •. Excess control rights. IV. Patent counts Exploitation /Exploration.

(12) 1. INTRODUCTION: FAMILY CONTROL, PERFORMANCE AND INNOVATION A firm’s investment behavior which is strongly influenced by its owners’/decision makers’ financial logic will affect its performance and long-term advantage. Since family members are reluctant to cede control to professional managers and prefer to hold majority stocks in their firms which are managed by themselves, the basic goals and. 政治大 families and cede the way to 立go public to raise capital necessary to exploit the growth. governance structure of these firms are designed to provide a steady flow of cash to their. ‧ 國. 學. opportunities (Chandler, 1977).. ‧. Alfred Chandler (1990), in his classic book “Scale and Scope: The Dynamics of Industrial Capitalism”, observed that British firms, practically owned by families owned. y. Nat. io. sit. and less professional in management, are less likely to take the risks of investment. n. al. er. needed to achieve the economies of scale and scope. Based on this observation, he. i n U. v. attributed British failures to fail to develop organizational competitiveness through. Ch. engchi. investment in production, distribution, and management necessary to exploit economies of scale and scope (Teece, 1993) and described this case as “personal capitalism,” as opposed to the more progressive “managerial capitalism” in the United States.. Similarly, evidence from U.S. also show that families are more likely to preserve their control rights of a firm when the efficient scale is small (Villalonga & Amit, 2010). Gallo, Tapies, and Cappuyns (2000) also found that Spanish families are risk-averse and fear for 1.

(13) losing control of their firms, which impede them to seize the opportunity for growth and development.. As discussed above, different owner identities display varying financial logic inherently. However, until now, so-call “family effect” in these researches mixes up family firms’ financial logic, governance, and other contingencies. In order to shed light on the differences in performance and innovativeness between family and non-family firms, we need to separate family effect from different types of control structure. Our focus on. 政治大. Taiwan business groups gives us the advantage to identify different types of ultimate. 立. controllers and control structure, by which we can distinguish the sources of firm. ‧ 國. 學. performance and innovativeness between family and non-family firms.. ‧. 1.1 FAMILY-CONTROLLED FIRM AND PERFORMANCE. Nat. sit. y. Family firms as the most common type of organization around the world still dominant. n. al. er. io. the world economy (Claessens, Djankov, & Lang, 2000; Faccio & Lang, 2002; La Porta,. i n U. v. Lopez-de-Silanes, & Shleifer, 1999). For example, among listed Western European firms,. Ch. engchi. the percentage of family firms is around 44% (Faccio & Lang, 2002) and more than half of listed firms In East Asia are controlled by families (Claessens et al., 2000). Even in the United States, the representative of the competitive managerial capitalism described by Chandler, there is one third of S&P 500 and Fortune 500 firms owned by families (Anderson & Reeb, 2003). Since the separation between ownership and control rights are common among family firms worldwide, the presence of large family firms can attribute to the exercise of control-enhancing mechanisms (Morck & Yeung, 2003; Villalonga & 2.

(14) Amit, 2006). Through a variety of control-enhancing mechanisms, families can control a firm without making a commensurate capital investment (Claessens et al., 2000; Villalonga & Amit, 2010); this allows family firms to go public to raise fund from the capital market.. Nevertheless, the separation between ownership and control can lead to so-called principal-principal agency problems (Claessens, Djankov, Fan, & Lang, 2002; Morck, Wolfenzon, & Yeung, 2005; Villalonga & Amit, 2006). Different from traditional agency. 政治大. problems, this kind of agency problems stem from the conflict of interest between family. 立. and non-family shareholders. High separation between ownership and control gives. ‧ 國. 學. family shareholders the incentives to pursue private benefits at the expense of outside shareholders and then impair firm value. Principal-principal agency problems are. ‧. ubiquitous (La Porta et al., 1999). Although the consequences of which varies with. Nat. sit. y. different regimes of minority shareholder protection (e.g. Claessens, Fan, & Lang, 2006;. er. io. Maury, 2006; Amit & Villalonga, 2006), Villalonga and Amit (2009) still find that, even. al. n. iv n C U among family firms. h e n garecalso between family and non-family shareholders h iprevailing. in the United States, control-enhancing mechanisms which may cause the conflict. Therefore, for the inclination to maintain control or pursue private benefit at the cost of firms’ profitability (Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Morck & Yeung, 2003), family firms are supposed to perform worse than non-family firms. Gomez-Mejia, Nunez-Nickel, and Gutierrez (2001) demonstrate that family owners can’t effectively monitor their CEOs when there are family ties between them. Schulze, Lubatkin, Dino, and Buchholtz (2001) also exhibit that, without agency 3.

(15) control mechanism, nepotism and noneconomic preferences in family firms will cause serious agency problem which harm firm value.. On the other hand, families still have incentives to maximize firm value since firm welfare are associated with family’s wealth (Anderson & Reeb, 2003) and reputation (Bertrand & Schoar, 2006). In addition, their lengthy tenure confer them longer investment horizon which can help avoid managerial myopia. From this perspective, family will, by contrast, promote firm value. Empirical evidences from most large or. 政治大. listed family firms show that they perform better, at least, not worse than non-family. 立. firms (e.g. Anderson and Reeb, 2003; Corstjens, Peyer, & Van der Heyden, 2006; Maury,. ‧ 國. 學. 2006; Sraer and Thesmar, 2007).. ‧. To address the controversial issue discussed above, Villalonga and Amit (2009) further investigate the effect of different types of control-enhancing mechanisms on firm value.. y. Nat. er. io. sit. Similarly, Maury (2006) try to scrutinize family effect by separating active family control, in which the family members are involve in management or policy-making in the. n. al. Ch. i n U. v. enterprise, from passive family control. Villalonga and Amit (2009) find that only. engchi. dual-class stock and disproportionate board representation negatively impact firm value. Based on the data from 13 Western European countries , Maury (2006) exhibit that family control not only mitigates conflict of interest between owner and manager but also raises principal-principal agency problems. Accordingly, whether or not family control is beneficial depends on different types of control. (Dyer, 2006; Villalonga & Amit, 2009). However, Maury (2006) also shows that family firms with higher level of divergence between control rights and ownership have lower market value in non-financial industries, 4.

