The governance role played by controlling families is essential and can influence the relationship between the CEO and firm performance. Controlling families can use their power via control-ownership divergence between control rights and cash flow rights (Claessens et al., 2002; Connelly et al., 2012). In this regard, larger control-ownership divergence reflects stronger control by controlling families affecting a CEO’s efforts to increase firm performance (Connelly et al., 2012). Since the CEO position is ultimately accountable for a company’s business decisions, using a family member as a CEO can facilitate the controlling families (Anderson and Reeb, 2003). In addition, Dyer (1989) indicates that a non-family CEO may not understand human issues in family firms and is more likely to focus more on financial performance in the short-run relative to a family CEO. In Thailand, as family firms have long-established, controlling families are concerned about their reputation (Swanpitak et al., 2020). Taken together, large control-ownership divergence reflecting substantial control by the families may mitigate an entrenchment cost and moderate the impact of a family CEO on firm performance (Connelly et al., 2012; Swanpitak et al., 2020). Based on the discussion and review, when family firms have larger control-ownership divergence, the firms having a family CEO will outperform those having other CEO types.
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Claessens, S., Djankov, S., Fan, J.P., Lang, L.H., 2002. Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance 57, 2741-2771.
Connelly, J.T., Limpaphayom, P., Nagarajan, N.J., 2012. Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand. Journal of Banking and Finance 36, 1722-1743.
Dyer, W.G., 1989. Integrating professional management into a family owned business. Family business review 2, 221-235.
Swanpitak, T., Pan, X., Suardi, S., 2020. The value of family control during political uncertainty: Evidence from Thailand’s constitutional change in 2014. Emerging Markets Review, 100721.