Family Involvement In Ownership Research Articles

Family Involvement and Firm Performance: A Worldwide Study Unveiling Key Mechanisms

Prior literature establishes a link between family involvement and the firm financial performance. However, the mechanisms through which family involvement in a firm affects its financial performance in different institutional settings are largely unknown. Using an unbalanced panel of 3,322 listed firms from 32 countries over a 9-year period, we find that family involvement in ownership and management on average has negative effects on financial performance. Moreover, the negative effect of family ownership is less profound in countries with good institutional quality. We further find that R&D intensity partially mediates the negative relationship between family involvement and the firm financial performance, but the mediation effect is conditional on the degree of institutional quality in a country. These findings advance the family business, innovation, and institutional literature, and offer important implications for theory and practice.

Does family power drive the size transition of entrepreneurial family firms? A study on the growth of Italian manufacturing firms

PurposeThis paper explores the drivers and inhibitors of the transition of entrepreneurial family firms from small to large firms. We adopt two contrasting theoretical perspectives, i.e. agency and stewardship, to explore the effects of family power on size transition.Design/methodology/approachWe adopted an original research design that leverages a unique longitudinal database built starting from the list of the 500 best Italian manufacturing family firms published by the AUB Monitor in 2018. Specifically, we tested our hypotheses using a comprehensive set of financial and governance data from 89 Italian manufacturing family firms covering a 10-year period. To test our hypotheses, we conducted a survival analysis using a Cox regression.FindingsWe find an inverted U-shaped relationship between family involvement in ownership and size transition: size transition is more likely to happen at intermediate levels of family involvement in ownership. Additionally, our analysis shows that family involvement in the board of directors negatively impacts size transition, while the presence of a family CEO has a positive influence.Originality/valueTo the best of our knowledge, this study represents the first exploration of the phenomenon of size transition within entrepreneurial family firms. We believe it was worthwhile for two reasons. First, small size is frequently regarded as a weakness when competing in international markets, investing in R&D, or rewarding shareholders. Second, since small family firms are the major contributors to the world economy, understanding the factors that facilitate their transition to large firms can have a significant impact on overall economic development and prosperity.

Exploratory Innovation in Family-Owned Firms: The Moderating Role of Digital Search

Family firm research agrees that family involvement in ownership gives rise to idiosyncratic innovation behaviors. However, whether family ownership fosters or hampers innovation is still debated because the distinction among the types of innovation outcomes has been often overlooked. To address this gap, we focus on exploratory innovation intensity as innovation outcome (i.e., the ratio between exploratory innovations and all the innovations developed by a firm) to improve our understanding of the family ownership-innovation relationship. Rooted in socioemotional wealth and social capital theories, our arguments posit that family ownership negatively influences exploratory innovation intensity. Recalling the literature on search and recombination, we further propose that this relationship is positively moderated when family-owned firms rely more heavily on digital, information and communication technologies (ICT) related knowledge components during the innovation process (i.e., on a digital search). A panel data analysis of 504 US public limited companies supports both our hypotheses. This article responds to calls for distinguishing exploitative and exploratory innovation outcomes in family firm research. Furthermore, it adds to the digital innovation research by studying the role of digital search as a contingency factor in the pursuit of exploratory innovations and, relatedly, contributes to the literature on search and recombination by underlying that the ICT domain is a relevant search space where to search knowledge to innovate.

Family involvement in ownership and governance and internal auditing quality

PurposeThis paper aims to investigate the impact of family involvement in ownership and governance on the quality of internal auditing.Design/methodology/approachLeveraging a hand-collected data set of listed family firms from 2014 to 2020, this study uses regression analyses to investigate the impact of family ownership, family involvement on the board, family CEO and the generational stage of the family business on the quality of internal auditing.FindingsThe results provide evidence that family ownership is positively associated with the quality of internal auditing, while later generational stages of family businesses have the opposite effect. Additional analyses reveal that the presence of a sustainability board sub-committee moderates the relationship between generational stages of family businesses and the quality of internal auditing function.Research limitations/implicationsThis paper does not consider country-institutional factors and other potentially family-related antecedents or governance factors that may affect the quality of internal auditing.Practical implicationsThe results are informative for investors and non-family stakeholders interested in understanding under which conditions family-related factors influence the quality of internal auditing functions.Originality/valueThis study offers fresh evidence regarding the relationship between family-related factors and the quality of internal auditing and board sub-committees that moderate such a relationship in family businesses.

