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When do Non-Family CEOs Outperform in FamilyFirms? Agency and Behavioural Agency Perspectives

Danny Miller, Isabelle Le Breton-Miller,Alessandro Minichilli, Guido Corbetta and Daniel Pittino

HEC Montreal and University of Alberta; HEC Montreal and University of Alberta; Bocconi University,CRIOS; Bocconi University, CRIOS; University of Udine

ABSTRACT Family firms represent a globally dominant form of organization, yet they confront

a steep challenge of finding and managing competent leaders. Sometimes, these leaders cannot

be found within the owning family. To date we know little about the governance contexts

under which non-family leaders thrive or founder. Guided by concepts from agency theory

and behavioural agency theory, we examine the conditions of ownership and leadership that

promote superior performance among non-family CEOs of family firms. Our analysis of 893

Italian family firms demonstrates that these leaders outperform when they are monitored by

multiple major family owners as opposed to a single owner; they also outperform when they

are not required to share power with co-CEOs who are family members, and who may be

motivated by parochial family socioemotional priorities.

Keywords: co-leadership, family firms, non-family CEOs, ownership structure

INTRODUCTION

Agency theory suggests that agent-principals such as family member-CEOs of family

firms incur reduced agency costs due to the alignment of their interests with those of

other owners, and thus will outperform agents who are at arms length from principals(Fama and Jensen, 1983). Indeed, several studies have celebrated the advantages of

having family CEOs run family companies (Anderson and Reeb, 2003; Miller and Le

Breton-Miller, 2005; Miller et al., 2008; Minichilli et al., 2010; Ward, 2006). However,

some literature advancing behavioural agency explanations argues that CEOs who are

members of an owning family frequently are motivated by non-financial, socioemotional

wealth objectives, such as preserving family control, even if that sacrifices firm profit-

ability (Gomez-Mejia et al., 2007, 2011). In that case,non-familyCEOs who may be less

swayed by such family-centric diversions would outperform financially in family firms

Address for reprints: Alessandro Minichilli, Department of Management and Technology and CRIOS, BocconiUniversity, Via Roentgen, 1, 20136 Milan, Italy([email protected]).

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2013 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies51:4 June 2014doi: 10.1111/joms.12076
mailto:[email protected]:[email protected]

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(e.g., Bennedsen et al., 2007; Bloom and Van Reenen, 2007; Mehrotra et al., 2013;

Miller et al., 2007). Given these disparities in the literature, it remains unclear whether

and when non-family CEOs will outperform family CEOs. This uncertainty has both

empirical and conceptual sources. Empirically, studies of family firms have only just

begun to uncover the drivers of leader performance (e.g., Miller et al., 2013). Concep-

tually, two important theories that might inform the question namely behaviouralagency and agency theory generate conflicting expectations. This research helps to

reconcile these theories in demonstrating the governance contexts that enable non-

family CEOs to outperform. Indeed such governance contexts can cast light on just when

each of these theories may have the most useful application.

We shall argue that agency theory helps to make clear the ownership conditions under

which a non-family CEO will outperform, namely where there can be effective moni-

toring by major family owners. By contrast, behaviouralagency theory suggests the lead-

ership arrangements specifically, the co-CEO teams in which a non-family CEO must

share power with other family executives that foster hobbling socioemotional diver-sions. Based on a longitudinal study of 893 medium and large-sized Italian private,

family controlled enterprises, we find that non-family CEO performance is highly

sensitive to these contextual aspects of ownership and leadership.

Our study contributes to the literatures on both family business and strategic leader-

ship. First, we add to the debate on the situational prevalence and impact of non-

financial and socioemotional wealth (SEW) priorities advanced by some behavioural

agency proponents (Gomez-Mejia et al., 2011), identifying when such priorities may

trump financial objectives and restrict performance. This enables us to reconcile con-

flicting studies in the literature on family business performance (see, e.g., Miller et al.,2007, 2013). Also, we contribute to the strategic leadership literature (Finkelstein et al.,

2009), showing how the ownership and leadership contexts of CEOs can influence their

effectiveness. We call into question as well the utility of senior leadership teams involving

co-CEOs (see, e.g., Hambrick and Cannella, 2004; Marcel, 2009), showing how in family

firms their potential benefits may be outweighed by their shortcomings.

