Skip to main navigation menu Skip to main content Skip to site footer
FrancoAngeli Journals

Articles

No. 2 (2022)

Coming back to life: How business families revitalize "dead money" through family foundations

DOI
https://doi.org/10.3280/cgrds2-2022oa13746
Submitted
aprile 29, 2022
Published
2023-01-27

Abstract

This paper examines how business families use family foundations to revitalize “dead money” while increasing the reputation of the business family and its firms through charitable giving. The Wang & He (2018) model is applied from 2001 to 2019 to a sample of 100 US family foundations (two for each federal state) with about USD 1 million in assets. Results indicate that business families revitalize “dead money” through family foundations by investing it across different revenue sources, namely bonds, cash investments, and stocks, generating inflows in terms of dividends, interests, and net gains due to asset sales. However, family foundations hold much of these inflows as disposable net equity. Therefore, their administrative structure remains too basic, preventing operating margins from growing. Nonetheless, family foundations stay highly involved in charitable giving to do well to the reputation of the business family and its firms while doing good to society. Overall, we conclude that business families, through family foundations, partially succeed in revitalizing “dead money”.

References

  1. Adinolfi R., Esposito De Falco S. (2014). Reputazione e performance nelle organizzazioni di volontariato. Economia e Diritto del Terziario, 2: 269-284. DOI: 10.3280/ED2014-002004.
  2. CANDID (2021). Key facts on US non-profits and foundations. Text available at the website: https://www.issuelab.org/resources/38265/38265.pdf.
  3. Carney M., Gedajlovic E., Strike V.M. (2014). Dead money: inheritance law and the longevity of family firms. Entrepreneurship Theory and Practice, 38(6): 1261-1283. DOI: 10.1111/etap.12123.
  4. Carr J.C., Chrisman J.J., Chua J.H., Steier L.P. (2016). Family firm challenges in intergenerational wealth transfer. Entrepreneurship Theory and Practice, 40(6): 1197-1208. DOI: 10.1111/etap.12240.
  5. Danco L.A., Ward J.L. (1990). Beyond success: the continuing contribution of the family foundation. Family Business Review, 3(4): 347-355. DOI: 10.1111/j.1741-6248.1990.00347.x.
  6. De Massis A., Kellermanns F., Wright M., Brinkerink J. (2020). Replication and val-idation in family business research. Journal of Family Business Strategy, 100415. DOI: 10.1016/j.jfbs.2020.100415 .
  7. De Massis A., Kotlar J., Manelli L. (2021). Family firms, family boundary organizations, and the family-related organizational ecosystem. Family Business Review, 34(4): 350-364. DOI: 10.1177/08944865211052195.
  8. Dolan K.A. (2020). Billion-dollar dynasties: these are the richest families in America. Forbes. Text available at the website: https://www.forbes.com/sites/kerryadolan/2020/12/17/billion-dollar-dynasties-these-are-the-richest-families-in-america/.
  9. Esposito De Falco S., Mirone F., Sardanelli D., Esposito E. (2020). Longevità, sensibilità al rischio e familiness nelle imprese familiari: una cluster analysis. In: Sinergie-SIMA 2020 Conference, Grand challenges: companies and universities working for a better society. University of Pisa-Sant’Anna School of Advanced Studies. DOI: 10.7433/SRECP.FP.2020.01.
  10. Esposito De Falco S., Vollero A. (2015). Sustainability, longevity and transgenerational value in family firms. The case of Amarelli. Sinergie - Italian Journal of Management, 33(97): 291-309. DOI: 10.7433/s97.2015.18.
  11. EY, University of St. Gallen (2021). 2021 Family Business Index. Text available at the website: https://familybusinessindex.com/.
  12. Feliu N., Botero I.C. (2016). Philanthropy in family enterprises: a review of litera-ture. Family Business Review, 29(1): 121-141. DOI: 10.1177/0894486515610962.
  13. Foundation Center (2007). Key facts on family foundations. Text available at the website: https://candid.issuelab.org/resources/13567/13567.pdf.
  14. Foundation Source (2021). 2021 Report on private foundations – grant-making. Text available at the website: https://foundationsource.com/resources/hub/resource/2021-annual-report-on-grantmaking/.
  15. Foundation Source (2022a). Benefits of a private foundation. Text available at the website: https://foundationsource.com/learn-about-foundations/benefits-of-a-private-foundation/.
  16. Foundation Source (2022b). Tax benefits of a private foundation: reduced income tax is just the beginning. Text available at the website: https://foundationsource.com/resources/hub/resource/tax-benefits-of-a-private-foundation/.
  17. Gallucci C., Santulli R., Tipaldi R. (2021). Family firms as prominent investment organizations of social finance: an empirical analysis of U.S. family foundations. In: La Torre, M., Chiappini, H., (eds). Palgrave Studies in Impact Finance. Cham, CH: Palgrave Macmillan. DOI: 10.1007/978-3-030-65133-6_7.
  18. Garcia-Rodriguez I., Romero-Merino M.E., Santamaria-Mariscal M. (2021). The role of boards in the financial vulnerability of nonprofit organizations. Financial Accountability & Management. 37: 237-261. DOI: 10.1111/faam.12269.
  19. Gersick K.E., Lansberg I., Davis J.A. (1990). The impact of family dynamics on structure and process in family foundations. Family Business Review, 3(4): 357-374. DOI: 10.1111/j.1741-6248.1990.00357.x.
