Managerial ability in founding-family firms: evidence from Indonesia

Alex Johanes Simamora

International Journal of Productivity and Performance Management, 2021, vol. 71, issue 5, 2031-2048

Abstract: Purpose - The purpose of this paper is to examine the effect of founding-family firms on managerial ability. Design/methodology/approach - Founding-family firms are determined by founder and/or family involvement as block holder and as in the firm board. Managerial ability is estimated by data envelopment analysis. Research samples consist of 412 manufacturing firm-years listed in the Indonesian Stock Exchange. Analysis data use random-effect regression as the main analysis and Huber-White regression as an alternative analysis. Findings - This research finds that founding-family firms have a negative effect on managerial ability. Further, the result shows that lower managerial ability occurred when founding-family firms led by founder and professional CEOs, when other family members involved in the ownership and the board have higher family ownership. It indicates that founding-family firms concern more about family interest, such as family reputation, rather than business needs and best management practice. Research limitations/implications - Limitation of this research does not occur if the founding-family firms are managed by first, second, third, etc., family generation. Future research expected to consider family generation in founding-family firms management. Practical implications - This research can be used by founding-family firms in Indonesia as consideration of management policy formulation that can improve managerial ability. Originality/value - This research provides new evidence if founding-family firms promote lower managerial ability in emerging market such Indonesian market where family businesses are the root of private businesses which have a major contribution to economics.

Keywords: Managerial ability; Founding-family firms; Data envelopment analysis (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijppmp:ijppm-07-2020-0388

DOI: 10.1108/IJPPM-07-2020-0388

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