(16) but the financial industries exhibit the opposite result. His finding implies that the influence of the possible connection between environmental fit and family control may be significant. Therefore, our research question is when and how do different ways for family to control a firm affect group affiliated firms’ value?. Dyer (2006) argues that the obscure mechanism between family control and firm performance can be disentangled when the family effect or preference per se is isolated from firm governance and other common variables affecting firm performance. Since. 政治大. families’ wealth is strongly and directly linked to their firms’ welfare, family owners are. 立. potentially more risk-averse than well-diversified shareholders. Nevertheless, family. ‧ 國. 學. controlled firms are still advantageous in certain industries. Villalonga and Amit (2010) argue that families “are more likely to retain control when doing so gives the firm a. ‧. competitive advantage.” They further demonstrate that family firms are prevalent in. Nat. sit. y. industries where efficient scale is small, with less skilled employees, and lower risk (e.g.. er. io. profit volatility). Gallo et al. (2000) also describes similar differences. Since certain. al. n. iv n C U logic and the difference in h epreference effect can be used as a proxy for family n g c hori financial. industries are more attractive for families to initial an enterprise (Dyer, 2006), industry. preference between family and non-family firms can be imputed to the interaction between family effect and industry.. 1.2 FAMILY-CONTROLLED FIRM AND INNOVATION Family controllers are an impediment to innovation. A firm’s investment logic is strongly influenced by controller preferences (Anderson, Duru, & Reeb, 2012; Gallo et al., 2000). 5.

(17) Compared with professional managers, family managers are more risk-averse, and since innovative projects are generally regarded as high-risk (Holmstrom, 1989; Lee & O'Neill, 2003), family controllers are reluctant to bet their reputation and wealth on them (Dyer & Whetten, 2006). Consequently, family firms are often less innovative than non-family firms. Some empirical evidence supports this argument. For example, Anderson et al. (2012) found that family firms commit less of total investment to R&D expenditure than non-family firms and receive fewer patent citations than non-family firms with the same level of R&D spending.. 立. 政治大. In addition, concentrated control rights may also give inside controlling shareholders the. ‧ 國. 學. powers and incentives to misallocate resources for their private benefits and then cause obstacles to raising funds necessary for innovation (Battaggion & L., 2001;. ‧. Ortega-Argiles, Moreno, & Caralt, 2005). Therefore, family controllers are more likely to. Nat. n. al. er. io. members regard the firm as their wealth (Schulze et al., 2001).. sit. y. sacrifice economic performance for their socio-emotional wealth when such family. Ch. i n U. v. However, the long-horizon orientation and continuous commitment of family controllers. engchi. to their firms may lead to more engagement in innovations. Since family members regard the firm as their wealth, they are particularly concerned about their firm’s long-term performance and survival. Therefore, they have the motivation to engage in more long-term projects crucial for firm sustainability. Since innovative projects are also characterized as having a long-payoff horizon, and because a firm can gain greater long-term benefits from R&D expenditures than from capital expenditures (Hall, 2005),. 6.

(18) family firms are argued to conduct more innovation for long-term competitive advantage (Eisenhardt & Martin, 2000).. One way to shed light on the effects of family controllers on innovation is to deconstruct the impact across different governance effects, namely insider’s ownership, control, and management (Villalonga & Amit, 2006). This study investigates the effects of different types of governance structures on innovation and helps answer questions about when and how family control affects firm innovation.. 政治大 This empirical analysis was conducted using a sample of Top 2,000 listed manufacturing 立 firms in Taiwan between 2000 and 2005. Firm patent data, provided by the United States. ‧ 國. 學. Patent and Trademark Office, is used to measure innovativeness. The results confirm our. ‧. conjecture that family firms are less innovative than non-family firms in business groups. At the same time, family firms prefer exploratory innovations while non-family firms are. y. Nat. er. io. sit. more inclined to conduct exploitative innovations. We also find that the separation between ownership and control rights is for the purpose of risk sharing and is beneficial. al. n to innovations.. Ch. engchi. 7. i n U. v.

(19) 2. HOW DO FAMILY AND CONTROL STRUCTURES AFFECT GROUP AFFILIATED FIRMS’ PERFORMANCE 2.1 INTRODUCTION Traditionally, the agency problems stem from the information asymmetries between the owner and the manager and from their conflicting incentives. From this perspective, owner management has advantages in monitoring and disciplining family firm’s decision. 政治大. agents (Fama & Jensen, 1983). Since owner management means there are no conflict. 立. between interests and information asymmetries caused by the separation between owners. ‧ 國. 學. and management, agency costs are eliminated when family owner serve as CEO (Anderson & Reeb, 2003). However, the benefit of owner management may be offset by. ‧. the cost of family control, especially in business groups. Family controllers are often. y. Nat. sit. entrenched in all group-affiliated firms and they can control these firms without. n. al. er. io. commensurate cash flow rights through a pyramid structure (Almeida & Wolfenzon,. i n U. v. 2006), which may leads to failures in the market for corporate control and allows inside. Ch. engchi. shareholders to pursue their interests at the costs of outside shareholders (Faccio, Lang, & Young, 2001; Morck & Yeung, 2003; Villalonga & Amit, 2006).. Another perspective to explain what causes interests to be aligned is stewardship theory (Davis, Schoorman, & Donaldson, 1997). In contrast to agency theory assuming that individuals are self-interest and opportunistic and motivated by extrinsic rewards, stewardship theory argues that people are pro-organizational and motivated by intrinsic rewards, such as opportunities for growth, achievement, affiliation and self-actualization 8.

