Abstract
Research on family firms provides mixed evidence of the effect of family ownership on firm performance and exit outcomes. Drawing on threshold theory and the socioemotional wealth perspective, we argue that family firms have lower performance thresholds than non-family firms, reducing the likelihood of firm exit. Using a longitudinal dataset of 1191 firms over the period 2008–2011, we find support for this contention, suggesting that performance threshold is an important, yet poorly studied, construct for understanding exits of family versus non-family firms.Plain English Summary Why firms with similar economic performance make different exit decisions? We find evidence that family firms have lower “performance thresholds” than non-family firms, reducing family firms’ likelihood of exit. Using a longitudinal dataset, we examine differences in performance threshold between family and non-family firms and help clarify why some firms persist with their ventures even though their performance may indicate they should exit the market. Our theory and related findings suggest that nonfinancial attributes such as identity, the ability to exercise family influence, and to hand the business down to future generations may affect family firms’ attitudes toward exit decisions. Our study contributes to sharpening our understanding of exit in family firms while motivating future work on exit strategies in family firms and other contexts.
Highlights
Research on family firms provides mixed evidence for the effect of family ownership on firm performance and exit strategies (Siebels and Zu Knyphausen-Aufseß, 2012)
We demonstrate that family firms have lower performance thresholds than nonfamily firms and that these decrease the likelihood of exit, explaining differences in overall performance rates between family and non-family firms
Our examination of differences in performance threshold between family and non-family firms reveals that family firms have lower performance thresholds than non-family firms and that high performance thresholds are associated with a greater likelihood of exit
Summary
Research on family firms provides mixed evidence for the effect of family ownership on firm performance and exit strategies (Siebels and Zu Knyphausen-Aufseß, 2012). Our study extends previous research (e.g., DeTienne and Chirico, 2013; Chirico et al, 2020) by examining performance thresholds in family versus non-family firms and the role of performance thresholds as an underlying mechanism linking family firms and their exit decisions. Our results support Gimeno et al.’s (1997) work by providing empirical evidence of differing performance thresholds between family and non-family firms. Our work contributes to understanding family firm exit by identifying performance thresholds as a crucial mediating mechanism, thereby helping to explain why family firms are willing to persist with below-target performance. We demonstrate that investigating differences in performance thresholds between family and non-family firms may have important implications for a growing body of exit research on the persistence of under-performing firms.
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