Family Firm Status Research Articles

Risk perception of SMEs: strategic risks, family-related risks, external risks

While risk perception is essential in understanding risk-taking behavior, the risk perception of Small- and Medium-sized Enterprises (SMEs) remains widely unexplored. Analyzing the current business situation of about 1000 German companies, we present stylized facts on the perception of risks. Our first result is that five out of twelve risks are dominantly perceived. The second result is a classification of all possible 4096 risk profiles into eight classes of ideal types of risk perception. Finally, we investigate which factors determine the probability of perceived risks using information on size, industry sector, and business situation of companies, together with data on their equity and family firm status. We use logistic regressions to investigate their impact. Data show that a good business situation lowers the probability of perceiving some of the strategic risks. We strongly argue to focus more strongly on risk perception for creating a better understanding of how SMEs take risks and manage uncertainty.

Family firms, management control and digitalization effect

Purpose This study investigates the association between family firm status and the maturity level of management control systems (MCSs) by considering the moderating effect of process digitalization.Design/methodology/approach The authors conducted an empirical analysis on a sample of 106 Italian firms, utilizing both ordinary least squares and ordered logistic regression in this study.FindingsBy resorting to the MCS maturity model proposed by Marx et al. (2012), the empirical findings reveal that family firms do not differ from their nonfamily counterparts regarding MCS maturity. Furthermore, the degree of process digitalization is positively associated with the probability of adopting IT-related technologies in MCSs. Digitalization negatively moderates the relationship between family firm status and MCS maturity, resulting in family firms exhibiting a lower MCS maturity level than their nonfamily counterparts.Research limitations/implications Despite similar efforts in the digitalization process, family firms lag behind in the adoption of IT-enabled MCSs, which suggests that reduced agency issues in family firms constrain the MCS maturity level.Practical implications This study can assist practitioners in implementing a more mature MCS by considering the interplay between internal digitalization processes and family status of the firm, thereby enhancing the decision-making process.Originality/value This study adds novelty to an underexplored area at the intersection of MCSs, family firms and digitalization.

Family firm status and environmental disclosure: The moderating effect of board gender diversity

AbstractBuilding on agency and resource‐based view theories, this study investigates the level of environmental disclosure (ED) practices of family versus non‐family firms and explores the moderating role of board gender diversity. We test our hypotheses on a 3‐year (2018–2020) panel data sample comprising 324 observations of Italian small‐ and medium‐sized enterprises traded on the Euronext Growth Milan. Findings show that, compared to non‐family firms, companies with a family firm status are characterized by lower levels of ED. Gender diversity on the board, however, moderates this relationship, reducing this gap, to the extent that the family firm status is associated with higher ED when the number of women directors is high enough to constitute a critical mass. We consequently contribute to the studies on family business, corporate governance, and corporate social responsibility.

Strategy disclosure and cost of capital: The key role of women directors for family firms

This paper investigates whether and to what extent strategy disclosure influences the cost of capital, comparing family and non-family firms and considering the proportion of women directors. We theorize that voluntary strategy disclosure may be either beneficial or detrimental depending on the perceptions by financial stakeholders about the role of governance attributes. These stakeholders might, indeed, assess strategy disclosure differently based on their stereotyped view of the family firm status and women’s involvement on the board of directors. By referring to a sample of 93 listed Italian small and medium-sized enterprises, we show that, unlike with their non-family counterparts, strategy disclosure increases the cost of capital for family firms. However, an increasing proportion of women directors softens this negative effect. Moreover, when a critical mass of women directors is appointed to the board, the strategy disclosure becomes beneficial for family firms too. We consequently offer a threefold contribution to the literature on gender diversity, family business and corporate voluntary disclosure.

