Corporate Misconduct and Subsequent Consequences in Family Firms

Lele Chen and Jennifer Yin

Abacus, 2024, vol. 60, issue 4, 935-966

Abstract: This paper investigates the effect of family ownership on corporate misconduct and its subsequent consequences. We argue that the reduced Type I agency conflicts (conflicts between managers and shareholders) in family firms may create an alignment effect, thereby curbing managerial misbehaviour. In contrast, the more severe Type II agency issues (conflicts between family owners and other shareholders) may induce an entrenchment effect, potentially fostering misconduct in these firms. Whether and how family ownership affects firm misconduct remains an empirical question. Through a research design that analyzes both types of agency conflict across various combinations of ownership and management control, our study of S&P 500 firms in the US suggests that family ownership tends to restrain firm misconduct. Specifically, family firms with externally hired CEOs effectively mitigate Type I agency problems and deter misconduct. Further analyses of misconduct consequences show that family ownership mitigates the negative effect of misconduct on firms’ credit ratings, particularly in firms with outside‐hired CEOs. Moreover, family firms encounter less adverse market reactions in response to disclosures of misconduct penalties.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/abac.12352

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:abacus:v:60:y:2024:i:4:p:935-966

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0001-3072

Access Statistics for this article

Abacus is currently edited by G.W. Dean and S. Jones

More articles in Abacus from Accounting Foundation, University of Sydney
Bibliographic data for series maintained by Wiley Content Delivery ().