Management Of Family Firms Research Articles

Delayed and Decoupled: Family Firm Compliance with Board Independence Requirements

AbstractWe investigate family firms’ speed and degree of compliance with board independence requirements and how willingness and ability affect family firms’ compliance patterns. Using a longitudinal sample of Indian publicly traded firms during a transitional period of corporate governance reforms, we find that family firms are slower to comply with board independence requirements than non‐family firms. Family firms’ compliance speed is even slower as agency costs increase. We also document that family firms are prone to symbolically comply with board independence requirements, as independent directors in family firms are less engaged than their counterparts in non‐family firms. Family firms’ symbolic compliance is even more salient when family firms possess larger agency problems and greater resource constraints. Our results also point to a complementary relationship between family firms’ willingness and ability to comply, as family firms with greater agency costs and larger resource constraints are among the slowest to comply and are also most likely to comply superficially. Overall, we conclude that family firms’ internal logic, agency costs and resource constraints jointly affect their compliance patterns.

The effect of socioemotional wealth diversity within the top management team on earnings management in private family firms: The moderating role of the board of directors

Using a unique multiple‐respondent dataset of 218 individual managers of 37 private family firms, this study examines differences in the importance attached to socioemotional wealth (SEW) preservation among top management team (TMT) members as a determinant of earnings management. Such SEW diversity might cause conflicts that can harm TMT decision‐making quality and, ultimately, firm performance, which the TMT might cover up by engaging in earnings management. Furthermore, we examine to what extent a board of directors that functions as a sounding board is able to mitigate the relationship between SEW diversity within the TMT and earnings management.

Measuring the impact of financial cycles on family firms: how to prepare for crisis?

Financial cycles have sizeable economic effects, as witnessed during the 2008 financial crisis. However, despite the topic’s research importance, there is limited literature on how financial cycles and financial crises affect individual family firms. To the best of our knowledge, our study is among the first to measure the impact of financial cycles and crises on family firms. To study the impact of financial cycles on family firms, we use the Amadeus database on European companies. We identify family firms following the Global Family Business Index methodology 2019 (EY and the Center for Family Business of the University of St. Gallen). To measure the impact of financial cycles, we use the credit-to-GDP gap indicator from the Bank for International Settlements. Using the credit-to-GDP gap as a proxy for financial cycles, we use panel structural vector autoregression (Abrigo and Love 2016), Wald tests of Granger causality (Granger 1969), and impulse response functions (Lütkepohl 2010; Lütkepohl et al. 2015). We prove that family firms are less vulnerable than non-family firms to financial cycles during both financial booms and busts. Family firms perform better when financial cycle shocks have a less pronounced impact on firms’ performance. Non-family firms are highly vulnerable to financial cycles, performing worse during both booms and busts. The adoption of family firm management and governance policies should improve non-family firms’ performance and help the economy recover rapidly in times of crisis (exogenous shocks). Our study is the first to explore the impact of financial cycles on the micro level with a focus on family firms. The results could help managers and practitioners better form their business policy by looking at family firms’ experiences. Targeting economic policy more towards family firms in good and bad times will allow policymakers to prepare for future economic crises.

Inclusion and employee engagement of nonfamily employees in family firms: moderating influence of procedural justice

PurposeThis study investigates the influence of inclusion of nonfamily employees in family firms on their intellectual, social and affective engagement at the workplace. Furthermore, the framework proposed in the study considers the possible moderating influence of procedural justice in the above relationships.Design/methodology/approachA conceptual framework is developed with the support of the self-determination theory (SDT) and the social exchange theory. The study tests a set of hypotheses using survey data from 654 nonfamily employees working in private family firms in Malaysia.FindingsThe results reveal that inclusion has a positive and significant relationship with intellectual, social and affective engagement. While procedural justice moderates the association between inclusion and intellectual and affective engagement, it does not moderate the relationship between inclusion and social engagement.Research limitations/implicationsThe outcome of this study presents a nuanced understanding on how perceptions of inclusion of nonfamily employees by the dominant work group (DWG) (i.e. employees related to the firm owners) lead to positive firm-centric behavior among nonfamily employees.Practical implicationsThe study provides clues to family firm managers for creating a work environment where nonfamily employees perceive a sense of belongingness while their uniqueness is appreciated in order to be more engaged at the workplace.Social implicationsLittle is known about how diversity created within family firms by inclusion of nonfamily employees impacts organizations. The outcome of this study may reinforce the positive effects of inclusiveness in any social context.Originality/valueDiversity researchers have studied the influence of inclusion in areas related to sociology and psychology. However, there appears to be a dearth of studies in terms of how nonfamily employees would behave in family firms when they perceive a sense of inclusion in an organization dominated by employees who are related to the owners of the firm. Hence, this study appears to shed new light on how inclusion of nonfamily employees in family firms influences their behavior.

