Accounting & Marketing

ISSN: 2168-9601

Open Access

Outside and Family Governance Power for Firm Performance: Why Organizational Capabilities Matter?


Yung-Chang Hsiao

Faced with a turbulent environment and international competition, innovation has been seen as a major source of competitive advantage. In many cases, firms do not possess all the required resources for innovation. According to RDT, the firm is an open system and dependent on the external environment to accumulate the necessary resources. A lack of necessary resources yields uncertainty and risks to firms’ innovation activities. In other words, it is difficult for firms to develop new technologies and products effectively without sufficient resources. Corporate governance studies have indicated that outside and family governance power are critical accesses for firms to acquire the resources that they need for innovation activities. This study investigates the effects of outside and family governance power on firm performance under the contingent contexts of organizational capabilities. Hierarchical regression is used to test the hypotheses in a panel data of 1202 cases. On the basis of the agency theory and stewardship theory, the results indicate an inverse U-shaped relationship between outside governance power and firm performance. In addition, the proportion of family directors is negatively associated with firm performance, while the proportion of the family ownership is positively associated with firm performance. Organizational capabilities, in terms of R&D capability and marketing capability, play as moderators. R&D capability strengthens the relationship between the proportion of outside directors and firm performance, while marketing capability attenuates the relationship between the proportion of outside directors and firm performance. Managerial implications and future research directions are discussed.


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