From family control to shareholder equality: generational stage and the transition towards equal voting rights in public family firms

Abstract

Purpose – This study investigates how generational stage influences the adoption of equal voting rights in family firms as a governance mechanism to reduce agency costs. It examines the role of the family chairman in shaping these governance decisions. By exploring these dynamics – particularly through the lens of agency theory – the research aims to deepen our understanding of how family generations and control influence governance and shareholder rights in family firms. Design/methodology/approach – Using a panel dataset of 748 firm-year observations from 206 US-listed family firms between 2007 and 2021, the study applies a random-effects logistic panel regression model to analyse the effect of generational stage and family control on the likelihood of adopting equal voting rights. To address potential endogeneity between generational stage and governance choices, we complement our main analysis with a recursive bivariate probit model. Findings – The analysis shows that, when later generations are involved in the family firm, they tend to support equal voting rights. However, if a family member is also the chairman, differences between early and later generations diminish, and, in both cases, the implementation of equal voting rights will be likely. Originality/value – This research provides novel insights into the governance of family firms by focusing on the influence of generational stage on the adoption of equal voting rights. This study is the first to examine this relationship empirically, providing insights into how generation and family control shape governance practices.