On Family Firm Founders' Work Experiences and Corporate Financial Conservatism

Li Xiaoxi; Liu Jing; Wang Kemin

doi:doi:10.16538/j.cnki.jfe.2016.04.009

Abstract

Based on the heterogeneity of founders' own characteristics, this paper investigates the relationship between family firm founders' work experiences and corporate financial conservatism. It shows that compared with family firms controlled by founders who have worked in private sectors prior to their entrepreneurship, family firms controlled by founders with public sectors' experiences exhibit lower financial leverage, smaller proportion of short-run borrowings, more cash holdings, and higher probability of employing low leverage for three consecutive years. Furthermore, higher-degree product market uncertainty in the industries the firms belong to leads to stronger correlation between family firm founders' experiences of working in public sectors and corporate financial conservatism. Besides, family firms controlled by founders with public sectors' experiences have better accounting and market performance. These findings imply that firms tend to be financially conservative if their founders used to work in the public sectors, owing to higher-level risk aversion of these founders and resulting relatively conservative culture atmosphere. This paper develops the study of reasons for financial conservatism in family firms & the relationship between personalities of the management and firm financial decison-making from a perspective of the heterogeneity of founders' work experiences, and helps investors to identify corporate financial risks.