(20) (Davis et al., 1997). Because family firm is family members’ collective heritage and assets, family members are more likely to tie the firm to their community and are more emotionally invested in a family firm than non-family members (Arregle, Hitt, Sirmon, & Very, 2007; Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010; Deephouse & Jaskiewicz, 2013), thereby promotes stewardship and pro-organizational behaviors and then improve firm performance. Miller and Le Breton-Miller (2005) also show that family members’ tendency to preserve their socioemotional wealth can encourage. 政治大 provide family firms with. insistent commitment to long-term development or stewardship relationships within and outside their ﬁrms, which also. 立. significant competitive. advantages. Thus we propose an alternative hypothesis for family management.. ‧ 國. 學. As discussed above, agency theory suggests that excess control rights or power can give. ‧. CEOs and controlling shareholders the ability to pursue their private benefits, while. Nat. sit. y. stewardship theory suggests that are owners and managers are pro-organizational in. er. io. essence. In family firms, since families regard firms as their wealth, they have the. al. n. iv n C U family controllers may act h eet nal.,g2007). socioemotioinal wealth (Gomez-Mejia c h iTherefore. incentive to sacrifice economic performance for preventing the loss of their. as an agent or a steward. To reconcile the debate discussed above, the family effect is separated from varieties of control structures and the contingent effects of environmental uncertainty are introduced for analysis as well. In sum, the effects of family control and different control structures on group-affiliated firms’ performance are investigates by using longitudinal data of Taiwan business groups (2000-2005).. 9.

(21) The results confirm our conjecture that excess control rights and controlling shareholdings are for the ambivalent needs of control and growth and then improve group affiliated firms’ performance. In addition, family firms with such control structures will perform better in non-electronic industry while worse in electronic industry. Lastly, active control, namely family members control management and chairman at the same time, will perform better in electronic industry while worse in non-electronic industry.. 2.2 THEORY AND HYPOTHESES 2.2.1. 政治大 Control structures for growth 立. ‧ 國. 學. Until 2000, Taiwan’s manufacturing sectors has experienced with a consequence/seires of industrial reform. During this period, business groups (qiye jituan) favored by. ‧. deregulation and varieties of subsidies from government emerge (Chu & Amsden, 2003).. Nat. sit. y. Initially (Since 1950s), Taiwan’s government proposed import substitution strategy and. n. al. er. io. imposed protective tariffs on imports to promote local upstream production (Chu, 1994).. i n U. v. However, the domestic market is too small to develop the industries where the economies. Ch. engchi. of scale are optimal for large firms. In this phase, most industries promoted are capital intensive industries (e.g. petrochemical industry). Therefore, for survival, the enterprises in these industries started to use vertical integration or diversification through building affiliated firms for reducing production costs. Later, after finding the limitation of import substitution strategy, Taiwan’s policy maker implemented export-led growth strategy as a supplementary strategy for import substitution strategy. In addition, Taiwan government also decreased the exchange rate on purpose to increase domestic firms’ comparative 10.

(22) advantages in international trade. Thereby the entrepreneurs persist for scaling up via forming business groups captured the growth opportunities created by the government.. The second wave of economic growth in Taiwan, which was driven by electronic industry, took off from 1970s. During this phase, although the strategy of “from import substitution to export-led growth” remained, Taiwan government used different policy instruments to promote this industry; by means of systematic import and assimilation of foreign advanced technologies, Industrial technology Research Institute of Taiwan (ITRI), a. 政治大. government subordinate research institute, facilitated the development of electronic. 立. industry in Taiwan. ITRI not only incubated and establish spin-off companies, like TSMC,. ‧ 國. 學. but also developed and transferred advanced technological to local enterprises. Therefore, Taiwan’s enterprise which took advantage of technological knowledge of new products. ‧. provided by ITRI, involved in related research and development, and invested in scaling. sit. y. Nat. up capture the growth opportunities arose from developed countries’ outsourcing policies.. al. er. io. Since 2000, the increasing demand for “one-stop shopping” from buyers of these. v. n. countries impelled Taiwan’s contractors/OEMs to scale up further (Chu & Amsden, 2003).. Ch. engchi. i n U. During economic transformation, Taiwan’s entrepreneurs establish their own markets internally within business groups not only for the purposes of substituting for external markets, but also for control and growth. Business groups are sets of legally independent firms bound together by varying degrees of legal and social connection. These firms are mostly controlled by an agent (a family, a person, or a group) through a chain of ownership stakes. In emerging markets, the most common structure of business groups is 11.

(23) pyramid, in which the ultimate owners are located at the apex and often hold only a fractional ownership. Since such ownership structure allows the ultimate owners to raise funds without sacrificing their control rights, this gives them the incentives to scale up and capture the growth opportunities created by the government.. In Taiwan, the largest firms exhibit the most separation of ownership and control (Claesssens et al., JFE, 2000). In addition, Chung and Mahmood also found that affiliate ownership rose significantly while family ownership dropped sequentially from 1988 to. 政治大. 1998. These researches demonstrate that Taiwan’s entrepreneurs achieve the needs for. 立. growth and control simultaneously through the ownership structures which divorce. ‧ 國. 學. ownership and control.. ‧. Therefore, we propose that when firms scale up with separation of ownership and control, they will perform better:. sit. y. Nat. n. al. er. io. Hypothesis 1: the higher the level of divergence between ownership and control rights, the better the firms’ performance.. Ch. engchi. i n U. v. Another common way for ultimate controllers to increase their control rights is cross-shareholding. Although the pyramidal control structure can lead to the divergence between ownership and control in firms located at the lower layer of the pyramid, cross-shareholdings among group-affiliated firms within a business group can increase the level of separation of ownership and control in firms located at the top. Both kinds of control enhancing structures allows the ultimate owners handle “the ambivalent needs of growth and control” (Chung and Pasha ;Chang and Hong 2000; Chung 2004). 12.