One for all, all for one: an analysis towards the speed of internationalization in clustered and non-clustered family firms

PurposeThis article aims to explore how cluster affiliation moderates the relationship between family involvement and speed of internationalization in family firms. The speed of internationalization is examined in terms of earliness and post-internationalization speed.Design/methodology/approachThe research is based on a sample of 639 Portuguese family businesses (FBs) created and internationalized between 2010 and 2018 that was retrieved from the Iberian Balance Analysis System – SABI database. The partial least squares structural equation modeling (PLS-SEM) was used to assess the measurement and construct the model.FindingsThe results suggest that higher levels of family involvement in ownership and management make family firms enter on international markets in later stages of their development but, after the first international market entry, the firms are able to exhibit a higher post-internationalization speed. When considering the effect of cluster affiliation, the authors found that clustered FBs are more likely to engage in early internationalization and to accelerate the post-internationalization process than non-clustered FBs.Originality/valueThe study's findings are explained by the existence of socially proximate relationships with other cluster members, based on similarity, trust, knowledge exchange and sense of belonging, which push family firms to internationalize and increase their level of international commitment over time. The empirical evidence, therefore, highlights the primary role of industrial clusters in moderating the relationship between family involvement, earliness of internationalization and post-internationalization speed.

Variable selection for classification and forecasting of the family firm's socioemotional wealth

AbstractSocioemotional wealth (SEW) refers to those family‐centered goals that are likely to have a major influence on the strategic decision‐making process and performance of family firms. Many studies have used indirect indicators related to family involvement in ownership and management to measure SEW; meanwhile, others have developed scales to directly measure the level and importance of SEW in family firms. Limitations of both indirect and direct measures of SEW lead empirical research on SEW to be under threat. In the current study, we use random forests to identify the important indicators related to financial and economic decisions, as well as family‐related measures, for explaining the family firms' SEW and to design a good prediction model using the smallest set of nonredundant indicators. Our results show that the model that exhibits the minimum out‐of‐bag sample (OOB) error rate includes variables that refer to the presence of family members in the firm's management positions, long‐term nonfinancial debt, personnel expenditures, long‐term financial investments, short‐term financial debt, average storage period, and accounts receivables. For prediction, the model with a reasonably low estimated classification error includes only three variables, which refer to the presence of family members in the firm's management positions, long‐term nonfinancial debt, and accounts receivables.

Knowledge integration in family firms: Understanding the nexus between familiness and organizational effectiveness

AbstractAlthough knowledge integration has been deemed relevant for the development and survival of family firms, prior studies suggest that the lack of skills to combine and transfer incumbent family members' knowledge within the family may hinder family firms' organizational effectiveness. Knowledge integration, in this context, might depend on family involvement in ownership, management and governance, and family essence, considering the emotional and relational aspects of the influence the family exerts on the business. Relying on knowledge‐based view and dynamic capability perspectives, we propose a model suggesting that knowledge integration intervenes in the relationship between familiness and organizational effectiveness. Our hypotheses are tested on a sample of 102 private Spanish family businesses. The results reveal that familiness is beneficial for knowledge integration, enhancing family firms' organizational effectiveness. Our study provides practical implications for family business owners and managers, and opportunities for further research.

Effects of Family Involvement on Succession Planning: Mediating Role of Socioemotional Wealth

This study aims to clarify the paradoxical relationship between family involvement in ownership and management on succession planning and ascertain the mediating role of socioemotional wealth (SEW) in this relationship. Succession, which is considered as transfer of leadership and ownership from one generation to another, is a critical component within family businesses. Based on the SEW perspective, this study argues that family ownership and management positively influence succession planning via CEOs perceived SEW toward family business. Hypotheses were tested through structure equation modeling with a data set of 174 Taiwanese family controlled publicly listed firms. The results showed that family management positively impacts succession planning through the partial mediating effect of SEW. However, nonsignificant relation was obtained from the path of family ownership to succession planning. These findings contribute to clarifying the heterogeneity within family businesses in terms of the mechanism through which family involvement in management affects succession planning.

Impact of COVID-19 on family business performance: evidence from listed companies in Germany

PurposeThe COVID-19 pandemic has hit different industries and firms with widely differing degrees of severity. The authors investigate whether ownership structure (family vs non-family) might represent a differentiating factor. The article's purpose is to conduct an initial, descriptive analysis of the impact of COVID-19 on different stock and operating performance measures of listed German companies.Design/methodology/approachThe authors use a sample of 299 listed companies in Germany and gathered operating as well as stock market performance data following the outbreak of COVID-19. For the purpose of this paper, the authors solely focus on static and descriptive observations thus far. The intention of this paper is to describe potential implications for more differentiated, especially multivariate causal research, on family businesses in a post-COVID world.FindingsThe results indicate that, over the last five years, stock returns of family businesses have been higher than those of non-family firms. This effect seems to have been more pronounced during the first month following the COVID-19 outbreak. When applying operating measures, the outperformance becomes even more evident. The findings therefore seem to support the hypothesis proffered in the literature that family involvement enhances the potential for resilience in such firms.Originality/valueScholars on COVID-19 crisis performance have begun to explore firm-level factors related to financial and organizational factors, industry characteristics and country-level factors. The research extends this line of inquiry by probing the importance of family involvement in ownership.

