Family Involvement in the Board of Directors: Effects on Sales Internationalization

Previous research shows that family involvement in the board of directors can be both positive and negative for sales internationalization. The ambiguous nature of this relationship has hindered theory building on this important phenomenon. Integrating stewardship, stagnation, and upper echelons perspectives, we propose a nonlinear, J‐shaped relationship between family involvement in the board of directors and sales internationalization. Results from running ordinal regression analysis on data drawn from 203 U.S. family businesses confirmed our conjecture. We discuss the implications of our findings for family business theory and practice and indicate avenues for future research.     

Do family ties shape the performance consequences of diversification? Evidence from the European Union

This paper examines the moderating effect of family involvement in ownership and control on the relationship between diversification strategies – both product and international diversification – and corporate performance. We argue that this moderating effect is related to the distinctive characteristics of family firms compared to non-family firms. The empirical evidence is provided by a sample of firms from the European Union during the 2005–2009 time period. Our results found that family firms are more profitable than non-family firms when they engage in joint product and international diversification.     

Strategic Goals and Practices of Innovative Family Businesses

A profile of 231 Washington state family businesses is presented. This article focuses on the business strategies of these firms, analyzing the relationship between strategy, performance, and business practices. Firms categorized as Prospector firms reported more gains in their current market position than all other strategic types. These firms were more likely to value an effective management and employee team and to develop new quality products and services and career development plans for non-family employees. Implications for family businesses are discussed.     

Financial intermingling in small family businesses

This study examines financial intermingling in small family businesses. We define a family business as one in which at least two family members work and the business is owned and managed by one of the family members. This study compares the determinants of intermingling in family and non-family businesses. The empirical results show that family businesses are not significantly different from non-family businesses in terms of intermingling once other business and household characteristics are controlled for. For both family and non-family businesses, differences in financial intermingling are primarily characterized by differences in business characteristics and household net worth. We conclude that intermingling of household and business financial resources are probably more influenced by business characteristics and household net worth than by other household characteristics or whether a business is a family business.     

Does family involvement explain why corporate social responsibility affects earnings management?

We investigate how family involvement in the ownership, management, or governance of a business affects its engagement in earnings management both directly and indirectly through its corporate social responsibility (CSR) activities. Using a sample of S&P 500 companies, we find that family firms tend to have higher CSR performance, which can help them to maintain legitimacy and preserve socio-emotional wealth. Family firms also engage in less accrual-based earnings management, although they are indistinguishable from non-family firms in terms of real earnings management. In contrast to previous research, we find that CSR performance is not significantly associated with either accrual-based or real earnings management behavior after we account for the effect of family involvement. Our findings suggest that the association between CSR performance and family involvement is the primary driver of the relation between CSR performance and earnings management documented in previous research.     

Family firms and financial performance: The cost of growing

This study examines the relationship between financial performance and family involvement for 523 listed and non-listed Colombian firms over 1996–2006. Using a detailed database and performing several panel data regression models, we find that family firms exhibit better financial performance on average than non-family firms when the founder is still involved in operations, although this effect decreases with firm size. With heirs in charge, there is no statistical difference in financial performance. Both direct and indirect ownership (control through pyramidal ownership structures within family business groups) affect firms' financial performance positively. However, this positive effect decreases with firm size. The results suggest that some kinds of family involvement appear to make firm growth expensive.     

Corporate governance and family business performance

Family business continuity plans commonly establish a governance structure for the family and for the family business. The purpose of those structures is to improve strategy and control mechanisms of the family business and, to organize the communication and relationship between family owners and business executives. This research focuses on assessing the impact of those structures on family business performance. Specifically, the study assesses the impact a professional board of directors has on a company's performance. The research team selected a set of 22 family businesses. Some of these families have undergone a process of developing a family protocol over the last seven years. The authors captured the relevant information for this research by sending out a survey to each family member and to each non-family director or executive.     

Practicing fairness in the family business workplace

One of the main challenges facing family firms is achieving fairness between family and non-family employees in the workplace. Family and non-family employees have the potential to offer unique and distinct contributions to the firm, which makes the achievement of fairness between them messy and complicated. Hence, two interesting questions are worth exploring: Given the complex nature of the family business human capital, how can family firms achieve fairness between family and non-family employees? Why should family business decision makers and advisors promote fair practices in the family business workplace? We first introduce a fair process model as a possible solution for family businesses to achieve fairness between family and non-family employees. Then, based on several examples and studies, we show that family business owners can benefit significantly from promoting fairness in the workplace both in terms of preserving business reputation and in terms of achieving long-term family business survival and success.     