The paper is structured as follows. In theorizing, we first argue for the superiority of

talent of non-family versus family CEOs in family firms. Then, by adapting arguments

from agency theory, we specify the ownership structures that are most apt to lead to

the effective monitoring of non-family CEOs in family firms, and hence their

outperformance. Finally, using behavioural agency theory, we discuss the leadership

conditions within the group of top managers that enable or prevent a non-family CEO

from outperforming in a family firm. Our arguments and hypotheses are followed by our

methods and findings, and we conclude with a discussion of the implications and

limitations of the study.

THEORETICAL BACKGROUND

Agency vs. Behavioural Agency Theory

Agency and behavioural agency theories lead to rather different expectations regarding

the utility of non-family CEOs in family firms. The former argues that agents tend

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towards opportunism unless they are very closely monitored and significantly

incentivized to act in the best interests of shareholders (Fama and Jensen, 1983; Jensen

and Meckling, 1976). Following that logic, one would anticipate that family CEOs who

are significant shareholders in their firm and/or whose interests are aligned with those of

the owning family will outperform hired hands, that is, non-family CEOs who are

mere agents (Miller and Le Breton-Miller, 2005, 2006).In direct contrast, behavioural agency theorists would predict the reverse. They

postulate that risk taking behaviour is a function of existing endowments. For example,

that family CEOs, to preserve the socioemotional wealth they derive from their business,

will eschew intelligent business risks and in doing so sacrifice economic performance

(Gomez-Mejia et al., 2007; Wiseman and Gomez-Mejia, 1998). Socioemotional goals

include preserving control of the firm for the family, hiring family managers, using

business resources, and avoiding promising risk-bearing initiatives to do so

(Gomez-Mejia et al., 2011; Miller et al., 2011, 2013). Thus family CEOs are more likely

to embrace such SEW objectives than non-family CEOs who are less tied emotionally toother family members.

We shall argue that both agency and behavioural agency theories have important

merit the SEW perspective being a special variety of the latter reflecting the non-

economic preferences of some family officers. But they apply to different situations and

aspects of governance and help determine just when non-family CEOs will outperform.

Specifically, agency theory applies mostly to the relationship between an agent and the

owners of a firm, and to well-spaced, periodic interactions regarding strategic oversight.

Here non-family executives will require monitoring by an informed group of major

owners whose collective wisdom can prevent opportunism. By contrast, behaviouralagency theory, specifically, its SEW sub-variety, applies mostly to the day-to-day execu-

tive actions of top executives and the extent to which family members have direct

involvement in those interactions. In that case, non-family executives will be freer from

financially compromising family socioemotional priorities when acting alone, rather than

when having to act with the approval of family co-executives.

The Relative Merit of Non-Family CEOs

Family firms may have an especially hard time obtaining talented executives as these are

too often drawn from a small pool of relatives wherein kinship takes precedence over

talent (Handler, 1992; Lansberg, 1999; Mehrotra et al., 2013), and where CEO positions

are reserved exclusively for family members (Bertrand and Schoar, 2006; Bloom and

Van Reenen, 2007). On the one hand, family CEO candidates may constitute a familiar

and motivated pool of talent, thanks in part to the more effective transmission of

knowledge about the business from a founder to his or her offspring (Miller and Le

Breton-Miller, 2005). However, Bertrand and Schoar (2006) and Mehrotra et al. (2013)

have highlighted the negative consequences of such nepotistic appointments that fail to

exploit the larger market for professional managers. The selection of non-family over

family CEOs removes these pool restrictions. It also may lessen the challenge of havingto balance the socioemotional wealth objectives of family owners with the commercial

requirements of the business (Gomez-Mejia et al., 2011; Schulze et al., 2001).

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However, non-family CEOs may not always outperform. Agency theory suggests that

they may behave in opportunistic ways as their interests are not necessarily aligned with

those of the major owners (Fama and Jensen, 1983). Moreover, in family firms, there are

often other family members involved in running the business individuals who behav-

ioural agency theory suggests may have non-economic socioemotional objectives that

can derail the initiatives of a non-family CEO (Gomez-Mejia et al., 2007). We turn nowto those conditioning factors.

