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How does family governance shape corporate philanthropy? Interaction effects between family ownership and management controls
Kim, H.
Kim, H.
Publication Date
2019-12
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Keywords
Corporate social responsibility, Corporate social contribution, Family business, Family governance, Family visibility, Socio-emotional property perspective, Agent theory, Corporate social responsibility, Corporate philanthropy, Family business, Family governance, Family visibility, Socioemotional wealth perspective, Agency theory
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Peer-Reviewed
Yes
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Accepted for publication
30/10/2019
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Abstract
We examine the effect of family governance on corporate philanthropy by focusing on the motives of controlling families. We emphasize that controlling families have two different motives, namely, financial and socioemotional motives. On this basis, we argue that the two motives have contrasting effects on corporate philanthropy. Given that family ownership represents the financial motive of family principals, the first hypothesis posits that family ownership is negatively related to corporate philanthropy. Family management increases family visibility and thus encourages controlling families to be concerned with their socioemotional wealth. That is, the higher the visibility of controlling families in the firm, the more likely the overlap will be between family and firm identity. Thus, the second and third hypotheses predict that family involvement in management as a family CEO or director positively moderates the relationship between family ownership and corporate philanthropy. We test our hypotheses using fixed effects panel regression models and the sample of large nonfinancial Korean family firms listed in KOSPI, Korea’s major stock market. Test results support our hypotheses. We find that family firms become reluctant to engage in discretionary wealth transfer to nonfamily stakeholders as family ownership increases. However, this negative effect of family ownership on corporate philanthropy is weakened by family involvement in top management and the board of directors. Our findings reconcile the inconsistent results in the literature on family business and CSR, which is divided into positive and negative perspectives. In this manner, we revisit the assumption of prior research, which often treats family firms as homogeneous and reveals the limitation of a dichotomous approach to family business. We conclude by discussing the implications and theoretical contributions of this study and offering future research directions.
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Citation
Park S-B and Kim H (2019) How does family governance shape corporate philanthropy? Interaction effects between family ownership and management controls. Korean Management Review. 48(6): 1591-1623.
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