(24) In terms of control, Cubbin and Leech (1983) defined “the critical control level” which is necessary to accumulate the majority of votes for control as the line between ownership control and management control. In diffusely held firms, management with “an absolutely large but relatively small bloc of shares” exercises its control rights. However, in business groups, ultimate owners with relatively large amounts of shares comparing to other shareholders control the firms. The critical control level is the threshold between these two kinds of control structure. Since the ultimate owners can just hold a relatively. 政治大 of the controlling ownership which exceed the critical control level as the parts for 立. large amount of shares to be in a position to dominate a corporation, we regard the parts. growth. Hence, we propose that:. ‧ 國. 學. Hypothesis 2: the more the ownership exceed the critical control level, the better. ‧. the firms’ performance.. y. Nat. io. n. al. sit. Agency Problems in Business groups. er. 2.2.2. i n U. v. Although excess control rights or controlling shareholdings may be beneficial in some. Ch. engchi. specific situation, they are also regarded as the sources of agency problems. From the agency theory perspective, giving ultimate controllers excess control rights or controlling shareholdings may cause serious conflicts of interest between controlling shareholders and non-controlling shareholders. Through dual-class share structure, pyramidal ownership structure or cross-shareholding, an individual or a family can financially or administratively control a set of legally independent firms with only a small fraction of equity (Bebchuk, Kraakman, & Triantis, 2000; Claessens et al., 2000). Since these 13.

(25) control-enhancing mechanisms allow the controlling shareholders to exercise control rights without commensurate shareholdings, they have the incentive and ability to pursue for private benefits at the costs of outside shareholders. And because of this so-called “other people’s money” problems (Morck & Yeung, 2003), group-affiliated firms with high degree of separation between voting rights and cash flow rights may be subject to the expropriation of minority shareholders (Shleifer & Vishny, 1997).. Another agency problem in business groups is entrenched management problems.. 政治大. Although the increase of ownership will raise large shareholders’ incentive to monitor. 立. CEOs’ behavior and mitigate agency costs (Agrawal & Knoeber, 1996; Shleifer & Vishny,. ‧ 國. 學. 1986), the advantages comes from increasing ownership will be overwhelmed by the disadvantages result from excess control rights when inside shareholders’ controlling. ‧. stakes exceeds over a threshold (Morck, Shleifer, & Vishny, 1988). In business groups,. Nat. sit. y. through a chain of ownership, ultimate controllers are entrenched in all group-affiliated. er. io. firms. Moreover, when ultimate controllers also have sufficient controlling shareholdings. al. n. iv n C h own specific trading relationship for their i U & Vishny, 1997), then, the e nbenefits g c h (Shleifer to dominate a firm, faithless insiders are motivated to make special dividend policy or use. problems of entrenched management occur (Morck et al., 1988; Morck & Yeung, 2003). Bebchuk and Cohen (2005) also demonstrate that entrenched boards are associated with lower firm value.. 14.

(26) 2.2.3. The contingent effect of environmental uncertainty on the relationship between family control and control structures in Business groups. To reconcile the contradictory points of view discussed above, the contingent effects of environmental uncertainty are introduced to shed light on financial logics of different owner identities. A firm’s investment behavior which is strongly influenced by its owners’ financial logics will affect its performance and survival. Villalonga and Amit (2010) argue that families are more likely to preserve their control rights of a firm when the. 政治大. efficient scale is small. Gallo et al. (2000) also find that families are risk-averse and fear. 立. for losing control of their firms, which impede them to seize the opportunity for growth. ‧ 國. 學. and development. However, the control structures of business groups allow family owners to handle the need for ambivalent needs of growth and control” (Chung and. ‧. Pasha ;Chang and Hong 2000; Chung 2004). Therefore, family owners’ risk preference. Nat. sit. y. becomes the determinant of how they employ control structures through business groups.. er. io. Since families are risk-averse, we predict that when environmental uncertainty is low and. n. al. i n C h e nthat: and scale up for growth. Thus we propose gchi U. v. families can preserve their control rights, they will utilize control structures to raise funds. Hypothesis 3: for group affiliated firms, family firms with higher excess control rights and excess voting rights will perform better when environmental uncertainty is low.. On the other hand, since families have the incentive and ability to pursue family interest at the costs of outside shareholders when the market for corporate control is absent or 15.

(27) weak (Schulze et al., 2001), environmental uncertainty will exacerbate this problem. Grossman and Hart (1983) argue that the more inside controllers possess information which outside shareholder does not, the more difficult outside shareholders can check inside controllers’ decision. Since environmental uncertainty increase the information asymmetries between family controllers and outside investors, monitoring schemes turn into invalid. Furthermore, when environmental uncertainty is higher, family controllers become more risk averse and will leave investment opportunities out of consideration.. 政治大 underinvestment and expropriation of outside shareholders: 立. Thus we propose that environmental uncertainty will worsen the problems of. ‧ 國. 學. Hypothesis 4: for group affiliated firms, excess control rights and controlling shareholdings will increase family owners’ incentive and ability to exploit. ‧. outside owners and then worsen firms’ performance when environmental. Nat. sit er. io. 2.2.4. y. uncertainty is high.. Family management and environmental uncertainty. n. al. Ch. engchi. i n U. v. The other way to director control a firm is to take over the position of management. According to previous researches, the effect of family management comes with pros and cons simultaneously. Therefore, it is hard to shed light on the still obscure mechanism of family management on firm performance without further analysis (e.g. Villalonga & Amit, 2006). However, for family firms, family management also implies owner-manager, thus some implications from the upper-echelons theory are helpful to ascertain the contingencies which can disentangle the relationship between family management and 16.

(28) firm performance (Boyd, 1990; Boyd, 1995; Brickley, Coles, & Jarrell, 1997; Dalton, Hitt, Certo, & Dalton, 2007; Faleye, 2007; Finkelstein & Hambrick, 1990; Hambrick & Finkelstein, 1987).. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 17. i n U. v.