Superior Monitoring by Multiple Major Owners Agency Considerations

Where a non-family CEO runs a family firm, agency theory suggests that monitoring by

informed and powerful owners is warranted to reduce opportunism (Fama and Jensen,

1983).[1] Their personal attachment and financial stake in the firm makes many major

family owners effective monitors. They feel more responsible for the business than do

non-family owners (Gomez-Mejia et al., 2011; Le Breton-Miller and Miller, 2009), andthus are more likely to acquire a deeper knowledge of its operations. Hence, in family

firms multiplemajorfamily owners who understand the business and have its best interests

at heart can serve as effective monitors (Daily et al., 2003).

By contrast, where there is onlya single dominant ownerinvolved in a family business, that

person is less likely to have the talent and knowledge to monitor and advise a non-family

leader than would several major owners (OToole et al., 2002), increasing the risks of

CEO opportunism. Where ownership is distributed among multiple major owners, as

opposed to residing within a single owner, there is a greater collective capacity to monitor

an agent and address firm challenges (e.g., Daily et al., 2003; Kim, 2010). Our argumenthere diverges slightly from the traditional agency logic that decries ownership dispersion

( Jensen and Meckling, 1976) as for our concentrated businesses, some dispersion is to be

preferred to concentration within one dominant owner.

Leadership Context of Non-Family CEOs Behavioural

Agency Considerations

Proponents of behavioural agency theory argue that some agents and principals favour

non-financial objectives (Wiseman and Gomez-Mejia, 1998). Indeed, Gomez-Mejia

et al. (2007, 2011) maintain that in family firms, the socioemotional wealth priorities of

family members such as keeping family control of the firm, avoiding risk, and entrench-

ing family executives may outweigh financial objectives, to the detriment of firm

performance. Thus where a non-family CEO is required to deal with members of the

controlling family who have equivalent formal power and day-to-day administrative

responsibilities, those SEW priorities can offset the market-oriented initiatives of a

non-family CEO (Gomez-Mejia et al., 2007, 2011; Miller and Le Breton-Miller, 2006;

Minichilli et al., 2010). This may be especially true in the presence of influential family

co-CEOs with substantial power but sometimes different goals and skills (Miller et al.,

2013). As we shall see later, such co-CEO arrangements are very common in privatefirms in Italy and other European countries, and in US family firms as well (OToole

et al., 2002).

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HYPOTHESES

In this section, we shall argue for the relative merits of non-family CEOs in family firms

under particular conditions. Using agency and behavioural agency perspectives, we shall

specify some general conditions of context under which non-family CEOs can perform

in a superior manner.

Non-Family CEOs and Firm Financial Performance

From a labour market perspective, family CEOs are drawn from too restrictive a group

of eligible people to be as effective and capable as outsider talent drawn from a much

larger pool of individuals (Mehrotra et al., 2013). This is consistent with evidence from

Bloom and Van Reenen (2007), who found significant variations in talent within

medium-sized, mostly family firms, versus a quite uniform and superior distribution of

talent in larger companies (Gabaix and Landier, 2008). In fact, prior evidence suggests

that family CEOs can have a more negative effect on performance in family firms (e.g.,Bennedsen et al., 2007; Lin and Hu, 2007; Prez-Gonzles, 2006). Bennedsen et al.

(2007) found that non-family CEOs tend to be more educated and experienced than

their family counterparts. Other scholars argue that non-family CEOs are more apt to

implement professional managerial practices (e.g., Dyer, 1989; Sonfield and Lussier,

2009). Indeed, if we compare the professional ability of virtually all non-family CEOs

with the greatly varying abilities of most family CEOs, the likely superiority of the former

becomes very plausible (Bertrand and Schoar, 2006; Bloom and Van Reenen, 2007).

Non-family CEOs may also be more immune than family CEOs to having to preserve

the socioemotional endowment of owning families using business resources (Gomez-Mejia et al., 2007, 2011). They are more apt to focus on financial performance than

socioemotional returns and less likely to be emotionally swayed by family-centric issues.

In short, non-family CEOs may contribute to company financial performance, both by

bringing a larger repertoire of management skills and by reducing the disruptive poten-

tial of a family socioemotional agenda (Blumentritt et al., 2007; Klein and Bell, 2007;

Miller et al., 2013). Hence, we hypothesize the following:

Hypothesis 1: The presence of a non-family CEO has a positive effect on family firm

financial performance.