The Psychological Foundations of Management in Family Firms: Values, Biases, and Heuristics

Considering the heterogeneity of family firm behaviors as reflecting the values, biases, and heuristics of individuals, we discuss the implications of the psychological foundations of management in family firms. We develop a conceptual framework for investigating how the values, biases, and heuristics of family and nonfamily members affect strategic decision-making and the outcomes of family firms. To advance the field, we put forward some relevant questions and offer a future research agenda at the intersection of the psychological foundations of management and family business.

The influence of independence and compensation of the directors on family firms and real earnings management

This study investigates real earnings management in family firms and further examines the moderating effects of the independence and compensation of directors. Based on a sample of 106 non-financial public listed firms over 5 years in Saudi Arabia, the empirical results show that family firms are positively linked to real earnings management. This result supports the entrenchment hypothesis that family firms have lower earnings quality due to manipulation in real activities. Further, we found evidence that the proportion of independent directors and the compensation paid to directors both interacted in family firms to reduce real earnings management. Our findings suggest that increasing the proportion of independent directors and paying higher compensation to directors are one workable way for family firms to mitigate their real earnings management behaviour.

Менеджер в сімейній фірмі

Management is a branch of science in which theoretical reflections alternate with practical proofs. In the management of the immutable state that we experience is its variability. We can accept the paradigm that the cognitive environment in which we operate, we act in a continuous way is changing, subject to change, often fluctuations, defined as, in the environment, is synonymous with the instability of the state. The only doubt is whether the changes are happening regularly or not. However, we can be sure that tomorrow will be different from today and that only for a longer period of time. In this light, the perception of the requests of competent managers of family firms creates difficulties given the constant variable. The reflection will take into account the division of competencies according to Katz at three organizational meetings when establishing the state of VUCA (Katz, 1974).

Transforming the management and governance of private family firms: The role of venture capital

We analyze the role of venture capitalists (VCs) in transforming the management and governance of China's private family firms. We show, causally, that VC-backed family firms are more likely than non-VC backed family firms to experience departures of family members from top management positions and decreases in the separation between family control rights and cash-flow rights; these effects are stronger when VCs have greater equity ownership or board representation. We show that these changes in top management and governance in family firms are associated with higher IPO firm valuations and better post-IPO long run stock returns.

Risk management in small family firms: insights into a paradox

PurposeThe purpose of this study is to provide insights into the risk management practices of small family firms (SFFs).Design/methodology/approachThis paper is based on a multi-site case study approach among ten SFFs (that employ between 10 and less than 50 employees according to the European Commission's recommendation 2003/361/EC) and draws on the concept of social capital.FindingsThe study demonstrates that the vast majority of sample SFFs lacks a formal risk management system and does not prepare for crises and emergencies. However, they are aware of most of their specific risks and draw on a number of risk-mitigation measures to address them. Social capital emerges as common thread and overarching principle in these risk-reduction initiatives, as the SFFs rely on long-standing, trusting and fair relationships with key stakeholders to cushion their businesses from adverse impacts. This prevalence of informal risk management mechanisms may partially explain the paradox as to why formal risk management tools are rarely applied in SFFs.Practical implicationsAs the study findings suggest that social capital serves SFFs as risk-reduction measure, owner-managers should capitalise on this specific strength. However, they should also invest in more systematic risk management initiatives to better equip their businesses with the tools to fend off adverse scenarios.Originality/valueThis study is among the first to analyse risk management in SFFs.

Earnings Management in Chinese Family Firms: A Fraud Triangle Framework

There exist contradictory findings regarding the relationship between family ownership and earnings management. Relying on a fraud triangle framework, this study explores how resource constraints, less effective governance, and the prevalence of earnings management in an industry respectively create pressure, opportunity, and rationalization for family firms to engage in earnings management. The analysis of 1,597 Chinese listed family firms provides support to the fraud triangle theoretical framework. Our findings underscore the need to improve our understanding of family firms under different contexts.