Contrasting the evolution of corporate governance models: A study of banking in Hong Kong

The sub-prime mortgage crisis, the bankruptcies of important US banks, and many originally family controlled enterprises coming under non-family, CEO-type leadership during the 2008 global credit crunch led many people to rethink the relationship between risk management and family businesses. One of the foci was on the doctrine of separation of ownership. This paper attempts to compare and examine the evolution of corporate governance in the banking business in Hong Kong by using two key financial institutions based there. By contrasting the evolution of corporate governance, management style and pattern of succession, we can see that although they developed under the same business environment and legal framework, the East-West business culture and ideology led them to choose different ownership structures and ways of succession, which ultimately determined their different developmental trajectories.     

The Effects of Commitment of Non-Family Employees of Family Firms from the Perspective of Stewardship Theory

Although commitment is one of the attributes of family firms of continuing interest to researchers, they almost always study it from the perspective of the owning family. In the current work, we analyze the commitment of the non-family employees. We propose a model of commitment, with the aim of studying the implications that this variable may have for family businesses. We study both the aspects on the basis of the approaches of Meyer and Allen’s three-component model of organizational commitment and stewardship theory. Results show that the identification level of non-family employees positively and significantly influences the profitability and the survival or continuity of family-owned businesses. At the same time that their involvement level positively and significantly influences the survival or continuity of family-owned businesses.     

Exploring the relation between family involvement and firms' financial performance: A meta-analysis of main and moderator effects

The present work summarizes the theoretical foundations and empirical findings regarding the relation between family involvement and firm performance. From a theory-based perspective we integrate evolutionary psychology and agency theory and describe how conflicting predictions can be made regarding the relation between family involvement and firm performance. Similarly, we describe how the empirical landscape is equally conflicted. Findings from this meta-analysis summarize the observed effects from multiple studies and provide an estimate of the relation across the entire population. Results illustrated that family involvement did not significantly impact firms' financial performance (r = .006). Based on these data, there is no relation between family involvement and a firm's financial performance. Furthermore, we examined multiple conceptual and methodologically-based potential moderating influences—none was statistically significant. Overall, these findings provide the foundation for multiple new areas of inquiry as the domain of family business studies evolves. Moving forward, we advise future research in this area to search for additional moderator effects and explore the defining characteristics, other than performance, that make family businesses distinct from non-family businesses.     

Intergenerational Succession in Small Family Businesses: Borrowing Constraints and Optimal Timing of Succession

Small family businesses differ from non-family businesses in that their functioning is not independent of the life cycle of the owner-operator, and in that other family considerations sometimes lead to sub-optimal managerial decisions from the point of view of the business. This is why a smooth intergenerational succession is essential to the profitability of the business, and to the welfare of the family as a whole. Succession within the family involves first of all the choice of a successor. The choice is affected by birth order, age differentials, and qualifications of potential successors. Choosing a successor means reaching an agreement about the timing of succession and income distribution before and after succession. This paper focuses on the decision of the business-operating family when to bring in the designated successor. A utility-maximizing time is shown to differ from the income-maximizing time only in the presence of binding borrowing constraints. Such constraints are likely to enhance an earlier succession in order to use the successor's accumulated off-business assets to ease the constraints and to increase future business income due to earlier accumulation of business-specific human capital by the successor. An additional model shows that the successor will not be willing to wait indefinitely for the formal ownership transfer of the business, because of the risk of being disinherited in some future period. The consequences of possible strategic behaviors of both the owner and potential successors on the results of these models is discussed informally.     

Consumer loyalty to family versus non-family business: The roles of store image,trust and satisfaction

This study sheds insight on how consumers perceive and relate to family and non-family grocery stores. Using a critical incident approach we show that—compared to non-family businesses—consumers evaluate family businesses better in terms of service, frontline employee benevolence, and problem-solving orientation, and worse in terms of selection and price/value. Results further indicate higher consumer trust in family business management policies and practices, frontline employee trust, and satisfaction but no differences in loyalty. Examining an integrative loyalty framework, the study finally shows differential effects in how image elements influence customer loyalty directly as well as indirectly through trust and satisfaction. Implications focus on advancing customer relationship management in retailing, and on successfully positioning family-owned and -operated businesses.     

Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation

Family business research suggests that family involvement in the board (FIB) may have both positive and negative effects on entrepreneurship. To reconcile these conflicting views, this study builds on stewardship theory, agency theory, and the resource-based view and proposes a nonlinear relationship between FIB and entrepreneurial orientation (EO) to explore how board task performance moderates this relationship. Using a sample of 208 Belgian private family firms, the findings show an inverted U-shaped relationship between FIB and EO, with EO declining beyond moderate levels of FIB. Furthermore, board monitoring task limits the negative effects of high FIB on EO, whereas the board service task does not have any significant effect. This study offers a more nuanced view of the governance conditions that affect EO in the context of private family firms, an overlooked topic in the family business field.     