IPO Timing in Family and Non-Family Firms: Investigating the CEO’s Characteristics Role

The aim of the paper is to investigate the influence of the family nature of the firm on the time to going public and, overcoming the dichotomy between family and non-family firms, addressing the family firms heterogeneity in terms of CEO characteristics. Grounding our regression analyses on a sample of IPO firms went public in Italy from 2000 to 2020, our paper offers theoretical contributions and has practical implications. Findings demonstrate the existence of a positive relationship between family firm status and IPO timing, corroborating previous research claiming that the family influences IPO features. Moreover, empirical results point out that while CEO age increases the time to IPO in family firms, when the CEO is also the company founder, family firms go public earlier. This evidence supports literature advocating that age and founder status matter in shaping family decision making process.

Family Firm Value in the Acquisition Context: A Signaling Theory Perspective

Drawing on signaling theory, we explore the signaling effect of family firm status on firm value in the acquisition context as well as important contingencies influencing the signal’s effectiveness. Based on a sample of 486 observations of acquisitions in France, Germany, Italy, and Spain from 2011 to 2019, our empirical results suggest that acquirers purchase family firms at a higher firm value than non-family firms. This relationship is moderated by the target firm’s financial performance (i.e., high vs. low) and listing status (i.e., private vs. public) prior to an acquisition, as well as the type of acquirer (i.e., financial vs. non-financial) and the acquirer’s geographic location (i.e., cross-border vs. domestic). Our study’s findings suggest that family firm value is driven not only by the characteristics of the family firms that become acquired but also by the characteristics of the acquirers as they influence the effectiveness of the family firm signal.

Are Family Firms Doing More Innovation Output With Less Innovation Input? A Replication and Extension

The role of family firms in innovation and the question of whether family firms show differences in innovation investments and outcomes are intensely debated. To address these issues, Duran, Kammerlander, van Essen, and Zellweger (2016) published a meta-analytic structural equation model showing that family firms produce more innovation output with less innovation input. In the present article, we present the results of two empirical studies. Study 1 replicates the original methodological approach and study 2 provides an extension by using an updated and enlarged sample of 290 papers, adopting a more advanced multilevel approach, and controlling for firm age. The results show that while we could successfully replicate the original results of DKEZ in study 1, study 2 revealed only a weak negative effect of family firm status on innovation input and no effect on innovation output. Our results suggest that family firms are not producing more innovation output with less innovation input and that further research should focus on the heterogeneity within the group of family firms rather than simply comparing family to nonfamily firms. We close with a discussion of the methodological implications for meta-analyses in entrepreneurship research and a call for future research on family firm innovation. Our dataset and analytical procedures are publicly available.

This hotel is family-run! Enabling positive consumer response via perceived hospitableness

Family-run businesses are key players in the hotel industry and provide accommodations in many tourism regions such as the Austrian Alps. To date, research has failed to see the family firm status as a source of competitive advantage for the hospitality industry, despite often being used in practice to attract customers. Through the theoretical lens of signaling theory, this study therefore conducted experiments using fictitious hotel websites with participants from a German online panel (Austria’s largest incoming market) to investigate the effectiveness of family firm brand signals. The results confirm positive effects of communicating the family firm image on consumer response such as word-of-mouth, willingness to pay a price premium, and booking intention. We highlight that this effect is explained by perceived hospitableness. As such, we demonstrate that hotels can capitalize on their unique status by communicating their family firm image.

Transmission of family identity and consumer response: do consumers recognize family firms?

PurposeCommunicating the identity of a family business generates positive results in consumer response. The paper aims to understanding how the efficient transmission of family identity can influence consumer behavior is essential for designing family firms' marketing communication strategies.Design/methodology/approachAn experimental study based on the eye-tracking technique was designed to determine how attention to (familiar vs non-familiar) visual stimuli on a website influences consumer recognition of a family firm status and how it influences consumer behavior. A sample of 212 individuals was exposed to (simulated) websites of family and non-family firms in the hospitality industry to capture information about their eye movements and measure visual attention to specific stimuli that communicated family identity.FindingsVisual attention has a direct and positive influence on recognizing family firm's identity (FFI). Through FFI, visual attention has an indirect positive effect on trust in the company and attitude toward the brand (BraAtt). Trust in a firm positively affects purchase intention (PurInt).Originality/valueIt is known that consumers can perceive a FFI; however, there is no study on the sensory mechanisms operating in consumers' perceptions of family identity. The study contributes to understanding how consumers can perceive a FFI. This study proposes a novel method for evaluating consumer responses by transmitting family business identity on digital platforms.

