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A Family Member or Professional Management? The Choice of a CEO and Its Impact on Performance

Authors


*Department of Business Education, National Changhua University of Education, 2, Shi-Da Rd, Changhua 500, Taiwan. Tel: 886-4-7232105 ext. 7135; Fax: 886-4-7211290; E-mail: shlin@cc.ncue.edu.tw

Abstract

In this study, we explore what kinds of family firms are more likely to have a family CEO or professional CEO, and investigate the performance of CEOs from different backgrounds. The results show that firms with low requirements in managerial skills and a high potential for expropriation are more likely to choose a CEO from the controlling family (nepotism). Our investigation, furthermore, shows that when a firm requires high managerial skills, using a professional CEO can help firm performance, especially if the family has low cash-flow rights and weak control. When there is large opportunity for expropriation in a family firm, the firm's performance will be better if the CEO is a family member and the family has highly persuasive cash-flow rights.

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