Notwithstanding the above hypothesis, our thesis is that the effectiveness of a non-family

CEO will be contingent on the leadership and governance context within which that

person finds him- or herself. Specifically, non-family CEOs may require ample moni-

toring by major owners to discourage opportunism, and also freedom from interference

by powerful family executives distracted by an SEW agenda. We now turn to these

important qualifications.

Non-Family CEOs within a Dispersed Ownership Structure

Proponents of agency theory argue that in order to reduce opportunism on the part of

executives who are not principals, owners must have the knowledge and power to



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monitor their agents effectively (Fama and Jensen, 1983; Jensen and Meckling, 1976).

They argue that this cannot happen when ownership is highly dispersed among minor

owners who have neither the ability nor the knowledge to monitor top executives. Hence

ownership dispersion has been associated with significant agency costs. The situation

may be different however in closely controlled family firms where some dispersion

among multiple major owners as opposed to a singular ownermay actually improve moni-toring (Daily et al., 2003; Morck et al., 1988). Here, dispersion of ownership among

several major owners will add to the collective expertise of the ownership group and thus

increase monitoring capability. Such broader ownership structures may be beneficial

because multiple family members can contribute more wide-ranging expertise to oversee

the business (Ward, 2006). Where a single individual owns the vast majority of shares,

there is less incentive and capacity for other owners to serve as monitors.

These argumentsdo notapply to the atomistic ownership dispersion that occurs in large

public firms and increases traditional agency costs (Fama and Jensen, 1983). They only

pertain to family firms in which several family members each have sufficient shares orvotes to have an important voice in governance. Again, the contrast here is with firms in

which a single owner dominates.

Hypothesis 2: The positive effect of a non-family CEO on family firm performance

becomes stronger under dispersed family ownership (i.e., weaker under highly con-

centrated ownership).

Non-Family CEOs within a Co-CEO Leadership Model

Co-CEO arrangements are by no means uncommon, but they are under-studied. As

noted, many firms worldwide, especially family firms, employ co-CEO structures in which

members of the executive suite each have the same title and share responsibility for

developing firm strategy and overseeing different division or functions. Co-CEO struc-

tures in family firms are acknowledged to be an important means of apportioning

leadership responsibilities across family members (Aronoff et al., 1997; Lansberg, 1999).

Co-CEO structures exist in many countries. In Germany, for example, research on 500

high performing companies (hidden champions) revealed that a significant number of

them adopted collegial leadership structures with more than one CEO (Simon, 1996). The

co-CEO phenomenon also exists in the USA, although mostly in smaller, private firms. A

survey of 1035 US family firms aged 10 years or older and with at least $1 million in sales

revealed that 42 per cent of the entrepreneurs entertained the option of employing

co-CEOs in the next generation of leadership a percentage that has remained stable over

the years (MassMutual, Kennesaw State University and Family Firm Institute report,

2007). Co-CEO-like arrangements also exist in larger American companies where there is

a strong chairman who is an ex-CEO, or where important powers are shared between a

CEO and chief operating officer (Hambrick and Cannella, 2004; Marcel, 2009; Zhang,

2006). Giant firms such as Michelin, Motorola, and Nordstrom have at some periods in

their histories employed co-CEO-like arrangements (Miller and Le Breton-Miller, 2005).Indeed, sharing of executive power occurs even within top management teams where

divisional and head office executives are represented (Hambrick et al., 1996).

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In general, co-CEO leadership may be harmful as it violates unity of command

(Fayol, 1949) and fosters confusion regarding lines of authority and accountability

(Galbraith, 1977; OToole et al., 2002). Moreover, it may prevent cohesive strategy

formulation (Charan and Colvin, 1999), reduce any individual leaders efforts (Aghion

and Tirole, 1997), and make it easier for a leader to diffuse accountability (Marcel, 2009).

Additionally, co-leadership may create tension between collaboration and competitionwithin corporate elites, with uncertain organizational consequences (Zhang, 2006).

