Downsizing and Stakeholder Orientation Among the Fortune 500: Does Family Ownership Matter?

While downsizing has been widely studied, its connection to firm ownership status and the reasons behind it are missing from extant research. We explore the relationship between downsizing and family ownership status among Fortune 500 firms. We␣propose that family firms downsize less than non-family firms, irrespective of performance, because their relationship with employees is based on normative commitments rather than financial performance alone. We suggest that their actions are related to employee- and community-friendly policies. We find that family businesses do downsize less irrespective of financial performance considerations. However, their actions are not related to their employee- or community-friendly practices. The results raise issues related to the motivations of large multinationals to␣downsize and the drivers of their stakeholder management practices. Eleni T. Stavrou is an Assistant Professor of Management and Organization at the Department of Public and Business Administration of the University of Cyprus. She received her Ph.D. in Management and Organization from George Washington University, USA. Her work has been published in various academic journals including Entrepreneurship Theory and Practice, Journal of Applied Social Psychology, Journal of Organizational Behavior, Journal of Small Business Management, International Small Business Journal and Journal of European Industrial Training. Her research interests are: flexibility at work, strategic human resource management, succession planning, group and family dynamics, intergenerational transitions, and organizational culture. George I. Kassinis is an Assistant Professor of Management at the Department of Public and Business Administration of the University of Cyprus. He received his Ph.D. from Princeton University, USA. His work has been published in various academic journals including the Academy of Management Journal, Production and Operations Management and Strategic Management Journal. His research focuses on stakeholders, organizations and the natural environment, environmental management issues in services, social networks, and industrial ecology. He serves on the editorial board of Organisation Studies. Alexis Filotheou holds an MSc in Finance from the University of Cyprus and is currently employed in the private sector in Cyprus.     

The role of female directors in promoting CSR practices: An international comparison between family and non‐family businesses

This article analyzes a panel of 550 international firms, for the period 2004 to 2010, to compare the role of female directors in family and non‐family firms in promoting responsible practices. Many studies have associated the presence of women on the board with a higher degree of socially responsible commitment. However, we found that this is much less so in family firms than in non‐family firms. In family firms, corporate social responsibility (CSR) commitment does not vary significantly with the presence of female directors, as the latter tend to behave in accordance with the family orientation toward CSR. This orientation depends on the stakeholders being addressed, with greater social responsibility shown toward external stakeholders than internal ones.     

How Do Ownership Concentration and Family Control Affect R&D Investments? New Evidence from Taiwan

This study finds a nonlinear relationship between ownership concentration and R&D investments. Specifically, ownership concentration is positively related to R&D investments at a low level of ownership concentration; the relationship becomes negative when ownership concentration is at a high level. However, the impact of ownership concentration on R&D investments is lessened in family‐controlled firms; that is, family control moderates the relationship between ownership concentration and R&D investments. Overall, this study suggests that the ownership concentration's nonlinear impact on R&D investments differs between family‐controlled firms and nonfamily‐controlled firms.     

Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms

Employing a process-based perspective and using a generalized method of moments (GMM) procedure, this paper examines the difference in innovation activities between family firms and non-family firms in China. We find that the level of research and development (R&D) by family firms is dependent on prior R&D spending and more so relative to non-family firms. Next, we find that R&D investment by family firms is more likely to be motivated by the availability of both internal and external cash flows relative to non-family firms. Further analysis suggests that these findings are unlikely to be driven by firm maturity.     