(29) Environmental uncertainty is an essential contingency to understanding the benefits and disadvantages of unitary leadership structure (Brickley et al., 1997), which is the case when family members hold the positions of both CEO and board chairperson. Appointing an outside board chairperson may cause the agency costs of controlling the behavior of the board chairperson (Brickley et al., 1997); also, hiring outside CEO can increase the agency costs of controlling the CEO’s behavior. Furthermore, environmental uncertainty will increase the extent of information asymmetries between insider and outsider, thereby. 政治大 of such kind of information asymmetries and agency problems but also has the 立. exacerbate agency problems. Unitary leadership structure in family firms not only gets rid. advantages of effective leadership and responsiveness which are critical to successful. ‧ 國. 學. adaptation in uncertain environments (Bourgeois & Eisenhardt, 1988; Finkelstein &. ‧. Hambrick, 1990). In addition, since involvement-oriented management will lead to long-term effectiveness, empowering has significant advantages than control in unstable,. y. Nat. er. io. sit. uncertain environments (Davis et al., 1997). Miller, Le Breton-Miller, and Scholnick (2008) find that family involvement will promote long-term effectiveness and. n. al. Ch. i n U. v. involvement-oriented management. Thus we speculate that family firms with unitary. engchi. leadership structure will positively affect firm performance in high uncertainty environment.. Hypothesis 5: for group affiliated firms, family members holding the positions of both CEO and board chairperson will be positively related to firm performance in high uncertainty environments.. 18.

(30) By contrast, family management may impair firm performance in a stable environment. From the perspective of upper-echelons theory, since the discretion of top managers is endowed by environmental uncertainty, top managers have lesser need for power in a stable environment (Finkelstein & Hambrick, 1990; Hambrick & Finkelstein, 1987). Finkelstein and Hambrick (1990) exhibit that top-management-team tenure, which signals managerial entrenchment (Berger, Ofek, & Yermack, 1997), is associated with firm performance that deviated from industry averages in low-technology industries (e.g.. 政治大 more discretion in a stable environment may be harmful for firm performance. 立. chemical industry and natural-gas distribution industry). In a related vein, giving CEOs. Gomez-Mejia et al. (2001)demonstrate family firms are more vulnerable to managerial. ‧ 國. 學. entrenchment problem by showing that family CEOs face lower risk of dismissal than. ‧. their non-family counterparts not only in uncertain environments but also when firm performance is negative; meanwhile, powerful CEOs who can get rid of accountability. y. Nat. er. io. sit. will bring about higher agency costs in a stable environment (Davis, et. al., 1997). Accordingly, we posit that family members holding the positions of both CEO and board. n. al. Ch. i n U. v. chairperson may cause poorer firm performance when environmental uncertainty is low.. engchi. Hypothesis 6: for group affiliated firms, family members holding the positions of both CEO and board chairperson will be negatively related to firm performance in low uncertainty environments.. 19.

(31) 2.3 DATA AND METHODS 2.3.1. Business groups in Taiwan. Compared to prior studies on conglomerate, business groups in Taiwan are particularly informative in the study of internal market because of two reasons. First, the existing evidence suggests that the effect of internal capital market on firm performance is not universal but depends on the institutional context where the firm is embedded. For. 政治大 markets, the conglomerate merger wave occurred in 1960s and 70s in US was efficient, 立. instance, Hubbard and Palia (1999) found that given the under-developed external capital. even though later it became inefficient as external capital markets became more. ‧ 國. 學. developed over time. Taiwan as an emerging economy, in which external capital market is. ‧. relatively under-developed, provides us different institutional settings from US. Second, group-affiliated firms in Taiwan offer a rich variety of ownership structure and clear. y. Nat. er. io. sit. definitions of group membership. Common ownership under a conglomerate means that shareholders have identical proportion of shares in all divisions within the firm. In. n. al. Ch. i n U. v. contrast, shareholders of a business group can have different combinations of shares. engchi. across different member firms within a group. Such flexibility in the ownership structure of business groups allows the controlling shareholders to increase their private benefits at the expenses of the minority shareholders, which is the key to understand the dark side of internal market (Chang, 2003; Claessens et al., 2000; Morck & Yeung, 2003). In addition, business groups also allow its ultimate controllers to use such control-enhancing mechanism as pyramid structure to increase the separation of ownership and control, thereby affecting firm value. 20.

(32) 2.3.2. Data Source and Sample. Taiwan’s top 2,000 listed manufacturing firms from 2000 to 2005 are used to test our hypotheses. We obtain ownership information and the financial statement data of these firms through the Taiwan Economic Journal database and then distinguish 4,355 group-affiliated firms. The Taiwan Economic Journal database subscribed by many authoritative international database providers, including DATASTREAM, REUTERS, Thomson Financial, etc., is the most credible database in Taiwan. Masulis, Pham, and. 政治大. Zein (2011) also utilize Taiwan Economic Journal’s ownership information to identify. 立. business groups in Asia and make a comparison between family and non-family business. ‧ 國. 學. groups around the world. Due to the information of ownership and market value is available only for the publicly traded firms, there are 826 groups be identified and 967. ‧. firms, including 356 non-family group firms and 611 family group firms, be recognized. Nat. sit. y. as group-affiliated firms. Lastly, we excluded the firms controlled by government from. 2.3.3. al. n. 2000-2005.. er. io. non-family group firms and have 3,752 firm-year observations in our sample during. Ch. engchi. i n U. v. The identification of group-affiliated firms in Taiwan. For identifying group-affiliated firms, Taiwan Economic Journal mainly refers to Taiwan’s Company Act Chapter VI-I and Statements of Financial Accounting Standards No.6. Taiwan’s Company Act Chapter VI-I, including Article 369-1 to 369-12, are formulated in 1997 to regulate group-affiliated firms’ business behavior. In this Act, enterprises which are independent in existence but have controlling-subsidiary or 21.