Behavioural agency proponents have suggested that family executives running family

firms are especially susceptible to family demands for SEW and parochial, non-financial

benefits from the business (Gomez-Mejia et al., 2007, 2011). These benefits include

preserving family control of the firm by hiring and entrenching less capable relatives, and

avoiding risks associated with business renewal and innovation (Gomez-Mejia et al.,

2007, 2011; Miller et al., 2011). To the extent that a non-family CEO must share power

with family co-CEOs, it is likely that the discretion of the former to act in the best

interests of the firm will be restricted. The non-family leader now must take into accountthe priorities of other family executives executives who may be less capable and less

willing to pursue a sound business agenda.[2]

Given that a family co-CEO is more likely to have a family socioemotional agenda and

to be less competent than a non-family co-CEO (see Hypothesis 1), the latters business

initiatives may be hindered by the former (Bertrand and Schoar, 2006; Gomez-Mejia

et al., 2007; Kellermanns and Eddleston, 2004). For example, family members may favour

dividend payouts to provide them with liquidity, whereas a non-family CEO may be

inclined to reinvest cash to grow the company (Gomez-Mejia et al., 2011). The utility of

having a talented non-family CEO may be nullified in the presence of family co-CEOs.Indeed, friction between family and non-family CEOs may even de-motivate the latter.

Moreover, where non-family CEOs must share power with other co-CEOs, the absence

of unity of command may be especially problematic, again in part due to the conflicts

caused by the often opposing nature of family-centric and business agendas. Hence:

Hypothesis 3: The positive effect of a non-family CEO on family firm financial perfor-

mance will become negative in the presence of co-CEOs who are family members.

In comparing Hypotheses 2 and 3, we may surmise that traditional agency theory,

slightly modified, applies mostly to the domain of arms-length, periodic interactions

between owners and agent, whereas behavioural agency theory applies more to the

intimate, intensive agentagent interactions typical of top managers running a firm

together on a day-to-day basis.

Non-Family CEOs in Co-CEO Leadership Structures and

Dispersed Ownership

The conjunction of non-family CEOs operating in a co-CEO leadership structure may

negate the positive monitoring effects of having multiple major family owners. As noted,there are apt to be differences in priorities between family and non-family CEOs with

the former being more susceptible to parochial SEW priorities for the family, and the



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latter more given to pursuing an economic agenda for the business (Gomez-Mejia et al.,

2007). Family executives with differing priorities from a non-family CEO might appeal

to different owners thereby bringing owners onboard to second guess and thwart the

initiatives of a non-family executive (Gersick et al., 1997). Such appeals might prevent a

coherent business strategy that is free from SEW diversions (OToole et al., 2002).

Moreover, the resulting de-motivation of a non-family CEO in an environment in whichfamily politics come to dominate may enhance opportunism and agency costs.

Hypothesis 4: The positive effect of a non-family CEO on family firm performance

under dispersed ownership becomes weaker when he or she is acting within a team of

family co-CEOs.

METHOD

Sample and Variables

Our sample is drawn from Bocconi Universitys Italian Observatory of Family Firms. The

Observatory monitors the entire population of Italian family-controlled firms with turn-

over of over50 million, as identified from public sources such as AIDA (Italian Digital

Database of Companies) a branch of the Bureau van Dijk group. AIDA incorporates

comprehensive financial information for almost all the private firms in Italy. Data on

ownership, governance, and performance were collected for the period 200008 from

company official filings in the Italian Chambers of Commerce, in which all Italian

companies are obliged by law to deposit annually distinct filings regarding: (a) ownershipstructure and its evolution over time, with a full account of owners names, individual

shares held, owners characteristics (name, gender, age, family affiliation, etc.), as well as

transfers of shares within or outside the family; (b) governance structures, including

information on the leadership model (individual versus co-CEO structures), the CEOs

characteristics (age, gender, tenure in office, etc.), repeated for each individual CEO in

case of co-CEOs arrangements; and (c) financial performance, including all data and

financial ratios from balance sheet and income statements, which are subsequently

elaborated by AIDA.

