A socioemotional wealth perspective on innovativeness and performance of family businesses.

Abstract

This dissertation is a theoretical and empirical examination of the relationships among socioemotional wealth, innovativeness, and performance in family firms. Building on the Behavioral Agency Theory’s predictions that socioemotional wealth of family firms may affect their strategic decision making both positively and negatively, this study theoretically develops and tests a research model that aims at understanding the nuanced influences of different socioemotional wealth dimensions on firm innovativeness and performance. Specifically, the study hypothesizes that a family’s socioemotional wealth affects the firm’s innovativeness and performance both negatively, in the case of internal socioemotional wealth and positively, in the case of external socioemotional wealth. Analyzing a sample of 277 US-based, privately-held, and small-sized family firms, I find that internal socioemotional wealth positively affects firm innovativeness. Interestingly, external does not have a significant impact on family firm innovativeness. The results also show that internal socioemotional wealth does not directly influence firm performance whereas external does. Lastly, the results highlight that, overall, socioemotional wealth has a more pronounced direct effect on family firm innovativeness than it does on financial performance underscoring its importance for understanding the strategic decision-making of family firms. The study contributes to the discussion of heterogeneity among family businesses in terms of the importance that they attach to different socioemotional wealth dimensions and engages the conversation about the dual effects of such heterogeneity on innovativeness and performance. It also helps advance our understanding of the nuanced effects of internal and external socioemotional wealth on innovativeness and performance. The results yield important practical implications for family business owners. They provide insights to family business owners to help them mitigate the negative effects of their socioemotional wealth on firm innovation through the professionalization of their firms and the promotion of their family brand identity.