(33) investment relations between each other are referred to group-affiliated firms. Control-subsidiary relations are identified when a controlling firm has more 50% ownership or control 50% seats on a board of directors of its subsidiary firms or when a controlling firm can directly or indirectly influence the administrative or financial systems of its subsidiaries. And the investment relations are established when cross equity shareholdings are up to 30%.. However, this Act has a loophole that let ultimate controllers can helm some subsidiary. 政治大. firms for their private benefits through kin relations which can let them eschew the. 立. monitoring from the market and the government. Take the ownership structure of. ‧ 國. 學. Formosa Plastics Group in 2008 for example, Formosa Petrochemical Corp. is a joint venture established by Formosa Plastics Corporation, Nan Ya Plastics Corporation, and. ‧. Formosa Chemicals & Fibre Corporation and each of these three parent companies hold. Nat. sit. y. less than 50% ownership of Formosa Plastics Corporation. Furthermore, each. er. io. cross-holding between these three parent companies and Formosa Plastics Corporation is. al. n. iv n C h e nbe grecognized Yung-Ching and his family, they cannot c h i Uas a group in terms of Taiwan’s. less than 30%. Accordingly, although all these firms are actually controlled by Wang. Company Act.. The Statements of Financial Accounting Standards No.6 issued by the Financial Accounting Standards Committee in Taiwan is a remedy for the loophole discussed above. These Statements ask group-affiliated firms to disclose their top management team member’s kin relationship, their investment relations when their holdings of the other firm was between 20% and 50%, the foundation they donate more than one-third of its 22.

(34) total capital, and their actual controllers. Again, take Formosa Plastics Group as an example. After the founder of Formosa Plastics Group, Wang Yung-Ching, resigned as chairman of Formosa Petrochemical Corp., Formosa Plastics Corporation, Nan Ya Plastics Corporation, and Formosa Chemicals & Fibre Corporation between 2006 and 2008, there are no marriage bonds between new chairmen of these firms. Nevertheless these four firms are actually controlled by the administration department of Formosa Plastics Group. Thus these four firms are still recognized as under the control of Wang Yung-Ching and his family.. 立. 政治大. Utilizing the ownership and kinship information that Taiwan’s financial authority ask. ‧ 國. 學. listed firms to disclose, Taiwan Economic Journal can establish the chain of control and distinguish group-affiliated firms from non-group-affiliated firms. However, for the cases. ‧. of 40/60 joint venture between two groups, the disclosure of investment relations that. Nat. sit. y. holdings are more than 20% may cause the boundary overlap between two business. er. io. groups. Thus for this kind of cases, Taiwan Economic Journal will further refer to these. al. iv n C h e group actual controllers and to identify which h iareUaffiliated by. Lastly, in order to n g cthey n. firms’ board composition and their officers, directors, or blockholders to determine their. exclude these firms that ultimate owners are not actually engaged in (under financial control rather than administrative or strategic control), we investigate whether the ultimate owner, the foundation they control, or his/her private firm holds any board seat of a group-affiliated. When the ultimate do not control any board seat at group-affiliated firm, we will recognize that this firm is acquired just for financial purposes and then eliminate it. 23.

(35) This process will continue until reaching the ultimate controller at the top of the chain of control. As at least two firms are controlled by the same family ultimate controller, these firms are recognized as a family business group (Hoshi, Kashyap, & Scharfstein, 1991; Masulis et al., 2011). In contrast, when a set of firms are under the control of government, official bank, professional manager or two ultimate controllers (no one can dominate without the other’s support), it is identified as a non-family groups.. 2.3.4. Dependent variable. 政治大 Following Villalonga & Amit’s (2006, 2009) studies of family control and performance, 立 we use Tobin’s q as our dependent variable. We use the ratio of the firm’s market value to. ‧ 國. 學. total assets as a proxy for Tobin’s q, and we estimate the firm’s market value as the. ‧. market value of common stock plus the book value of preferred stock and long-term and short-term loans payable. To control for industry effects, we also calculate. y. Nat. er. io. sit. industry-adjusted q, measured as the difference between the firm’s q and the asset-weighted average of the imputed qs of its segments, as a proxy for firm value. We. n. al. Ch. i n U. v. use TEJ industry code, which is based on the industry code provided by Taiwan Stock. engchi. Exchange, to compute industry averages.. 2.3.5. Independent Variables. Family control measures. We use a dummy variable and a continuous variable to measure family control. To ensure that a group-affiliated firm is actually controlled by the ultimate controllers, we exclude the firms that their ultimate controllers do not involve in the board. The family control dummy variable (family) equals 1 when a group-affiliated 24.

(36) firm’s ultimate controllers are from a single family and they hold at least one seat on the board of this firm. When a group-affiliated firm’s founder is the only controlling shareholder or the ultimate controllers of a group-affiliated firm are from different families or institutions, such firm are considered non-family controlled firms. For the continuous measure of family control we use the family controllers’ voting rights as a proxy. And all non-family controlled firms are coded as zero.. Control rights in excess of control threshold. We construct excess control rights (excess. 政治大. control) as the difference between the ultimate controllers’ control rights (La Porta et al.,. 立. 1999) and the controlling shareholdings (Cubbin & Leech, 1983). La Porta et al. (1999). ‧ 國. 學. define control rights as the sum of controllers’ direct shareholdings and the cumulative holdings of the weakest link in a business group. Moreover, Cubbin and Leech (1983). ‧. define minority control holdings as values of P. According to their theory, we assume the. Nat. sit. y. voting probability equal to 99% and the degree of control equal to 1 (Z-value is 3.32) to. er. io. calculate P. When the excess control rights in a firm is greater than zero, it is supposed. al. n. iv n C h ethenshareholders’ the ultimate controllers can’t dominate g c h i Umeeting and need to seek other. that this firm is minority controlled; while when the excess control rights is less than zero,. shareholders’ support for proxy fight to wrest control rights. Since the costs of large ownership will surpass its benefits when ownership separate from control, we use the inside owners’ excess control rights as a proxy for entrenched management in group-affiliated firms.. Divergence between voting rights and cash flow rights. We use the difference between voting rights and cash flow rights (divergence) as a proxy for ultimate controllers’ power 25.