  20. Greenlee J.S., Trussel J.M. (2000). Predicting the financial vulnerability of charitable organizations. Nonprofit Management and Leadership, 11(2): 199-210. DOI: 10.1002/nml.11205.
  21. Hager M.A. (2001). Financial vulnerability among arts organizations: a test of the Tuckman-Chang measures. Nonprofit and Voluntary Sector Quarterly, 30(2): 376-392. DOI: 10.1177/0899764001302010.
  22. Hansen R.W. (1990). Continuity in the family foundation: preparing the next generation at the educational foundation of America. Family Business Review, 3(4): 405-408. DOI: 10.1111/j.1741-6248.1990.00405.x.
  23. Hayes J.T., Adams R.M. (1990). Taxation and statutory considerations in the formation of family foundations. Family Business Review, 3(4): 383-394. DOI: 10.1111/j.1741-6248.1990.00383.x.
  24. I Centenari (2022). Chi siamo. Text available at the website: https://www.assocentenari.it/chisiamo.php.
  25. Internal Revenue Service (2020). Tax-exempt organization search. Text available at the website: https://apps.irs.gov/app/eos/.
  26. Internal Revenue Service (2021a). Valuation of assets. Text available at the web-site: https://www.irs.gov/charities-non-profits/private-foundations/valuation-of-assets-private-foundation-minimum-investment-return-general-rules-for-valuing-securities-and-additional-information.
  27. Internal Revenue Service (2021b). Public charities. Text available at the website: https://www.irs.gov/charities-non-profits/charitable-organizations/public-charities.
  28. Internal Revenue Service (2021c). Private foundations. Text available at the website: https://www.irs.gov/charities-non-profits/charitable-organizations/private-foundations.
  29. Internal Revenue Service (2022a). Definition of trust. Text available at the website: https://www.irs.gov/charities-non-profits/definition-of-a-trust.
  30. Internal Revenue Service (2022b). Exemption requirements - 501(c)(3) organizations. Text available at the website: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations.
  31. Internal Revenue Service (2022c). About form 990-PF, return of private founda-tion or section 4947(a)(1) non-exempt charitable trust treated as a private foundation. Text available at the website: https://www.irs.gov/forms-pubs/about-form-990-pf.
  32. Irvin R.A., Kavvas E. (2019). Mission change over time in U.S. family foundations. Nonprofit and Voluntary Sector Quarterly, 49(1): 5-28. DOI: 10.1177/0899764019866513.
  33. Lungeanu R., Ward J.L. (2012). A governance-based typology of family foundations: the effect of generation stage and governance structure on family philanthropic activities. Family Business Review, 25(4): 409-424. DOI: 10.1177/0894486512444603.
  34. Payton R.L. (1990). Continuity and control in family foundations: reflections and commentary. Family Business Review, 3(4): 417-420. DOI: 10.1111/j.1741-6248.1990.00417.x.
  35. Prentice C.R. (2016). Why so many measures of nonprofit financial performance? Analyzing and improving the use of financial measures in nonprofit research. Nonprofit and Voluntary Sector Quarterly, 45(4): 715-740. DOI: 10.1177/0899764015595722.
  36. Rivo-López E., Villanueva-Villar M., Suárez-Blázquez G., Reyes-Santías F. (2021). How does a business family manage its wealth? A family office perspective. Journal of Family Business Management, 11(4): 496-511. DOI: 10.1108/JFBM-03-2020-0021.
  37. Schwencke K., Tigas M., Wei S., Glassford A., Suozzo A., Roberts B. (2022). Nonprofit explorer. Text available at the website: https://projects.propublica.org/nonprofits/.
  38. Smith C. (2016). Environmental jolts: understanding how family firms respond and why. Family Business Review, 29(4): 401-423. DOI: 10.1177/0894486516673906.
  39. Snow P. (2019). Revealing the “invisible” 98% of private foundations. Text available at the website: https://www.forbes.com/sites/pagesnow/2019/06/24/revealing-the-invisible-98-of-private-foundations/?sh=226658b777bb.
  40. Tevel E., Katz H., Brock D.M. (2015). Nonprofit financial vulnerability: testing competing models, recommended improvements, and implications. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 26(6): 2500-2516. DOI: 10.1007/s11266-014-9523-5.
  41. The Henokiens Association (2022). About Henokiens. Text available at the website: https://www.henokiens.com/content.php?id=4&lg=en.
  42. Trussel J.M. (2002). Revisiting the prediction of financial vulnerability. Nonprofit Management and Leadership, 13(1): 17-31. DOI: 10.1002/nml.13103.
  43. Tuckman H.P., Chang C.F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4): 445-460. DOI: 10.1177/089976409102000407.
  44. Wang Q., He L. (2018). Are the wealthy also healthy? An empirical evaluation of the financial health of Chinese foundations. Chinese Public Administration Review, 9(1): 6-24. DOI: 10.22140/cpar.v0i0.155.
  45. Ward J. (1987). Keeping the Family Business Healthy. Hoboken, NJ: Jossey-Bass.
  46. Ylvisaker P.N. (1990). Family foundations: high risk, high reward. Family Business Review, 3(4): 331–335. DOI: 10.1111/j.1741-6248.1990.00331.x.
  47. Zellweger T.M., Nason R.S., Nordqvist M. (2012). From longevity of firms to transgenerational entrepreneurship of families: introducing family entrepreneurial orientation. Family Business Review, 25(2): 136-155. DOI: 10.1177/0894486511423531.

Metrics

Metrics Loading ...