The influence of family control and CEO compensation on sustainability disclosure - empirical evidence from Finnish listed companies.

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School of Business | Master's thesis
Degree programme
61 + 14
Family firms account for nearly 60% of the public listed companies in Fin-land and family ownerships are dominating most of the large sectors that have an essential role in achieving sustainable goals globally. With deeply held values to sustain the family business and the incentives to protect a legacy for the next generation, family-owned firms are potential candidates for leading sustainability practices and contributing to society. There are several papers investigating the relationship between family ownership and sustainability disclosures in different countries. None of such research has been conducted in Finland. Hence, this thesis paper aims to assess the influence of family control, family involvement in the CEO position, and CEO compensation on the sustainability disclosure performance of all listed firms in Finland. Family firm as a homogeneous group is compared to other concentrated ownerships and other widely-held firms regarding the practice of disclosing sustainability reports. The heterogeneity among family firms is observed by whether the firms have active involvement in having a family member as CEO or not. The impact of different CEO compensation components in family and non-family listed firms is also studied to contribute to the future design of CEO incentive plans. Agency theory, stakeholder theory, stewardship theory, and socioemotional wealth are utilized to analyze different aspects of the topic. The data includes all Finnish listed companies from 2007 to 2018 with 128 firms and 1214 firm-year observations. Multiple regression analysis is conducted with the control for outliers and multicollinearity. A significant negative relationship is found between family firms and the extent to which they disclose sustainability reports. Other concentrated ownership types in the sample have a positive correlation with sustainability disclosure in general due to more significant agency problems and higher exposure to regulatory pressure. Among the family firms, those that have a family member as a CEO positively affect sustainability practices compared to those that hire external CEOs. The CEO’s fixed and short-term variable payments do not influence the sustainability disclosure decisions of the firms. However, the CEO’s share-based compensation witnesses a significant positive relationship with the sustainability disclosure performance, improving the company’s governance and its positive impact on other stakeholders.
Thesis advisor
Ikäheimo, Seppo
family firms, ownership, family CEO, CEO compensation, sustainability disclosure, agency issues, socioemotional wealth
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