The role of family ownership in international entrepreneurship: exploring nonlinear effects

Empirical research on international entrepreneurship is growing, but results on the role of family ownership in this phenomenon are inconsistent. We believe these inconsistencies owe to prior researchers having not yet investigated nonlinear relationships. Drawing on opposing perspectives of stewardship and stagnation, we explore potential benefits and drawbacks of family ownership for international entrepreneurship and explore nonlinear relationships among these two variables. Using a sample of 1,035 US family businesses and applying ordinal regression analysis, we find an inverted U-shaped relationship between family ownership and international entrepreneurship: International entrepreneurship is maximized when family ownership stands at moderate levels. We discuss the implications of our findings for theory and practice and indicate avenues for future research.     

Regional influences on the prevalence of family versus non-family start-ups

We integrate insights from family business and organizational ecology into the entrepreneurship field by constructing a theoretical framework that explains how the regional context impacts family and non-family start-ups in differing ways. Regional count data models based on a rich longitudinal dataset reveal that while economic factors such as population size and growth in regions are primarily associated with the number of non-family start-ups, factors related to regional embeddedness, such as pre-existing small family businesses as well as favorable community attitudes toward small businesses, are more strongly associated with the number of family start-ups. Our research provides support for the notion that ‘the regional context’ is an important yet under-theorized area for research on venture creation and family business.     

Family-centred non-economic goals and the internationalisation of family firms: Evidence from Australia

Despite the growing body of literature on the internationalisation of family firms, further research is required to understand the underlying factors that influence their international behaviour. Past research has consistently shown that family firms are less likely to adopt an internationalisation strategy compared to their non-family counterparts, yet we still have limited understanding of the underlying reasons why this is so. By incorporating the bifurcation bias concept to the socioemotional wealth perspective of family firm behaviour, we argue that greater attention needs to be given to the influence of family-centred non-economic (FCNE) goals on the family firm’s international behaviour. Using survey data collected on over 300 Australian family firms, regression analysis was used to examine the influence of FCNE goals on the family firm’s extent of international involvement. The results suggest that business families which emphasise FCNE goals are more likely to exhibit a lower attitudinal commitment towards international expansion, which in turn determines the level of international involvement of the family firm. Results also suggest that the extent of international involvement of the family firm has a significant negative effect on the level of achievement of FCNE goals.     

Non-family chair and corporate performance

Using a sample of Chinese family firms listed from 1999 to 2014, we investigate the relationship between non-family leadership and firm performance. We find that firms with a non-family member as board chair perform significantly worse than firms whose chair belongs to the family. Moreover, we show that the underperformance of nonfamily-chair firms is more pronounced when firms are under weaker outside monitoring and when the controlling families care less about family business longevity. The negative effect of a non-family chair is robust to a variety of endogeneity tests. We also dismiss alternative explanations other than concern for reputation. Overall, our empirical results suggest that the social norms regarding family reputation are important in shaping the controlling shareholders’ expropriation incentives and firm performance.     

Non-family chair and corporate performance

Using a sample of Chinese family firms listed from 1999 to 2014, we investigate the relationship between non-family leadership and firm performance. We find that firms with a non-family member as board chair perform significantly worse than firms whose chair belongs to the family. Moreover, we show that the underperformance of non-family-chair firms is more pronounced when firms are under weaker outside monitoring and when the controlling families care less about family business longevity. The negative effect of a non-family chair is robust to a variety of endogeneity tests. We also dismiss alternative explanations other than concern for reputation. Overall, our empirical results suggest that the social norms regarding family reputation are important in shaping the controlling shareholders’ expropriation incentives and firm performance.     

The characteristics of family firms: exploiting information on ownership,kinship, and governance using total population data

Family firms are often considered characteristically different from non-family firms. However, our understanding of family firms suffers from an inability to identify them in total population data; information is rarely available regarding owners, their kinship, and their involvement in firm governance. We present a method for identifying domiciled family firms using register data; this method offers greater accuracy than previous methods. We apply this method to Swedish data concerning firm ownership, governance, and kinship from 2004 to 2010. We find that the family firm is a significant organizational form, contributing over one third of all employment and gross domestic product (GDP). Family firms are common in most industries and range in size. Furthermore, we find that, compared to private non-family firms, family firms have fewer total assets, employment, and sales and carry higher solidity, although family firms are more profitable. These differences diminish with firm size. We conclude that the term “family firm” includes a large variety of firms, and we call for increased attention to their heterogeneity.