Firm value can be determined by minority shareholders who would expect more risk of expropriation by controlling families (La Porta et al., 2000b). The expected agency costs of minority shareholders result from the inefficient use of firms’ resources by controlling families (Jensen and Meckling, 1976; Villalonga and Amit, 2006). This issue is more pronounced in emerging markets like Thailand (La Porta et al., 2000a). Whether a CEO comes from family members, non-family employees currently working in family firms, or outside professional managers, the CEO can extract firms’ resources for personal benefits, leading to increasing or decreasing in firm performance (Lin and Hu, 2007). Since family firms are concerned about their reputations and long-term survivorship, a family CEO who understands family norms and values is more likely to increase firm performance than other CEO types. Also, since family members often hold more ownership stakes than non-family employees or professional managers, a family CEO has more incentives to increase firm value (Lin and Hu, 2007). Therefore, higher expected agency costs of minority shareholders in family firms are more likely to urge the family CEO to perform better (La Porta et al., 2000a). Based on the discussion and review, when family firms have high expected agency costs of minority shareholders, the firms having a family CEO outperform those having other CEO types.
Jensen, M.C., Meckling, W.H., 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305-360.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 2000a. Investor protection and corporate governance. Journal of Financial Economics 58, 3-27.
La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., Vishny, R.W., 2000. Agency problems and dividend policies around the world. Journal of Finance 55, 1-33.
Lin, S.h., Hu, S.y., 2007. A family member or professional management? The choice of a CEO and its impact on performance. Corporate Governance: An International Review 15, 1348-1362.
Villalonga, B., Amit, R., 2006. How do family ownership, control and management affect firm value? Journal of Financial Economics 80, 385-417.
