Association Between Corporate Governance Structures and Agency Problems in Small Firms

147 Pages·2014·2.1 MB·English

Jaana Lappalainen
Association Between
Corporate Governance
Structures and Agency
Problems in Small Firms –
Evidence on Finnish SMEs
The aim of this dissertation is to ad-
dress the question whether corporate
Jaana Lappalainen
governance structures are associated
with growth and profitability, and
Association Between
whether the funding and investment
behaviors of family and non-family
Corporate Governance
firms differ. The sample consists
of private small and medium-sized
Structures and Agency
Finnish firms.
Problems in Small Firms –
Evidence on Finnish SMEs
Publications of the University of Eastern Finland
Dissertations in Social Sciences and Business Studies
Publications of the University of Eastern Finland
Dissertations in Social Sciences and Business Studies
isbn 978-952-61-1434-7
issn 1798-5757

Association Between Corporate
Governance Structures and Agency
Problems in Small Firms –
Evidence on Finnish SMEs
Dissertations in Social Sciences and Business Studies No 81
JAANA LAPPALAINEN
Association Between
Corporate Governance
Structures and Agency
Problems in Small Firms –
Evidence on Finnish SMEs
Publications of the University of Eastern Finland
Dissertations in Social Sciences and Business Studies
No 81
Itä-Suomen yliopisto
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
Kuopio
2014
Kopijyvä Oy
Joensuu, 2014
Senior Editor: Prof. Kimmo Katajala
Editor: Eija Fabritius
Sales: University of Eastern Finland Library
ISBN (print): 978-952-61-1433-0
ISSN (print): 1798-5749
ISSN-L: 1798-5749
ISBN (PDF): 978-952-61-1434-7
ISSN (PDF): 1798-5757
Lappalainen, Jaana
Association Between Corporate Governance Structures and Agency Problems in
Small Firms 52 p.
University of Eastern Finland
Faculty of Social Sciences and Business Studies, 2014
Publications of the University of Eastern Finland,
Dissertations in Social Sciences and Business Studies, no 81
ISBN (print): 978-952-61-1433-0
ISSN (print): 1798-5749
ISSN-L: 1798-5749
ISBN (PDF): 978-952-61-1434-7
ISSN (PDF): 1798-5757
Dissertation
ABSTRACT
The overall purpose of this dissertation is to investigate the association between
corporate governance structures and agency problems in small firms. The aim
is to address the question whether ownership structure and board composition
are associated with growth and profitability, and whether attitudes towards and
the use of different funding sources and the investment behaviors differ between
family and non-family firms.
This dissertation provides evidence that both ownership structure and board
composition are significant determinants of firm performance in the sample of pri-
vate small and medium-sized Finnish firms. The results imply that the ownership
structure may be a more important determinant of the growth and profitability
of small firms than board composition. The findings reveal that pecking order
theory is a relevant theory in explaining the funding behavior of family firms. The
results obtained support the prior evidence that family firms are more interested
in maintaining control within the family. The results on the funding behavior
could also imply that family firms may be more financially constrained than their
non-family counterparts and they face more severe agency problems between the
firm and potential lenders due to information asymmetry.
The results on the investment behavior suggest that family firms are more
likely to reject an investment than are non-family firms. However, the findings on
the amount of investment indicate that no statistically significant difference exists
between family firms and non-family firms. The result could imply that both fam-
ily and non-family firms may be concerned with their firm’s future performance
and ability to survive in competition, thus, affecting their investment behavior in
a similar way.
Keywords: corporate governance, agency problems, growth, profitability, fund-
ing, investment, small firms
Lappalainen, Jaana
Corporate governancen ja agenttiongelmien välinen yhteys suomalaisissa pk-
yrityksissä. 52 s.