The Innovation Performance of Irish and Foreign‐owned Firms: The Roles of R&D and Networking

This paper contributes to the growing evidence that Irish and foreign‐owned firms based in Ireland conduct their innovation activities differently from each other. It tests the Cohen and Levinthal hypothesis, separately for Irish and foreign‐owned firms, that undertaking R&D and collaborating with external networks together enhance the probability of product and process innovation. To control for potential endogeneity of the external networking variables, a two‐step procedure is used with predicted probabilities used as instruments in the estimated production functions. Based on data from the Irish Community Innovation Survey 2006 to 2008, the results suggest that Irish‐owned firms which engage in external networks with public knowledge sources, while simultaneously undertaking R&D, are more likely to innovate than firms which perform these two activities individually. Irish‐owned firms which engage in backward networking for product and forward networking for process innovation while also undertaking R&D are less likely to be innovative, perhaps suggesting a substitution effect. These results for Irish‐owned firms provide some support for Cohen and Levinthal's hypothesis. However, foreign‐owned firms seem to behave differently, being largely self‐contained and relying exclusively on intramural R&D for innovation as the external networking variables, both individually and when interacted with R&D, have no effect on innovation likelihood.     

R&D investments in family and founder firms: An agency perspective

Investments in R&D can influence a firm's ability to develop new products and to create and adopt innovative technologies that may enhance productivity. However, due to uncertainty regarding the outcome, investments in R&D may lead to an agency problem between the owners and the managers of a firm. Family and founder firms are often considered to be different in their agency situation than other firms, which may have an influence on R&D investments. This paper analyzes R&D spending in family and founder firms versus other firms. The results show that while family ownership decreases the level of R&D intensity, ownership by lone founders has a positive effect not only on R&D intensity but also on the level of R&D productivity. The paper contributes to the understanding of the role of entrepreneurship in making high risk/high return R&D decisions.     

Family firms and the interests of non‐family stakeholders: The influence of family managers' affective commitment and family salience in terms of power

The goal of this research is to analyze the heterogeneity of family firms in the normative attention to their non‐family stakeholders. With this aim, we suggest that the psychological process of top family managers in terms of individual affective commitment to their firms is a key variable to explain that heterogeneity. However, we also suggest a moderator effect of the family stakeholder salience in the relationship between the managers' affective commitment to the firm and the establishment of firm goals toward non‐family stakeholders. The results of a hierarchical regression analysis on data obtained from 207 family executives show a significant positive influence of managers' affective commitment on the establishment of goals related both to internal (employees) and external (customers and community) non‐family stakeholders. In addition, we can observe a negative moderator effect of the family utilitarian power—as an indicator of the family stakeholder salience—on the relationship between the family managers' affective commitment and the goals related to non‐family employees.     

Strategic reference points in family firms

Family firms are classically seen as risk averse organizations, and this is evident in their generally lower R&D investments compared to non-family firms. Recent research, however, challenges this predominant view and suggests that family firms can embrace higher strategic risk when faced with threats to their family-centered goals. Still, the internal and external conditions that drive variations in the strategic risk taking behaviors of family firms are little known and understood. This article adds to this literature by developing and testing a conceptual model of strategic risk taking that incorporates behavioral theory, family business literature, and the logic of the strategic reference point theory. With recognition that the interplay between family and economic goals determines heterogeneity in strategic actions of family firms, this model suggests that family managers respond differentially to the feedback information regarding internal and external reference points, and consequently identifies key drivers of variation in the R&D investment behavior of family firms. By examining the pattern in R&D investments of 437 Spanish private manufacturing firms from 2000 to 2006, this study shows how strategic inputs, strategic outputs, and external benchmarks produce variations in strategic decisions about R&D investments in family and non-family firms. The findings offer insights into how internal and external reference points are considered in family firms’ decision making, thereby contributing a deeper understanding into the circumstances under which family goals cope or collide with the economic goals of the firm, and how this influences strategic risk decisions in family firms.     

Uncertainty,Flexible Labour Relations and R&D

This paper examines the effects of uncertainty and flexible labour contracts on the Research and Development (R&D) intensity. Using a panel of Italian manufacturing firms, we find a hump‐shaped relationship between workforce flexibility and R&D intensity. Moreover, as predicted by the real options theory, our results suggest that product market uncertainty reduces R&D efforts and that flexible labour contracts countervail the adverse effect of uncertainty on R&D.     