(37) to use other people’s money. Voting rights is the seats that the ultimate controllers hold on the board, and the cash flow rights are the sum of controlling shareholders’ direct shareholdings and indirect shareholdings. Indirect shareholdings are the sum of the cash flow rights controlled by other non-financial affiliates in a business group (La Porta et al., 1999). For example, when a controlling shareholder A holds 5 % shares of firm 1 and 10% of firm 2 (direct shareholdings), and then firm1 holds 20% shares of firm 2, for A, whose indirect shareholdings of firm 2 is 1 percent (20% multiplying 5%), therefore, A’s. 政治大. cash flow rights is equal to 11% (10% + 1%).. 立. Controlling owners serve as CEO. We use a dummy variable to represent active or. ‧ 國. 學. passive control (Anderson & Reeb, 2003). Controlling owners as CEO is identified as active control in this study. We use a dummy variable is coded as ‘1’ if the ultimate. ‧. controller or his family serve as both the chairman and the CEO, and ‘0’ otherwise.. y. sit. io. n. al. er. Controls. Nat. 2.3.6. v. Following Chang’s (2003) study, we control for both firm and group effects that may. Ch. engchi. i n U. affect ownership structure and firm value. We take the log of the sales of a firm in billions Taiwan dollar as a control for firm size (sales). We also control for firm equity in billions of Taiwan dollar. Firm age is calculated as the number of years since founding and. Years of listing (listing) is the elapsed years calculated by calendar year since the last time a firm was listed. Volatility is measured as the standard deviation of profitability during the past five years. Sales growth is computed as the annual growth of sales and market share is calculated by dividing a firm’s sales by industry shipments at the TEJ industry code. 26.

(38) RD intensity is measured by dividing a firm’s RD expenditure by annual sales. We use debt-to-equity ratio as a proxy for leverage. This study also includes year and industry dummies to control for time and industry effects. Furthermore, in order to identify high-tech and low-tech industries, we use TEJ industry code, which is based on the industry code provided by Taiwan Stock Exchange, rather than Standard Industry Classification. All electronic firms are coded as high-tech industry (1) and the others are coded as low-tech industry (0).. 政治大. In terms of group effects, we incorporate group equity in billions Taiwan dollar and. 立. internal transactions. Internal transactions include internal trade and financial transaction. ‧ 國. 學. (Chang & Hong, 2000). We use sales to affiliates and purchases from affiliates as proxies for internal trade and use loan to affiliates and debts from affiliates to measure internal. ‧. financial transaction. These variables are defined as the ratio of each action divided by a. Data Analysis. y. sit. n. al. er. io. 2.3.7. Nat. firm’s total sales.. Ch. engchi. i n U. v. We use Hausman-Taylor estimator to exam the relationship between control mechanisms and firm value for two main reasons. First, fixed effects estimators can control for unobserved firm heterogeneity that affects both ownership and performance in panel data (Himmelberg, Hubbard, & Palia, 1999), while this methodology require within variation in ownership (Zhou, 2001). Using the sample form Standard and Poor’s ExecuComp data set, Zhou (2001) found that the within variations in managerial ownership are very small comparing to between variations. Three control-enhancing mechanisms in our study have 27.

(39) the same characteristics (Table 2-1). Second, the relationship between family control and firm value can be endogenous and Hausman-Taylor estimator allows for including multiple endogenous variables. Furthermore, no matter in Ordinary Least Squares, Fixed effects, or Random effects world, Hausman-Taylor estimator is a viable estimator and is always second best to the efficient estimator (Baltagi, Bresson, & Pirotte, 2003). In this study, family control measures (dummy or continuous) , divergence between voting rights and cash flow rights, control rights in excess of control threshold, controlling owners. 政治大. serve as CEO, and their interaction terms are treated as endogenous variables.. 立. Table 2-2 presents the descriptive statistics and correlations between variables, and Table. ‧ 國. 學. 2-3 presents the regression results for the full sample. In order to further identify the contingency effect of environmental uncertainty that may affect the relationship between. ‧. family control mechanisms and firm value, all firms are divided into high-tech or. Nat. sit. y. low-tech industry group and Table 2-4 and Table 2-5 report the regression results for. er. io. these two subgroups. Moreover, the results of the interaction effects between. al. n. iv n C U effects are also controlled. reported in Table 2-6 and Table 2-7.h Time e neffects g c handi industry cross-shareholdings and different control-enhancing mechanisms on firm value are. When we use Tobin’s q as our dependent variable, the industry and year dummies are included. In addition, we try to control for time effects and industry effects by using industry-adjusted q as our dependent variable, while in this case the industry and year dummies are dropped (Villalonga & Amit, 2006).. 28.

(40) 2.4 RESULTS All sample results are reported in Table 2-3. These results show that family firms with excess control rights are negatively associated with firm performance. Although the coefficients are not significant when using Tobin’s q as the proxy of firm performance (model 3 and 4), they have significant negative impact on industry-adjusted Tobin’s q (model 7 and 8). Moreover, family firms with excess voting rights are negatively associated with firm performance in 3 of 4 models (model 3, 4, and 7). These results. 政治大. generally support hypothesis 3. In addition, it is supposed that the effect of unitary. 立. leadership structure on firm performance is contingent on environmental uncertainty. The. ‧ 國. 學. results of model 3, 4, 6, and 7 in Table 2-3 show that family firms with unitary leadership structure, family members holding the positions of both CEO and board chairperson, do. ‧. not have significant impact on firm performance.. y. Nat. er. io. sit. However, family firms with unitary leadership structure are supposed to be positively associated with firm performance in high-tech industries while negatively associated with. n. al. Ch. i n U. v. firm performance in low-tech industries. In table 2-4, the coefficients of active control are. engchi. all positive and 2 of 4 (model 4 and 8) are significant, while the coefficients of which are all negative and 3 of 4 are significant (model 4, 7, and 8). These results mainly support Hypothesis 1 and Hypothesis 2.. Moreover, the results of the contingent effects of environmental uncertainty on the relationship between different control-enhancing mechanisms and firm performance are presented in Table 2-4 and Table 2-5. And the effects of excess control rights and excess 29.

