Do founders matter?: A study on the presence of founders and firm performance in the Philippines

Date of Publication

2010

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Applied Economics

College

Ramon V. Del Rosario College of Business

Department/Unit

Economics

Honor/Award

Awarded as best thesis, 2010

Defense Panel Chair

Angelo A. Unite

Defense Panel Member

Angelo B. Taningco
Rachel C. Reyes

Abstract/Summary

The role of founders in managing the firm is an issue that has attracted research interest over the years. Founders, as firm creators, imprint their values on structure, strategy and culture of the firm. Most founders continue their influence and presence in the form of (1) considerable equity holdings, (2) a seat in the board of directors, (3) a top management position such as the chief executive officer, 0r (4) by extension, the presence of descendants in important functions of the firm. Previous literature argue that founder presence can either positively affect firm performance if it acts as a leadership singularity mechanism and reduces agency costs, or trigger a negative effect on firm performance if it results to abuse of power, management inertia and entrenchment. These contrasting theories raise the question of which effect holds true in the Philippine setting especially given the phenomenon of declining presence of founders in recent years. Initially, we employ standard panel data econometric techniques to empirically investigate the relationship between firm performance and founder presence and then estimate instrumental variables techniques such as the Probit-instrumental variable approach and the generalized method of moments instrumental variable approach to address the issue on endogeneity in our 2002-2009 panel data on Philippine publicly-listed companies. In general, we find that founder presence negatively affects firms performance in the Philippines. This is supportive of hypothesis that founder presence causes abuse of power and management inertia. This implies that the firm could benefit when a founder relinquishes power and hands over to a professional manager.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU14606

Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

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