How organizational readiness for digital innovation shapes digital business model innovation in family businesses

PurposeFamily businesses often lack sufficient knowledge about digital business model innovation digital business model innovation (BMI). This study's purpose was to analyze how and when organizational readiness for digital innovation exerts a positive impact on family businesses' digital BMI. To do so, the authors examined the mediating effect of the familiness learning mechanism and the moderating effect of family involvement on this relationship.Design/methodology/approachA quantitative survey method was used to collect the data for this study. Using a sample of 282 family businesses involved in manufacturing in China, the authors conducted hierarchical regression analyses to evaluate the authors' theoretical model.FindingsThe results of this work demonstrate a positive relationship between organizational readiness for digital innovation and family businesses' digital BMI, and the find that the familiness learning mechanism mediates this relationship. The findings also show that second-generation family involvement in management moderates the direct effect of organizational readiness for digital innovation on the familiness learning mechanism, as well as the indirect effect of organizational readiness for digital innovation on digital BMI via the familiness learning mechanism. Moreover, the results establish that family involvement in ownership moderates the direct effect of the familiness learning mechanism on digital BMI, as well as the indirect effect of organizational readiness for digital innovation on digital BMI via the familiness learning mechanism.Practical implicationsThis study provides practical contributions to the literature on family businesses and to public policy, providing concrete suggestions for fostering digital innovation in family enterprises. This study also enriches our understanding of the unique conditions by which family businesses can successfully implement digital BMI.Originality/valueThis research confirms that organizational readiness for digital innovation is an antecedent of digital BMI. This finding offers a new perspective that helps explain what might lead family businesses to engage in digital BMI. This study also places the familiness learning mechanism into a theoretical framework, which expands the current understanding of how organizational readiness for digital innovation facilitates digital BMI. Moreover, this work provides new insights into the boundary conditions by which organizational readiness for digital innovation affects the digital BMI of family businesses in terms of second-generation family involvement in management and family involvement in ownership.

Family Involvement in Ownership, Management and Firm Performance: Evidence from Indian Listed Companies

We studied the impact of family ownership and management on Indian family firm performance by using a sample of companies listed on the National Stock Exchange of India (NSE) 500 from 2011–2020. The findings using panel data analysis demonstrate that family ownership positively impacts the accounting (ROA) and market (Tobin’s q) measures of firm performance in our sample. Further, there is empirical evidence that family management is positively associated with firm performance using ROA but negatively related to TQ with the study showing that founder-managed firms outperform descendent or professionally managed family firms in the Indian context. The study is unique in understanding the ways in which family businesses perform, behave and add value to the shareholders by analysing a dataset of listed companies for ten years.

Does Family Involvement in Ownership Affect Profitability and Value of Egyptian Corporations?

Does Family Involvement in Ownership Affect Profitability and Value of Egyptian Corporations?

The Role of Family Firms Heterogeneity on the Internationalisation and Performance Relationship

Many papers have addressed the influence of different characteristics of family businesses on strategic decisions, including those of internationalisation. However, little is known about the relationship between the internationalization of family firms and firm profitability. For this reason, from the socioemotional wealth perspective, in this paper, we focus on the moderating role of some heterogeneous characteristics of family firms on the relationship between internationalisation and business performance. Specifically, we analyse a sample of 76 companies belonging to the Spanish hotel industry, one of the most internationalised sectors and with a large presence of family businesses. The results show that family involvement in ownership and management, as well as generation, moderates the relationship between internationalisation and profitability in the Spanish hotel industry.

The Determinants of Tax Aggressiveness in Family Firms: An Investigation of Italian Private Family Firms

A recent stream of research has focused on tax aggressiveness, the downward management of taxable income through tax planning activities, and has analyzed its antecedents and consequences, mainly on public companies. Only very few studies, however, have been carried out in the context of private family business and have investigated whether some family firms are more tax aggressive than others, considering some specific features of family firms, such as their distinctive agency conflicts and socioemotional wealth. In this paper, we investigate the antecedents of tax aggressiveness in a sample of private Italian family firms. Our research findings show that tax aggressiveness is positively associated with ownership concentration, the presence of independent members in the board, and the adoption of reporting mechanisms. Instead, we found a negative relation between tax aggressiveness and the use of both strategic planning and a combination of managerial control systems (both planning and reporting mechanisms). We did not find any relation between family CEO and tax aggressiveness. In summary, overall, our findings show that family involvement in ownership, an independent board. and managerialization (the use of managerial mechanisms) are relevant antecedents of tax aggressiveness in private family businesses.

