The influence of family board involvement on working capital management

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While research on long-term capital structures of family and non-family firms is well established, differences in current assets- and liabilities-management are largely under-researched. The aim of the study is to examine whether the type and degree of family involvement in the firm affect the efficiency of working capital management. Employing a partially hand-collected panel of 278 listed firms from 2000–2013 this paper analyzes the impact of family shareholders as owners, managers, and supervisors on working capital handling in Germany. The results show that primarily the share of family members in the executive board increases the length of the cash conversion cycle (CCC), particularly in smaller and non-service firms. Most notably, family management increases the inventory period (DIO). The higher average equity ratio of family firms suggests that family firms may face reduced financing pressure to address such inefficiencies in current assets and current liabilities management. Furthermore, family-managed firms may be less professional in their working capital management. The findings contribute to the literature by showing that in a country with a less investor-friendly corporate governance system, family influences on working capital management are primarily due to management presence, not plain shareholder influence. The results stress the need for researchers to consider the degree of family management involvement when analyzing the financial aspects of family firms.

Keywords: Working Capital Management, Cash Conversion Cycle, Corporate Governance, Family Firms, Family Ownership, Board Composition

Authors’ individual contributions: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

Acknowledgements: The Author would like to thank Prof. Mark Mietzner for many helpful comments and discussions.

JEL Classification: G31, G32, G34

Received: 02.08.2021
Accepted: 19.11.2021
Published online: 22.11.2021

How to cite this paper: Franzoi, F. (2021). The influence of family board involvement on working capital management. Corporate Board: Role, Duties and Composition, 17(3), 42–60.