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The Dark Side of Managing for the Long Run: Examining When Family Firms Create Value

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  • Kyuho Jin

    (Division of Liberal Arts and Sciences, GIST College, Gwangju Institute of Science and Technology, Gwangju 61005, Korea)

  • Joowon Lee

    (Department of Management, School of Business, George Washington University, 2201 G St NW, Washington, DC 20052, USA)

  • Sung Min Hong

    (Institute of Management Research, Business School, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Korea)

Abstract

Family firms take a substantial fraction of economic activities and significantly influence a nation’s economic sustainability. Despite the considerable amount of research efforts to determine their performance implications, there is still a lack of consensus. This study aims to address this dissensus in two ways. Theory-wise, we introduce two interdependent contingencies that interactively determine the relative strength of positive and negative effects of family involvement: inside chief executive officers (CEOs) and business fluctuations. Method-wise, we employ an advanced econometric technique, the system generalized method of moments (GMM) estimator, to control for endogeneity. Using panel data of Korean family firms listed on the Korea Composite Stock Price Index (KOSPI) stock market during the periods between 2013 and 2016, we find (1) that family firms underperform non-family firms, (2) that the negative effect of family involvement decreases under the management of inside CEOs, and (3) that this positive moderation effect of inside CEOs decreases in the face of business fluctuations. This study furthers our understanding of how the family influences firm performance and, eventually, economic sustainability.

Suggested Citation

  • Kyuho Jin & Joowon Lee & Sung Min Hong, 2021. "The Dark Side of Managing for the Long Run: Examining When Family Firms Create Value," Sustainability, MDPI, vol. 13(7), pages 1-20, March.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:7:p:3776-:d:526022
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