Good deal or bad deal? A meta-analysis of acquiring family firms and M&A performance

Family firms have often been portrayed as being distinct from non-family firms in their pursuit of M&A and their performance thereof. Empirical research examining whether family firms perform better or worse than non-family firms in M&A has, however, yielded conflicting findings and sparked controversy among scholars. To extend this stream of research, we theorize that family firms, based on their wealth concentration in the firm, reduced agency costs, and their pursuit of socio-emotional wealth goals, outperform non-family firms in M&A. Meta-analytic results from 40 primary studies covering over 20 years of research and 50 different countries support our hypothesis. We further argue and empirically show that the observed positive effect is weaker when family members take on board positions and conduct industry-diversifying M&A. Moreover, our findings emphasize that the family firm status and M&A performance relationship is contingent on the institutional environment of the family firm’s home country, examined through the country’s ease of doing business and education level of the workforce.

Investors’ Reactions to CSR News in Family Versus Nonfamily Firms: A Study on Signal (In)credibility

We study family firm status as an important condition in signaling theory; specifically, we propose that the market reacts more positively to positive, and more negatively to negative, CSR news (i.e., signals) from family firms than to similar news from nonfamily firms. Moreover, we propose that during recessions, the direction of these relationships reverses. Based on an event study of 1247 positive and negative changes in the CSR ratings for all firms listed on the French SFB120 stock market index (2003-2013), we find support for our hypotheses. Moreover, a post hoc analysis reveals that the relationships are contingent on whether a family CEO leads the firm.

Board diversity and corporate social performance: Does the family firm status matter?

AbstractThe aim of the study is to investigate whether the board of directors (BoD) diversity affect corporate social performance (CSP), an alternative measure of corporate performance based on social outcomes. The article distinguishes between a structural diversity of boards (proxied by director independence), and a demographic diversity in boards (proxied by gender diversity) and our concept of CSP. The sample is constituted of the firms listed to the FTSE‐MIB index, which comprehends the most Italian capitalized listed firms. The analysis, covering a ten‐year period (2010–2019), provides evidence that independent directors positively affect CSP and that gender has no effect on CSP. We also tested the association between BoD and CSP separately for family firms (FFs) and non‐family firms (NFFs) to investigate whether FF status is a contingent condition modifying the effect of board features on CSP. Our result provide evidence of it.

Decoding the chain of effects of family firm image on consumer behaviour

AbstractWhile there has been plenty of research around family firm governance and management, less is known about the way in which family firm image is perceived by consumers. This research aims at filling the gap by investigating the chained links between family firm status and image, and the key brand elements identified by extant literature. The hypotheses are tested through an application to the wine industry with a sample of over 1,500 wine drinkers residing in Australia, Italy, and the United States. The results reveal several linkages between the distinctive family nature of a business and the loyalty of consumers. All brand knowledge constructs are positively affected by family firm image, and influence brand trust and satisfaction. Individual path coefficients highlight differences between countries. Evidence regarding the cultural interdependencies provides guidance for policy makers. Practitioners can consider this research when defining the relationship with consumers of family firms.