To build our dataset, we identified 4221 family controlled firms out of the entire

population of 7663 companies with revenues exceeding 50 million. We defined as

family-controlled those private firms in which a family owned an absolute majority (i.e.,

50 per cent) of shares. Due to the large blockholdings characterizing Italian privately

controlled firms, 50 per cent of ownership (25 per cent for listed companies) is required

to achieve control (Bennedsen and Wolfenzon, 2000). We used consolidated financial

information for the aggregate holding companies when all their subsidiaries operated in

the same two-digit industry classification, and used information on the individual sub-

sidiaries if these operated in different two-digit industries. This holding company con-

solidation caused the sample to reduce to 2522 firms. From that sample, we focused on

privately controlled firms, and excluded observations on publicly listed companies whichrarely employ co-CEO ownership structures, and that are exposed to different resource

needs, and different issues involving external stakeholders. Additionally, in order to

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compare firms with comparable legal status, we excluded companies without a formal

board of directors. List-wise exclusion of cases due to missing values in financial data

resulted in a final usable number of 7149 observations on 893 privately controlled family

companies.

The dependent variable in our study is an industry-adjusted measure of ROA (Industry-

adj ROA), computed as the difference between the firms ROA and the average ROA ofthe firms in the same two-digit SIC code industry in the same year. ROA has been

commonly used to assess top executive and family impact on firm performance (e.g.,

Anderson and Reeb, 2003; Cannella and Shen, 2001). Our independent variable is the

presence of non-family CEOs as business leaders (Non-family CEO leadership), coded 1 if

there is at least one non-family CEO leading the company (either alone or within

co-CEO structures), and 0 otherwise. Firms having co-CEO leadership are 58 per cent

of the final sample. For firms with co-CEO leadership structures, 55.8 per cent of cases

have two co-CEOs (firm/year observations); 26.5 per cent of cases have three co-CEOs;

10.6 per cent of cases have four co-CEOs; 3.9 per cent of cases have five co-CEOs; andless than 3 per cent have more than five.

The familial nature of the CEOs has been determined by surname affinity with that of

the controlling family, as recorded in Chamber of Commerce filings (Miller et al., 2013).

Although this may miss some family firms in the rare cases where the only major owner

is an in-law with a different name than the founding family, and it counts as a family firm

one in which there are multiple major owners or CEOs with the name of the founder,

given our very large sample of private firms, these inaccuracies are not apt to significantly

distort our results. More importantly, our cross-referencing national fiscal code numbers

with personal data on our owners and executives (such as residence, change in address,etc.) allowed us to determine marriage relationships and spousal branch involvement,

further decreasing the likelihood of significant inaccuracies in our classifications.

Two moderating variables were used to test our hypotheses. The first is a measure of

Family ownership dispersion, computed as the complement to 1 of the Herfindahl concen-

tration index of family ownership. The family Herfindahl concentration index was

adapted for family owners based on the original formulation of Schulze et al. (2003) as:

H family( ) ==

( )

Sii

n f2

1

wheren(f) is the number of family shareholders (shares were tallied for the seven largest

family shareholders, since almost 90 per cent of our firms had seven shareholders or less,

and also because our study focuses on potential resources and conflicts pertaining tomajor

owners), andSiis the number of shares held by the i-th family shareholder of the firm.

An index close to 1 indicates stronger concentration, with the maximum being 100 per

cent of shares held by a sole family owner. The second moderating variable is a

dichotomous variable accounting for the existence of aCo-CEO leadershipstructure, coded

1 if the company is led by two or more co-CEOs, and 0 otherwise. Specifically, weidentified a co-CEO arrangement when all these conditions occurred: (a) more than one

person was formally designated as the company CEO; and (b) the breadth and depth of



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responsibilities and power in the hands of each of the co-CEOs was substantially the

same as attested to by documentation. To this end, we hand-collected and analysed all

firm filings to the Chamber of Commerce, specifically the sections reporting CEOs

proxies and job descriptions, and excluding those whose job was too narrow or specific

(e.g., roles in sales, marketing, operations, administrative activities).

Based on prior studies of family firm performance, we also included the followingcontrol variables in all regressions: Firm age,size,R&D/Salesratio, andDebt/Equityratio

(Anderson and Reeb, 2003; Miller et al., 2007), as well as the previous years financial

performance. Firm age, size, and R&D to sales were log transformed to achieve nor-

mality. We also controlled for the generation of the leader (I generation), the percentage of

non-executives on the board of directors (Board % of Non-Exec), the percentage of family

directors (Board % of Family Members) (Andres, 2008; Villalonga and Amit, 2006), the

share of the largest shareholder (Largest shareholders share) (Schulze et al., 2003), as well as

the age and the tenure of the CEO, averaged for teams of co-CEOs (respectively, Average

CEO age and Average CEO tenure) (Henderson et al., 2006). Table I provides means,standard deviations, and correlations among our variables. Reported VIF (variable

inflation factor) values are consistently lower than 10 and, as suggested by Neter et al.

