Do family firms invest more in pollution prevention strategy than non-family firms? An integration of agency and institutional theories

Abstract

Family firms often face trade-offs between economic and non-economic objectives when making decisions on the pollution prevention strategy, one type of proactive environmental strategy. Existing evidence from developed economies has largely shown a positive relationship between family firms and pollution prevention strategy, but little research has investigated whether there is a positive relationship in emerging economies as well. This research adopts agency and institutional theories to examine the impact of family firms on pollution prevention strategy in the context of China. We analyzed a sample of 2348 Chinese firms using ordinal least squares regression. Empirical results show that family firms underinvest in pollution prevention strategy relative to non-family firms, particularly when the Chief Executive Officer (CEO) is not the firm’s founder. Moreover, different types of institutional factors alter the effect in different ways. Regulatory pressure weakens the negative effect of family ownership on pollution prevention strategy, whereas institutional support strengthens this main effect. These findings enrich the understanding of why and under what conditions family firms perform pollution prevention strategy.