Public family firms and capital structure: A meta‐analysis

AbstractResearch Question/IssueIn this study, we examine the impact of family firm status on publicly listed firms' leverage ratios. Furthermore, we investigate the moderating role of a country's institutional setting, especially its shareholder and creditor rights, on this relationship.Research Findings/InsightsConducting a meta‐analysis on 869 effect sizes from 613 studies, we find an overall slightly negative but significant relationship between family firm status and leverage. Our results reveal a large amount of heterogeneity and considerable mean effect size differences across the 48 countries included in the study. The results of our meta‐regression analysis reveal significant moderating effects of shareholder and creditor rights on family firms' capital structure decisions. Whereas stronger shareholder rights have a positive impact on family firm leverage, stronger creditor rights have a negative impact.Theoretical/Academic ImplicationsOur study combines the two dominating and competing views on family firm leverage. On the one hand, the overall lower leverage ratio of family firms confirms the risk‐aversion view of family firms. On the other hand, control considerations also have a significant impact on leverage ratios, as family firms adjust their capital structure dependent on shareholder and creditor rights in their home country. Our study highlights the importance of the institutional setting on firms' financing patterns.Practitioner/Policy ImplicationsThe results suggest a significant impact of a country's institutional setting in general, and its strength on shareholder and creditor rights in particular, on family firms' capital structure decisions. Control considerations result in a strategic use of debt financing that ensures the owner family's dominant position in the firm and prevents potentially harmful conflicts with minority shareholders or creditors.

Board structure and intellectual capital efficiency: does the family firm status matter?

Building on the argument that corporate boards are responsible for the creation and leveraging of a firm’s intellectual capital (IC), this study empirically examines the relation between boardroom characteristics—namely board size, director independence, leadership structure and gender diversity—and IC efficiency. Additionally, we propose that the family firm (FF) status is a specific condition that moderates the effect of board features on IC efficiency. We test the above propositions using data on 113 nonfinancial firms continuously listed on the Italian stock exchange over the period 2011–2016. The empirical results indicate that (1) IC efficiency is significantly lower in FFs, which challenges previous research claiming that FFs have some performance advantages over non-FFs and (2) that board size and director independence have an opposite effect in FFs and non-FFs (positive and negative, respectively), suggesting that the role of individual board mechanisms as drivers of (or brakes on) IC efficiency is contingent on firm characteristics. This paper extends the empirical literature supporting the link between board composition and IC efficiency, which has been scant and inconclusive. Furthermore, the literature has seldom considered the firm contingencies potentially affecting this relation. Regarding practical implications, our findings indicate that there is no one best way of structuring corporate boards that can fit all firm conditions; specifically, the results call into question conventional ‘best practices’ of board composition that emphasise director independence, suggesting that this governance mechanism may not have a consistent effect on organisational outcomes such as IC efficiency.

Employee downsizing and sales internationalization strategy in family firms

Employee downsizing is a crucial choice that transcends the firm’s boundaries and has profound social implications. While the topic has been on researchers’ agenda for a long time, literature is still looking for a finer understanding of downsizing in family firms, which are the majority of employers worldwide. Using the Socio-Emotional Wealth perspective, this study explores the contingency effect of sales internationalization strategy on the relationship between family firm status and employee downsizing. Based on a large sample of private Spanish firms, our results reveal that the negative effect of family firm status on downsizing is mitigated at higher levels of export intensity, global focus and when export is done directly.

Do Family Firms Invest More than Nonfamily Firms in Employee-Friendly Policies?

We examine whether family firms invest more in employee relations than nonfamily firms. Using the variation in state-level changes in inheritance, gift, and estate taxes as an exogenous shock to family control, we find that family firms, particularly those in which a founder serves as chief executive officer or those in which a family member serves as a director on the board, treat their employees better than nonfamily firms. More importantly, family firms focus on investing in employee relations that help alleviate labor-related conflicts and controversies, possibly to avoid a negative family reputation among stakeholders. Family firms’ better treatment of their employees is also evident when we use a difference-in-difference test to exploit changes in family firm status due to (sudden) deaths of family members and firms’ inclusion in Fortune’s “100 Best Companies to Work For” list to identify employee-friendly treatment. We further find that family firms in the early stage of their life cycle invest more in employee relations when they operate in labor-intensive industries in which the benefits from family owners’ monitoring of employees are expected to be large. Moreover, we find that although nonfamily firms’ investment in employee relations is impeded by several constraints, such as short-term investor pressure, managerial myopia, and managerial agency problems, family firms do not suffer from such constraints. These findings help explain why underinvestment in employee relations is prevalent in public firms despite potential long-term benefits from such intangible investment. This paper was accepted by Neng Wang, finance.