Staying Home or Moving Away? Restructuring Efforts within Multinational Enterprises

This paper analyses the impact of geographic dispersion on employment changes within multinationals. Building on earlier work of Landier et al. (2009, Review of Financial Studies 22, 3: 1119), we investigate whether corporate decision‐making within a multinational is affected by the distance between an affiliate and its headquarter. Our findings suggest a detrimental impact of distance on employees, by either an increased likelihood of observing a downsizing event, or by witnessing a larger decrease in the number of employees at distant locations during downsizing events. In addition, our results seem to relate the higher likelihood of observing a downsizing event to the role of social factors on decision making. The more visible a manager is in his community, the less likely he is to downsize proximate divisions.     

Overcoming the double hurdles to investing in technology

Technological activities of small and medium-sized enterprises (SMEs) have received considerable attention from researchers and policy makers since the mid-1980s. Small firms could nurture entrepreneurship and facilitate the creation and application of new ideas. In spite of their potential in generating innovations, it is also observed that SMEs shy away from formal R&D activities, and the firm size itself seems to be a barrier for R&D activities. SMEs operating in developing countries face extra hurdles to investing in R&D. Given the massive share of SMEs, it becomes crucial to realize their developmental potential in developing countries. In this paper, we study the drivers of R&D activities in SMEs in Turkish manufacturing industries by using panel data at the establishment level for the 1993–2001 period. Our findings suggest that SMEs are less likely to conduct R&D, but if they overcome the first obstacle of conducting R&D, they spend proportionally more on R&D than the LSEs do. R&D intensity is higher in small than in large firms. Moreover, public R&D encourages firms to intensify their R&D efforts. The impact of R&D support is stronger for small firms.     

Ownership as R&D incentive in business groups

Small and medium-sized enterprises (SMEs) are supposed to be less likely to conduct formal R&D because of the lack of financial resources, weaker competencies, and the absence of scale and scope economies. These limitations may be overcome when an SME belongs to a business group. Empirical studies have shown that firms belonging to business groups have a higher propensity to engage in R&D. We demonstrate that this higher propensity depends on the ownership of controlled companies, besides the presence of coordination mechanisms. We develop a model, and we empirically test its predictions using a data set of Italian SMEs operating in the manufacturing sector. From the model we derive three main implications: (1) there is no difference in R&D propensity between standalone firms and firms at the bottom of groups; (2) head and intermediate firms have a higher R&D propensity than standalone firms and firms at the bottom of the group; (3) the intensity of R&D depends on the ownership of controlled firms and on their size. Overall, the results of the empirical analysis are in accordance with the implications of the model.     

The Outsourcing of Research and Development in Global Markets: Evidence from France

The pace of technological change, the increasing need for multidisciplinary competences and the rising costs of innovation have contributed to the global expansion of technological activities, including the international outsourcing of research and development (R&D). This paper shows that firms involved in international outsourcing of R&D are of a particular kind: they are highly outward oriented, more productive and R&D intensive. Furthermore, firms with patents are more intensely involved in this activity. Our results also suggest that the outsourcing of R&D in global markets by French firms is motivated by technology sourcing rather than cost‐saving interests.     

Managerial Incentives and Investment Policy in Family Firms: Evidence from a Structural Analysis

This paper provides evidence that CEO incentive pay mediates the effect of family preferences on corporate investment policy. Our study focuses on the option portfolio volatility sensitivity vega, which motivates the risk‐taking behavior of undiversified managers. After controlling for factors that affect incentive pay and investment policy simultaneously, we find that one‐third of underinvestment in riskier R&D projects in active family firms can be attributed to a significantly lower vega. Passive family firms allocate more capital to R&D as opposed to active family firms, and are more active in M&A deal making. In contrast to many prior studies, pay incentives and families are not associated with capital expenditures. Overall, our empirical results suggest that CEO pay incentives induce investment policy contingent on firm risk. Family CEO incentive pay manifests the family preference for lower risk, especially in firms with higher firm risk. Nonetheless, after replacing family CEOs with outside professionals, investments in both R&D and M&A increase, which is consistent with the family preference for extended investment horizons. Interestingly, such a preference seems not to be manifested in incentive pay.     

Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data

This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.     

Not all family firms are equal: The moderating effect of family involvement on the political risk exposure of the foreign direct investment portfolio. Preliminary evidence from Spanish multinational enterprises

We investigate the effect of political risk (PR) exposure and family control on the internationalization strategy of multinational enterprises (MNEs) using social capital theory. Our results from a negative binomial cross‐sectional analysis in 2007 of Spanish MNEs show family ownership or the limited presence of family members on the board has no effect on internationalization. However, when the conceptualization of family firms (FFs) includes majority ownership and board presence, we find a direct negative effect on their internationalization scope but a positive moderating effect on the relationship between the exposure to PR and internationalization scope. FFs have some specific advantages suitable to be employed in their corporate political activity allowing them to develop long‐lasting relationships with relevant political actors. By disentangling the effects of family control on internationalization and PR, this article explains how FFs can be simultaneously risk‐willing and risk‐averse.     

A High‐Growth Firm Contingency Test of the Formalization‐Performance Relationship

The effect of formalization in high‐growth firms' performance is still unclear. We propose that formal commitment‐based human resource practices contribute positively to the financial performance of established high‐growth firms but have little effect on emergent ones. Using a sample of 101 Portuguese high‐growth firms (2006–2009 period), we tested the effect of formal HR practices during the high‐growth period in their financial results two years later (2011). Our results suggest that adopting a formal performance appraisal and a formal R&D function contributed positively for the performance of only established firms, while adopting a formal training activity negatively affected the performance of only emergent firms.     

R&D Productivity and the Spillover Effects of High‐tech Industry on the Traditional Manufacturing Sector: The Case of Taiwan

This study sets out to estimate the impact of R&D on productivity within the private sector, with further analysis of the different impacts of R&D within high‐tech and traditional manufacturing firms. We also attempt to examine the spillover effects from R&D investment in the high‐tech sector on productivity growth within the traditional industries. Using a sample of 136 large manufacturing firms during the period 1994–2000, we develop an extended version of the Cobb‐Douglas production function model, and our findings suggest that Taiwan's R&D investment had a significant impact on firm productivity growth, with output elasticity standing at around 0.18. When the sample is divided into high‐tech and traditional firms, the R&D output elasticity in high‐tech firms is significantly greater than that found in traditional firms. In addition, the average rate of return in high‐tech firms is much greater than that estimated for other industries. Besides, our empirical results show that, although significant, the impact of R&D investment from the high‐tech sector, on the productivity growth of traditional firms, is rather limited.     

Family Firms and Labor Productivity: The Role of Enterprise‐Level Bargaining in the Italian Economy

We investigate the role of Italian firms in labor productivity performance. We find that family‐owned firms have lower labor productivity than their non‐family counterparts. In a second step, we estimate the role of firm‐level bargaining (FLB) to determine whether family‐controlled firms that adopt this type of bargaining may partially close the gap in terms of labor productivity with their non‐family competitors. Our results, obtained through IV estimation to control for endogeneity bias, suggest that enterprises under family governance achieve significant labor productivity gains—greater than those achieved by their non‐family counterparts—when they adopt firm‐level bargaining.     

What constrains firms from divesting their legacy business?

This study focuses on a unique business phenomenon, legacy divestitures, which refers to the sale or spinoff of a firm's original business. I argue that firms may be prevented from engaging in legacy divestiture by organizational inertia, which become increasingly stronger as the legacy business gets older. I also examine factors that help firms overcome the constraints of inertial forces on firms' legacy divestitures. Hypotheses are tested using a sample of 108 diversified American companies, 27 of which divested legacy businesses between 1980 and 2017. Firms are less likely to divest their legacy businesses as the legacy units get older. The negative relationship is weakened by two factors, performance–aspiration gaps and R&D intensity.