(1996), this indicates the absence of significant collinearity problems.

We tested our hypotheses estimating a panel regression model with the relevant

interaction terms of Non-Family CEO*co-CEOs; Non-Family CEO*Dispersion; Non-Family

CEO*co-CEOs*Dispersion. In all these analyses, variables have been standardized to avoid

collinearity. We also tested the robustness of the three-way interaction findings using

sub-sample analyses, which also facilitated interpretation.

ANALYSIS AND RESULTS

Table II reports descriptive statistics for the subsamples identified by all the possible

combinations of the variables of non-family CEO leadership, ownership dispersion, and

co-CEO leadership. For purposes of Table II only, we transformed the measure of

ownership dispersion into a dichotomous variable, classifying as concentrated ownership

structures those with the value of the dispersion measure above the median (i.e., disper-

sion index= 0.63), whereas those having values below the median are classified as

dispersed structures.

The descriptive statistics in the subsamples suggest that the firms having concentrated

ownership and non-family CEOs as single leaders or within co-CEO structures suffer a

performance disadvantage. Poorly performing companies also have a smaller percentage

of family directors and a higher average CEO age. On the other hand, companies that

perform better have dispersed ownership structures and non-family CEOs acting as single leaders with no

co-CEOs.

To test our hypotheses, we ran panel regression fixed effects estimations of the impact

of non-family leadership on firm performance (Industry-adj ROA) (Table III). Hausman

tests performed for each model produced statistically significant results, suggesting that

fixed-effect models were more appropriate than random-effects models (2 =1240.37***in model 1,2 =1286.18*** in model 2, 2 =1301.22*** in model 3, 2 =1333.28*** in

model 4). The inclusion of firm fixed effects allowed us to control for time-invariant

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TableI.

Means,standarddeviations,correlations,andVIFvalues

Mean

SD

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

VIF

1

ROAadjusted

1.96

5.90

1.00

2.67

2

ROAadjusted(n

1)

1.67

5.94

0.78

1.00

2.63

3

Non-familyCEO

leadership

0.39

0.49

0.01

0.01

1.00

1.82

4

Fam

ilyownership

dispersion

0.56

0.33

0.01

0.01

0.05

1.00

1.74

5

Co-C

EOleadership

0.59

0.49

0.00

0.01

0.18

0.05

1.00

1.39

6

Firm

age

3.07

0.74

0.06

0.07

0.09

0.13

0.02

1.00

1.42

7

Firm

size

11.3

4

0.97

0.07

0.07

0.10

0.01

0.04

0.12

1.00

1.09

8

R&D

/Sales(%)

0.21

1.79

0.07

0.09

0.02

0.04

0.01

0.04

0.04

1.00

1.02

9

Debt/Equity

2.29

23.75

0.34

0.32

0.01

0.03

0.00

0.10

0.05

0.02

1.00

1.19

10

First

generation

0.23

0.42

0.03

0.03

0.13

0.09

0.12

0.30

0.07

0.01

0.04

1.00

1.32

11

Board%of

non-executives

0.38

0.28

0.03

0.04

0.06

0.02

0.48

0.03

0.15

0.01

0.04

0.10

1.00

1.42

12

Board%offamily

mem

bers

0.66

0.30

0.05

0.05

0.59

0.04

0.15

0.07

0.19

0.03

0.01

0.15

0.31

1.00

1.84

13

Larg

estshareholders

share

0.63

0.27

0.01

0.00

0.14

0.64

0.08

0.17

0.07

0.03

0.08

0.06

0.02

0.18

1.00

1.83

14

AverageCEOage

53.3

1

11.02

0.02

0.01

0.03

0.00

0.07

0.16

0.12

0.01

0.10

0.09

0.14

0.07

0.01

1.00

1.25

15

AverageCEOtenure

9.47

6.39

0.04

0.04

0.25

0.04

0.01

0.34

0.03

0.03

0.06

0.23

0.01

0.22

0.09

0.38

1.00

1.53

Note:Correlationsgreaterthan0.02andlessth

an0.02aresignificantatp

joms12076

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