Family firms and long-term orientation of SG&A expenditures

Abstract

The study investigates whether founding families influence the input resource spending on SG&A activities toward long-term orientation (LTO) in family firms. SG&A expenditure is characterized as LTO when SG&A spending amount increases with the firm’s capability of converting SG&A resources into long-term value. The results show that family firms, relative to non-family firms, are more positive in the relation between SG&A expenditure and the capability of SG&A expenditure to create future value, consistent with the families affecting SG&A expenditure for the long-term benefits of shareholders in family firms. Also, family firms exhibit such LTO pattern for expenditures on three SG&A components: R&D, advertising, and other SG&A, indicating the extensive family influence ranging from innovation to branding activities. Further evidence reveals that LTO type of SG&A expenditure is channeled through: founders serving as CEO, family ownership, and family directorship on the board. Among the three channels, family ownership shows the most pronounced effect, highlighting the alignment of family interests with other shareholders. The study also documents that corporate governance reinforces the LTO of SG&A expenditure in family firms.