Does the preference of family board seats allocation influence corporate investment efficiency?

Chun Su, Xing Liu and Huan Shao

Nankai Business Review International, 2021, vol. 12, issue 4, 515-536

Abstract: Purpose - This paper aims to investigate the influence of over-allocation and under-allocation of family board seats on the corporate investment efficiency. Design/methodology/approach - Based on the perspective of altruistic behavior, this paper theoretically analyzes the relationship between the preference of family board seats allocation and corporate investment efficiency, and designs the research. On this basis, we use STATA14.0 as an analysis tool to empirically test the relationship between the preference of family family board seats allocation and corporate investment efficiency, and consider the impact of different governance scenarios. Findings - This study finds that firms with a higher over-allocation degree of family board seats invest more efficiently, evidenced by significantly suppressed over-investment rather than mitigated under-investment. However, we do not find evidence that the higher degree of under-allocation of family board seats contribute to lower corporate investment efficiency. Additionally, this study finds that the positive relationship between the over-allocation degree of family board seats and corporate investment efficiency is more pronounced for firms with higher separation of cash flow rights and control rights, and weaker regional law system environment. Our mechanism discussion shows that the higher over-allocation level of family board seats contributes to the mitigation of agency costs for family firms by reducing the tendency for non-family boards to vote “against board proposals” and the appropriation behavior of the controlling family, and eventually improving corporate investment efficiency. Originality/value - This paper examines the relationship between the preference of family board seats allocation and corporate investment efficiency from the perspective of altruistic behavior. Unlike previous studies, this paper distinguishes the governance effects arising from over-allocation and under-allocation of family board seats. Additionally, different governance scenarios are incorporated into the decision-making mechanism of the board of family firms, and the influences of the divergence of cash-flow and control rights and a weaker regional law system on the governance effect of the preference of family board seat allocation are analyzed.

Keywords: Family firms; Preference of board seats allocation; Over- and under-allocation; Altruism; Investment efficiency (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:nbri-02-2021-0009

DOI: 10.1108/NBRI-02-2021-0009

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