Managerial Controls in Private Family Firms: The Influence of a Family’s Decision Premises

Abstract

In most studies, the affiliation of the manager (family-affiliated or non-family affiliated) and supposedly related behavior (agent or steward) is considered the sole antecedent to explain a family business’ (non) professionalization of managerial controls. This paper, based on Luhmann’s new system theory, examines whether a family’s decision premises influence the design of managerial controls in family firms in addition to a manager’s family affiliation status. Using survey data of 135 large and medium-sized Brazilian family firms and testing the hypotheses with SEM, this study provides evidence that a family’s decision premises significantly influence the design of managerial controls in family firms. This study provides evidence that when a family’s intention to transfer the firm to next generation (TGO) is high, more formal controls, as well as controls of a more participative nature are adopted in a family firm. Moreover, the results do not indicate that the level of family involvement in management affects the design of controls in firms with high TGO. The results only showed a significant relationship between a family’s intention to control and influence (FCI) the firm and the absence of participative controls. In addition, these findings also illustrate that each single family-induced decision premise has the potential to explain family firm behavior, since each of the two premises considered in our study is related to a different design of the controls adopted by the family firm.