Paradox of Familiness: Evidence from Earnings Management in Korean Family Firms

Extant literature offers that the alignment of ownership and controls presumably resolves the agency problem. However, traditional governance mechanisms are limited to resolve agency problems in family firms where interests of family owners and managers are aligned but conflicting with those of other shareholders. Drawing on the principal-principal perspective and the social embeddedness, we develop a theoretical framework to address the agency problems in family firms. Specifically, we theorize different earnings management behaviors between non-family and family firms, and under what conditions family owners and managers engage in earnings management. We also propose a business group, independent board, and dissimilarity in top manager functional backgrounds as governance mechanisms to monitor earnings management in family firms. We investigate the earnings management practices of 570 Korean family and non-family firms from 2002 to 2010. We find that, in general, family firms are less likely to engage in earnings management than non-family firms. However, we also find that the higher the level of family embeddedness through ownership, the more earnings management a family firm will commit. In addition, we confirm that business group affiliations and independent boards attenuate the effect of family embeddedness through ownership on earnings management. Our study contributes to corporate governance and family business research by suggesting governance mechanisms to solve socially embedded agency problems in family firms.

Forty years of research on human resource management in family firms: analyzing the past; preparing for the future

PurposeThis paper explores the field of human resource management (HRM) in family firms, assessing the evolution of this research through a four-domain model that reflects the relationships between cognitions, actions and performances associated with organizational choices.Design/methodology/approachThe authors have performed a bibliometric review of 363 peer-reviewed papers from over the past four decades (1976–2016) in order to provide activity indicators for the overall phenomenon and systemize the entire body of literature into specific HRM strategy domains or practices, using a double-entered pivot table.FindingsThe study framework provides managerial implications with regard to the HRM decisions made when attempting to improve human capital in family firms. Accordingly, the authors view HRM-centered decisions and strategies in family firms as ways to scan for and appraise contingent dimensions, make sense of the current environment, make good choices and achieve high performance levels.Originality/valueThe authors offer this four-domain theoretical scheme as a framework through which the field can be interpreted, proposing some potential avenues for moving forward.

Ambidexterity in family firms: The interplay between family influences within and beyond the executive suite

Ambidexterity commonly refers to the simultaneous pursuit of exploration and exploitation and may be particularly beneficial for family firms. In this study, we investigate how family CEO and top management team (TMT) family affiliation influence ambidexterity. In addition, we consider the role of family ownership dispersion and how it impacts the ability of the top managers of family firms to foster ambidexterity. We test our hypotheses on a unique dataset combining archival and multiple respondent survey data of 167 German family firms. Our results shed light on conditions under which family-led leadership can pursue ambidexterity.

Priorização de Stakeholders em Empresas Familiares: Um Ensaio Teórico

Objetivo do estudo: identificar os fatores que influenciam a priorização de stakeholders em empresas familiares.Metodologia/Abordagem: para a condução do estudo, foi desenvolvido um ensaio teórico, baseado no “modelo de saliência de stakeholders”, que aborda critérios de priorização, e no “modelo de três círculos”, que apresenta as interseções entre família, gestão e propriedade, peculiares em empresas familiares.Principais resultados: os resultados apontam a saliência de três grupos de stakeholders internos na empresa familiar (o fundador, os membros da próxima geração e os funcionários sem vínculo familiar), a partir dos atributos de poder, de legitimidade e de urgência, e considerando a simultaneidade dos papéis desempenhados.Contribuições teóricas: o estudo contribui para a gestão e a priorização de stakeholders, por considerar as semelhanças e as diferenças entre empresas familiares e não familiares; e por incluir o atributo “simultaneidade de papéis” como fator de influência importante nesse fenômeno.Relevância/Originalidade: a inclusão do atributo “simultaneidade de papéis” é relevante para o avanço da “teoria dos stakeholders”, no contexto de empresas familiares, pois oferece maior abrangência e precisão ao modelo de saliência; e o estudo fomenta a discussão sobre como alocar os recursos organizacionais diante das diversas demandas existentes.

