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The Effect of Family Governance on Corporate Time Horizons


  • Imke Kappes,

  • Thomas Schmid

Address for correspondence: Thomas Schmid, Department of Financial Management and Capital Markets, Technische Universität München, Arcisstrasse 21, 80333 Munich, Germany. Tel: 49-89-289-25179; Fax: 49-89-289-25488; E-mail:


Manuscript Type


Research Question/Issue

This paper empirically tests the effect of family governance on intertemporal choice. We contribute to the literature on corporate time horizons by formulating an innovative approach to the measurement of long-term orientation. This approach uses an index that captures investment, employee, and financing behavior.

Research Findings/Insights

Our research makes use of a dataset consisting of 701 German firms (6,205 firm-years) observed over the period from 1995 to 2009. We provide evidence that firms actively managed by founders and/or their families are significantly more long-term oriented than the control group. Our findings also show that these firms persist in maintaining a long-term approach in cases in which pressure on short-term results is high.

Theoretical/Academic Implications

This paper supports the hypothesis that trans-generational considerations can result in family-managed firms having longer time horizons. As such, our findings reinforce prior claims that agency outcomes can significantly differ in the context of family governance. Furthermore, our results accentuate the validity of the claim to separately account for multiple aspects of family governance in family firm research, in particular management vs. ownership.

Practitioner/Policy Implications

Our results will be helpful for investors in selecting investment targets that match their personal time preferences. In particular, it appears difficult to exert pressure on family managers to extract short-term profits. Policymakers may want to consider removing any barriers to the transferring of family firms between generations. Their orientation towards the long-term can make family-run companies sources of stability in their respective economies. This is also due to their less pronounced reaction to pressure.