Family Matters: The Effects of CEO Parental Status in Family Firms

摘要

The purpose of this study is to examine whether the personal characteristics of the CEO influence corporate policies. Specifically, how does the CEO’s familial status affect the allocation of scarce financial capital to research and development and what is the resultant impact on profitability and firm value? Financial data for 14,650 firm-year observations of the S&P 500 firms from the years 1992 to 2012 is gathered from corporate proxy statements and 10Ks, and then it is analyzed using regressions. While previous research shows that family firms and founder firms result in a higher level of firm performance, our study shows that it is the presence of children of the CEOs of these family and founder firms that show this result. Return on assets and Tobin’s Q are higher when founder firm and family firm CEOs have children, which means these firms are more profitable and are valued higher. This can be explained by the lower overhead expenditures and higher R&D and advertising for firms with children. This is likely due to founder and family CEOs having a desire to invest in the future of the firm because they are developing a legacy for their children