External knowledge sourcing and innovation in family firms

PurposeThis study aims to investigate the external knowledge search behaviors in terms of search breadth and search depth in family firms and the resultant product innovation in Indian context. The authors theorize the mediating role of absorptive capacity (potential and realized absorptive capacity) between knowledge sourcing from external sources and product innovation. Further, the authors examine the moderating role of crucial internal social capital of the family firm in enhancing the use of external knowledge for firm innovation activities.Design/methodology/approachThe study uses a quantitative research design taking single informant for collection of data from 151 family small and medium enterprises in automotive sector in India. The authors use structural equation modeling to test hypothesized relationships.FindingsThe findings indicate that both search breadth and search depth of family firms are positively associated with product innovation in family firms. The authors also find evidence for partial mediating role of potential and realized absorptive capacity in the relationship between search breadth and innovation and search depth and innovation. The results show how family firms learning taking place while scanning external knowledge sources in terms of external absorptive capacity routines. Finally, the authors find that family firm internal social capital positively moderate the relationship between search breadth and depth, and product innovation.Practical implicationsFamily firms need to innovate to remain relevant in the long-run and as such development of superior capabilities is of great significance to them. Family firm managers must be open to external knowledge as such knowledge help them improve the firm level of innovation through absorptive capacity. Further, family firms must realize and act upon the importance of their social capital for the integration and utilization of acquired knowledge.Originality/valueThis paper is amongst a few papers that take dynamic capability views of innovation in family firms wherein the authors theorize how external search breadth and depth lead to the development of potential and realized absorptive capacity in family firms. The importance of family firm internal social capital as a strong integrating and knowledge sharing mechanism that helps family firms transform external knowledge into innovation is also highlighted.

Handling Innovation in Small Family Firms: The Role of Context

Innovation management in family firms is a paradoxical challenge. The constant tension between innovation and tradition confers to this topic a fascinating mystery area that calls to action scholarly efforts and further studies to underscore whether family firms are innovating or not. This debate becomes even more intriguing and interesting when family businesses are small-sized and embedded in local contexts strongly attached to traditions and cultures that inhibit change. Based on the curiosity of analyzing the innovation proclivity of small family firms rooted in such a context and building on previous studies that were focused on innovation in family run businesses, we deeply investigated two cases. Findings uncovered a twofold and opposite role of the context:  on the one hand, a constraint and, on the other hand, leverage of innovation. Interesting scholars and practical implications are discussed, and future studies are suggested.

Will Joint Management of the Couple Change Enterprises’ Cost Stickiness？Empirical Evidence from A-share Listed Family Business in China

Cost stickiness is an important concept in the field of management accounting, and it is also an interesting feature of cost asymmetry which is different from the traditional cost management model. The motivation behind the cost stickiness of business has always been the focus of academic study. The research focus of this paper is to explore the influencing factors and internal mechanism of the cost stickiness of enterprises from the perspective of the characteristics of the power structure of actual controllers. Different from the general organizational form, the family business based on marriage as the basis of the contract is unique in the allocation of organizational power. First, husband and wife, as the connection of marriage and the core of family business, have an impact on the development of enterprises. But, as independent individuals, they have individual heterogeneity to the firm. The influence of the above characteristics on the cost stickiness behavior under the property right structure-ownership allocation and management right allocation-is more profound.Using China’s A-share listed family companies from 2007 to 2018 as research samples to test, the results show that: （1）Spousal co-governance has a significant impact on the cost stickiness of enterprises: the ownership allocation based on the joint shareholding of husband and wife and the management right allocation based on the joint management of husband and wife have a significant impact on cost stickiness; （2）Equity restriction plays a significant regulating role between marital co-governance and cost stickiness; （3）Entrepreneurial ability of the couple plays a significant regulating role between marital co-governance and cost stickiness; （4）Further research finds that the involvement of relatives from both husband and wife significantly increases cost stickiness; （5）After a series of robustness tests, the main results remain stable. The findings of this paper have opened up the mechanism of internal cost control of family enterprises, and enriched the research on the influencing factors of cost stickiness. The research in this paper is also of enlightenment significance to deeply understand the characteristics of internal operation and management of family firms, improve the decision-making ability of private entrepreneurs, and improve the efficiency of resource allocation.

