Do family firms invest more than nonfamily firms in employee-friendly policies?

Jun Koo Kang, Jungmin Kim

Research output: Journal article publicationJournal articleAcademic researchpeer-review

6 Citations (Scopus)

Abstract

We examine whether family firms invest more in employee relations than nonfamily firms. Using the variation in state-level changes in inheritance, gift, and estate taxes as an exogenous shock to family control, we find that family firms, particularly those in which a founder serves as chief executive officer or those in which a family member serves as a director on the board, treat their employees better than nonfamily firms. More importantly, family firms focus on investing in employee relations that help alleviate laborrelated conflicts and controversies, possibly to avoid a negative family reputation among stakeholders. Family firms' better treatment of their employees is also evident when we use a difference-in-difference test to exploit changes in family firm status due to (sudden) deaths of family members and firms' inclusion in Fortune's "100 Best Companies to Work For" list to identify employee-friendly treatment. We further find that family firms in the early stage of their life cycle invest more in employee relations when they operate in laborintensive industries in which the benefits from family owners' monitoring of employees are expected to be large. Moreover, we find that although nonfamily firms' investment in employee relations is impeded by several constraints, such as short-term investor pressure, managerial myopia, and managerial agency problems, family firms do not suffer from such constraints. These findings help explain why underinvestment in employee relations is prevalent in public firms despite potential long-termbenefits from such intangible investment.

Original languageEnglish
Pages (from-to)1300-1324
Number of pages25
JournalManagement Science
Volume66
Issue number3
DOIs
Publication statusPublished - 1 Jan 2020

Keywords

  • Agency problem
  • Concern score
  • Employee-friendly policy
  • Endogeneity
  • Family firm
  • Founder
  • Labor-intensive industry
  • Life cycle
  • Managerial myopia

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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