(41) voting rights on firm performance in high-tech industries are similar to all sample results. In table 2-4, the sighs of the coefficients of excess control rights in Table 2-4 remain negative and this effect is also negative significantly in 2 of 4 models (model 4 and model 8). Furthermore, the effect of excess voting rights is significant negatively in model 4, 5, 7, and 8 in Table 2-4. These results support that the family firms with either excess control rights or excess voting rights perform poorer (Hypothesis 4-1). In contrast, the coefficient of excess control rights in low-tech industries becomes not significant (model. 政治大 industries even turn into significant positive in 3 of 4 models in Table 2-5 (model 4, 7, 立. 3, 4, 7, and 8 in Table 2-5) and the coefficients of excess voting rights in low-tech. and 8). These results also support Hypothesis 4-2.. ‧ 國. 學. 2.5 CONCLUSION AND IMPLICATION. ‧. In the first study, the relationships between control structures, unitary leadership, and. y. Nat. er. io. sit. group-affiliated firms’ performance are investigates by using longitudinal data of Taiwan business groups (2000-2005).. n. al. Ch. engchi. i n U. v. The results confirm our conjecture that excess control rights and controlling shareholdings are for the ambivalent needs of control and growth and then improve group affiliated firms’ performance. In addition, family firms with such control structures will perform better in non-electronic industry while worse in electronic industry. Lastly, active control, namely family members control management and chairman at the same time, will perform better in electronic industry while worse in non-electronic industry.. 30.

(42) By offering an integrative model of how different types of control structures in business groups influence firm value, our study have implications for research on family control theory, agency theory, and business groups. With respect to family control theory, although there are abundant studies aimed at explaining the effect of family ownership on firm value, research about how does family control influence firm value is still vague or controversial. This study shed light on how and why some group-affiliated firms, even in the same business group with similar ownership structure, perform better than others. In. 政治大 only by varieties of control mechanisms, but also by different environmental conditions. 立. other words, the heterogeneity in group affiliates’ performance can be accounted for not. ‧ 國. 學. These findings also contribute to agency theory literature by deepening our understanding of the possible origins of agency problems. Traditional agency theory focuses on the. ‧. relationships between agent and principal and ignores the agency problems in the. Nat. sit. y. relationship between controlling shareholders and outside shareholders. In essence,. er. io. agency problems are originated mainly from measurement problems and different risk. al. n. iv n C mechanisms as h generic e n gsources c h i ofUagency. propensity between agents and principals. Thus we eschew the traditional view of control-enhancing consider. how. different. control-enhancing. mechanisms. costs, and instead to. in. different. relations. (principal-agency relations or principal-principal relations) can arise agency problems in different environmental conditions.. We also seek to contribute to research on business groups by investigating how controlling shareholders exercise different control-enhancing mechanisms to achieve competitiveness. Business groups are considered an efficient response to market 31.

(43) imperfections. However, business groups are prevalent even in the developed countries like Japan and European countries and there are many group-affiliated firms in Taiwan thrive in the global market (e.g. Giant Bicycles, HTC, TSMC, Acer, etc.). We find that family group-affiliated firms with excess voting rights in low-tech industries and non-family group-affiliated firms with excess voting rights in high-tech industries are advantageous to firm performance. Furthermore, family group-affiliated firms with family members serving as both chairman and CEO in high-tech industries and. 政治大 and CEO in low-tech industries are beneficial to firm performance. These results have 立 non-family group-affiliated firms with controlling shareholders serving as both chairman. important implications for the purposes to form a business group.. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 32. i n U. v.

(44) TABLES TABLE 2-1 VARIATIONS IN THREE CONTROL MECHANISMS. 立. 政治大. Max 0.7825 0.7657 0.572248 0.9967 0.99355 0.694264 1 1 1.358653. 學 ‧ y. Nat. io. sit. active control. Min -0.8184 -0.2107 -0.45693 -0.5395 -0.5395 -0.03652 0 0 -0.30801. n. al. er. excess vote. Mean Std. Dev. overall 0.158608 0.139207 between 0.137423 within 0.053509 overall 0.364764 0.273757 between 0.264185 within 0.083355 overall 0.52532 0.499425 between 0.461965 within 0.198356. ‧ 國. Variable excess control. Ch. engchi. 33. i n U. v. Observations N = n = T-bar = N = n = T-bar = N = n = T-bar =. 3752 902 4.15965 3752 902 4.15965 3752 902 4.15965.

(45) TABLE 2-2 DESCRIPTIVE STATISTICS CORRELATIONS. Variable tobin’s q industry-adjusted q family family control excess control divergence active control cross holdings high tech sales firm equity group equity listing Sales growth market share volatility firm age leverage RD intensity sales to affiliates purchases from affiliates loan to affiliates debts from affiliates. 政治大. 學. ‧. ‧ 國. 立. Mean Std.Dev. 1.138469 0.805329 0.026153 0.713343 0.669046 0.470619 0.476999 0.37598 0.159238 0.13934 0.365067 0.272963 0.521015 0.499624 0.285488 0.451706 0.527888 0.499288 7.920734 1.24418 7105.659 22984.35 27691.5 97226.63 7.035157 8.486782 0.160934 0.422914 0.062647 0.126867 0.004552 0.011343 23.01533 11.73386 0.904373 1.478586 0.027332 0.038922 0.161543 0.203139 0.156029 0.2177 0.008603 0.046155 0.004857 0.043302. n. er. io. sit. y. Nat. al. Ch. engchi. 34. i n U. v.