Earnings management in private family versus non-family firms. The moderating effect of family business generation

ABSTRACTThe study addresses the signs of earnings management in unlisted companies, comparing the situation in family firms and non-family firms. We adopt arguments from agency theory, and stewardship theory, which are supplemented with the assumptions of socio-emotional wealth literature, to justify our research model. The sample is composed of 263 audited Spanish companies with a turnover of more than 200 million euros, which were analysed in the period from 2011 to 2015. Results indicate that family firms are less prone to the practices of earnings management than non-family firms, and that the association between family firm status and earnings management is moderated by the firm generation. This work contributes to the literature on the quality of financial information in both family firms and unlisted companies, exploring new areas of research.

Board independence and information asymmetry: family firms vs non-family firms

PurposeThe purpose of this paper is to investigate the effect of independent directors in reducing firms’ information asymmetry. Moreover, the authors enrich this investigation by differentiating the effectiveness of independent directors in an intriguing comparative setting of family vs non-family firms. Family firms are used to represent an interesting environment where controlling insiders (i.e. firms’ founding families) have dominant control over corporate decisions. This study addresses the question of whether controlling-insiders dominate independent directors.Design/methodology/approachThe authors manually collect firms’ founder information to identify family firm status in a sample of S&P 500 firms. Following a large literature in capital market research, the authors proxy information asymmetry by trading volume, bid-ask spread and price volatility. The authors employ multivariate regression with two-stage least square analysis, instrumental variable method, Heckman selection model and Hausman–Taylor model to address the issue of endogenous selection of board of director and family firm status.FindingsThe authors find a negative relation between the board independence and information asymmetry, suggesting independent directors are effective in reducing information asymmetry. Furthermore, the authors find this negative relation is stronger in family firms. These results are robust after controlling for the endogenous issues using various models.Research limitations/implicationsOur results suggest that independent directors in family-controlled firms are more successful in reducing information asymmetry than their counterparts in non-family firms. The authors provide direct evidence to support the existing theoretical arguments from Rediker and Seth (1995) and Anderson and Reeb (2004) that founding families and independent boards might be a powerful combination for aligning the interest of insider and diffused shareholders. The findings ease a prevalent concern that the role of independent directors might be compromised in an environment with controlling shareholders, and advocate regulations promoting board independence for various business practices.Originality/valueA number of studies concentrate on the practice of corporate disclosure of firm’s performance and governance and how corporate disclosure mitigates information asymmetry (Leuz and Verrecchia, 2000; Ali et al., 2007; Chen et al., 2008). To the best of our knowledge, this study is the first to examine the impact of independent directors in reducing information asymmetry. The research adds to understanding the incentives of board members and supports recent findings that different types of investors have heterogeneous incentives for corporate disclosure (Srinidhi et al., 2014).

Marketing and branding in family business: Assessing the landscape and charting a path forward

Prior research on family business branding has identified a range of benefits related to promoting a firm’s family status, such as increased customer trust and loyalty. Much less attention has been paid to the possible downsides of such a strategy, for example the negative associations the family firm status can create among stakeholders, like perceptions of nepotism or lack of professionalism. The purpose of this editorial is to introduce the reader to the articles featured in this special issue, which is dedicated to furthering our understanding of the facets of family business branding. Only by gaining a more nuanced understanding of the phenomenon will we be able to provide meaningful guidance to the family business community.