Founder Control, Opacity and Value Creation in Family Firms

Abstract

The extant literature on family-controlled firms in the U.S. presents a mixed picture on how family control affects opacity and value creation. In this study, we show that the mixed results arise from the differences among family firms with regard to the presence of founders and the extent of decision rights held by them. Specifically, we find that family firms in which founders are present and have significant decision rights (influence), are more transparent and have higher valuations, compared to similar non-family firms. In further analysis, we show that founders improve the operating efficiency of their firms and this partly explains the additional value creation in founder firms. We find all these effects to be stronger when founders have greater decision rights (influence). In contrast, non-founder family firms are more opaque than their non-family counterparts. Furthermore, we document cross-sectional variations in the impact of Founder-CEOs on opacity and value based on their tenure and horizon. For Founder-CEOs, firm opacity increases (decreases) and value decreases (increases) with founder tenure (founder horizon).