Itä-Suomen yliopisto
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta, 2014
Publications of the University of Eastern Finland,
Dissertations in Social Sciences and Business Studies, no 81
ISBN (print): 978-952-61-1433-0
ISSN (print): 1798-5749
ISSN-L: 1798-5749
ISBN (PDF): 978-952-61-1434-7
ISSN (PDF): 1798-5757
Väitöskirja
ABSTRAKTI
Tämän väitöskirjan tavoitteena on tutkia corporate governancen ja agenttiongel-
mien välistä yhteyttä pk-yrityksissä. Väitöskirjassa tutkitaan vaikuttavatko omis-
tusrakenne ja hallituksen kokoonpano pk-yritysten kasvuun ja kannattavuuteen
ja eroavatko perheyritykset ja ei-perheyritykset rahoitus- ja investointikäyttäyty-
misessä.
Tutkimustulosten mukaan yrityksen omistusrakenne ja hallituksen kokoon-
pano vaikuttavat pk-yrityksen kasvuun ja kannattavuuteen. Kuitenkin omistusra-
kenteella on enemmän vaikutusta kasvuun ja kannattavuuteen kuin hallituksen
kokoonpanolla. Rahoituskäyttäytymisen osalta perheyritykset näyttävät käyttä-
vän ostovelkoja, rahoitusyhtiöitä ja nykyisiä omistajia rahoituslähteenään useam-
min kuin ei-perheyritykset. Kuitenkin perheyritysten omistaja-johtajien asenteet
ovat negatiivisemmat pankkilainoja ja ostovelkoja kohtaan ja positiivisemmat
omistajien lisäsijoituksia kohtaan kuin ei-perheyrityksissä. Yritykset näyttävät
noudattavan pääosin pecking order- teoriaa rahoituskäyttäytymisessään. Tulokset
viittaavat siihen, että perheyrityksillä on enemmän agenttiongelmia yrityksen ja
rahoittajien välillä kuin ei-perheyrityksillä.
Tutkimustulokset paljastavat, että perheyritykset joutuvat hylkäämään inves-
tointeja useammin kuin ei-perheyritykset mm. rahoituksen saannin vaikeuden
vuoksi. Tämä viittaa agenttiongelmiin yrityksen ja ulkopuolisten rahoittajien
välillä. Investointien määrän osalta perhe- ja ei-perheyrityksillä ei näytä olevan
tilastollisesti merkittäviä eroja.
Avainsanat: corporate governance, agenttiongelma, kasvu, kannattavuus, rahoi-
tus, investoinnit, pk-yritykset
Acknowledgements
I am grateful to all those who have helped me with this research process. Firstly, I
would like to express my gratitude to my supervisors, Professor Mervi Niskanen
and Professor Jyrki Niskanen, for supervising, valuable support and advice dur-
ing the research process. Especially Professor Mervi Niskanen has given valuable
support and counselling during this research process. Secondly, I am also grateful
to the official dissertation preliminary examiners, Professor Minna Martikainen
and Professor Markku Vieru. Thirdly, I appreciate my employer Kajaanin ammat-
tikorkeakoulu (Kajaani University of Applied Sciences) for making my study leave
and this research possible. I would like to thank Mrs. Heli Itkonen, the Head of
School of Business at Kajaanin ammattikorkeakoulu, for being interested in my
research work and for supporting me during this research process.
For financial support, I thank the Jenny ja Antti Wihurin rahasto (Foundation),
the Kluuvin Säätiö (Foundation), and Nordea Pankin säätiö (Nordea Bank
Foundation).
From a more personal respective, thanks are due to my friends, especially Ms.
Merja Piippo and Ms. Ulla Parkkila. I also owe my gratitude to some of my col-
leagues and some other persons whom I will not define here. I have needed very
much physical training during this dissertation project just to relax, get scientific
thinking out of my mind for a while. Therefore, I would like to thank the staff
in Liikuntakeskus IsoHoo, which has offered challenging and enjoyable guided
physical training. My special thanks go to Ms. Marjut Heikkinen. Without my
good physical condition I could not have been able to complete this challenging
process. I have needed many trips abroad just to change the environment to en-
hance my performance. During my stay in Greece I have enjoyed both the country
and writing this dissertation.
Finally, I owe my warmest gratitude to my husband Sakari and our son Paavo
for their understanding and patience throughout the research process. Without
their unfailing faith in my ability to complete the work, this doctoral dissertation
would not have been possible.
Korholanmäki, April 2014
Jaana Lappalainen