Like father, like son? Diversification decision and related performance of family firm successors – Evidence from Taiwan

Shu-Ching Chou and Chia-Jung Shih

The Quarterly Review of Economics and Finance, 2020, vol. 75, issue C, 209-220

Abstract: This study investigates diversification decisions and related performance of family firms in Taiwan. In particular, this study categorizes the successors of family founders into three types: second-generation (i.e., children), non-second-generation (i.e., those of the same generation as the founder or other relatives), and hired professional managers from outside the family (i.e., family-hired CEOs). The results indicate that family firms, whether led by founders or family successors, exhibit a level of product diversification similar to non-family firms and the diversification performance of family firms does not significantly differ from that of non-family firms. Family firms in which a family member succeeds as chairman and an outside individual is hired as CEO tend to engage in less product diversification than non-family firms; however, when such firms engage in diversification, they achieve higher firm value than non-family firms. These findings suggest that hired CEOs may make careful strategic decisions and exhibit superior skills in diversification under the supervision from family owners. The decision quality of family firm successors is emphasized in recent literature. This study provides new evidence on the role of hired CEOs in enhancing firm value through diversification decisions after succession.

Keywords: Family firm; Diversification; Successors; Second generation; Hired CEO (search for similar items in EconPapers)
JEL-codes: G34 J1 M14 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:75:y:2020:i:c:p:209-220

DOI: 10.1016/j.qref.2019.04.012

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