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

• Main Authors: Marcelo, Jerome Brian T., Ng, Cranston Hans S., Te, Vance Aaron C.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Online Access: https://animorepository.dlsu.edu.ph/etd_honors/357
• Institution: De La Salle University

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.