How does family management affect innovation investment propensity? The key role of innovation impulses

We investigate the relationship between family management and innovation investment propensity in family firms through analyzing the effect of two innovation impulses: demand-pull and technology-push. Extending the technology-push/demand-pull framework to the context of family firms, and adopting a direct measure of firms’ innovation investment propensity, we test our hypotheses on a sample of 1093 Italian small and medium-sized family firms. Our results show that both the demand-pull and technology-push innovation impulses moderate the relationship between family management and the firms’ propensity to invest in innovation, reducing the negative effect exerted by family management on family firms’ innovation investment propensity. Moreover, our evidence shows that family firms’ innovation investments are more sensitive to the demand-pull than the technology-push impulse. Overall, our findings suggest to practitioners and policymakers that family firm innovation impulses are important contingencies that need to be taken into account when making innovation investment decisions.

Innovations in family firms: a study of owner-managers’ knowledge development

PurposeThe purpose of this paper is to identify the relationship between family firms’ innovation output and the continuous knowledge development of owner-managers. Moreover, the study aims to investigate the effect of the level of owner-managers’ educational background on family firms’ innovation.Design/methodology/approachThe data originate from a primary research conducted in Poland. A log-linear analysis was used to verify the hypotheses.FindingsThe findings demonstrate that the positive relationship between the higher levels of education of owner-managers and the innovation output of family firms does not exist. However, the innovativeness of family firms is determined by the continuous development of owner-managers’ knowledge. Family firms whose owner-managers continuously expand their knowledge introduce significantly more product and marketing innovations. This relationship appears independent of firm’s size, type of business activity and owner-managers’ educational level.Practical implicationsUnderstanding how the continuous development of owner-managers’ knowledge influence the firm’s innovation output is potentially valuable for managers of family firms. The findings offer also practical suggestions for policymakers on how to support structures that aim to enhance innovation in family enterprises.Originality/valueThis study contributes to the family business literature by presenting quantitative findings describing links between family firms’ innovation outputs and continuous knowledge development of owner-managers. Thus, the study broadens knowledge on factors determining innovation of family firms and influencing family business heterogeneity.

Socioemotional wealth and family commitment

PurposeThe purpose of this paper is to determine the elements of family-centric non-economic goals, such as socioemotional wealth (SEW) of family business owners, that drive family commitment. The empirical study further tests whether such relationships are impacted by the aspect of ownership, that is, who controls the firm: founder generation or subsequent generation of owner managers.Design/methodology/approachDeploying the SEW and stakeholder theories, this study proposes a conceptual link between soecioemotional wealth dimensions and family commitment. The study is based on a survey of 357 private family firms in Bangladesh involved in manufacturing ready-made garments. The respondents are all in senior-level management positions in their respective firms and are members of the dominant owning family.FindingsPrior to considering the moderating effect of controlling generation, the results indicate that four out of five FIBER dimensions of SEW affect family commitment, except for binding social ties. The study also finds that when a comparison is made between the founder generation and the subsequent generation of family firm managers, it is the latter that manifests significantly higher levels of family commitment when the focus is on the two FIBER dimensions of SEW: binding social ties and identification of family members with the firm.Research limitations/implicationsAlthough the cross-sectional nature of the study exposes the study to the specter of common method bias, procedural remedies were initiated to minimize the likelihood. Furthermore, data were collected from a single key informant in each organization. Therefore, both a longitudinal study and corroborating data from more than one individual in each firm would possibly provide a more robust picture.Practical implicationsKey decision makers from within the family who wish to see their subsequent generation remain engaged and committed to the family firm may find cues from the fact that focusing on binding social ties and identification of family members with the firm play an important role in ensuring continued commitment to the business by their successors.Social implicationsFamily businesses are recognized to be vital contributors to most societies around the globe, both as employment generators as well as catalysts of economic activities. Hence, policy makers may derive pertinent information from the study in adopting policies to nurture and ensure survival and continuity of family-owned businesses, by understanding how family-centric non-economic goals impact family’s desire to commit resources, time and effort to the enterprise from generation to generation.Originality/valueDetermining the factors that drive continued engagement and commitment of family members to the business enterprise is a phenomenon that needs to be better understood in order to ensure continuity and survival of family enterprises across generations. This study attempts to provide a more nuanced understanding of how different components of family-centric goals, such as SEW, impact family commitment. The study contributes to theory building by providing a conceptual link that demonstrates the components of SEW that are most pertinent in terms of ensuring higher levels of family commitment to the family-owned business.