Do dissimilarities in the family involvement in family firms lead to different levels of indebtedness? Evidence from Spain

PurposeThis paper examines how differences in the family involvement in a family business can influence its level of indebtedness. Assuming the influence of family is not the same for all family firms, we consider each company as a combination of the family involvement in three dimensions of the business: ownership, management and governance structure.Design/methodology/approachUsing the partial least squares technique allows us to address the heterogeneity of family firms through an integral concept of family involvement in business that jointly considers the level of family participation in the ownership, management and governance structure of each firm.FindingsOur results demonstrate that the level of family involvement in a family firm, considering the heterogeneity existing within the family business group, directly influences its level of indebtedness. In addition, we find that family involvement in ownership and governance structures individually considered are positively related to the level of indebtedness of the family business.Originality/valueOur findings prove that some indebtedness patterns, which previous literature has described as common to all Spanish family businesses, may actually be valid only for specific family firms with a particular level of family involvement. In addition, the way of measuring family business heterogeneity through our integral concept of family involvement can be replicated by other authors because of the manageability of the items, thus contributing to an increased understanding of the effects of family involvement in firms' development.

How do cross-country differences in institutional trust and trust in family explain the mixed performance effects of family management? A meta-analysis

Cross-country research finds mixed performance effects of family involvement in management (FIM) but consistently positive performance effects of family involvement in ownership (FIO). We argue that cross-country differences in institutional trust and trust in family can help explain this discrepancy. We reason that trust in family normalizes family managers’ use of firm resources to satisfy family needs. In contrast, institutional trust orientates family managers’ attention toward improving firm performance. A meta-analysis supports our theory: greater trust in family increases and greater institutional trust reduces the gap between FIM and FIO's performance effects across countries.

Family involvement and financial performance in SMEs: evidence from Italy

The aim of this study is to provide new evidence on the relationship between family involvement and financial performance in small and medium-sized enterprises (SMEs). We analysed the effects of family involvement in ownership and in the board of directors (BoD) for 214 Italian SMEs. Using an ordinary least squares (OLS) regression model with time-period and industry-fixed effects and lagged financial data over a four-year period (2014-2017), we found a statistically significant U-shaped relationship between family ownership and return on assets (ROA). Contrary to our expectations, the relationship between family involvement in the BoD and profitability was negative. These results suggest that family involvement in firms may have both positive and negative effects on financial performance depending on the thresholds considered. We also found a few other contextual variables related to company structure that influenced SME financial performance.

The influence of family-related factors on intellectual capital performance in family businesses

This study explores the impact of family-related factors on intellectual capital (IC) performance. Leveraging hand-collected data from a sample of 85 Italian listed family companies during the period 2015–2017 (255 firm-year observations), we investigate whether three main family-related factors, i.e. family involvement in ownership, family leadership and the generational stage, affect IC performance. Based on the resource-based view and prior literature we assume that all these three family-related factors enhance IC performance. The results confirm our predictions and provide evidence that family firms managed by a family leader and with a higher level of family involvement in ownership exhibit a greater IC performance. Moreover, the later generational stage of the family business is found to be positively related to IC performance. These results enrich the extant literature by introducing two main determinants of IC performance, i.e. family leadership and the generational stage.

The effect of family control on audit fees during financial crisis

Purpose The purpose of this study is to empirically examine the effect of family involvement in ownership, management and directorship on audit fees during the crisis and non-crisis periods. Design/methodology/approach Following Anderson and Reeb (2003), this paper uses a two-way fixed effect model to examine the impact of family control on audit fees in crisis and non-crisis periods. The fixed effects include dummy variables for each year and each industry code in the sample. Findings This paper finds that during normal economic periods, family firms pay lower audit fees relative to non-family firms because of the incentive alignment or monitoring effect. While, during crisis periods, family firms pay higher audit fees because of the shareholder expropriation effect. Research limitations/implications The results reported in this paper have both practical and policy implications for the demand and supply of audit services to firms having different ownership structures. Originality/value This is the first study of its kind to examine the effect of family ownership and involvement on audit fees during the crisis period.

Does Increased Generational Involvement Foster Business Growth? The Moderating Roles of Family Involvement in Ownership and Management

Building upon the upper echelon perspective, we examine the effect of generational involvement in management on various measures of business growth and consider different levels of family participation. Specifically, we argue that generational involvement and the participation of family actors in ownership and management foster cognitive diversity at the TMT level, which may ultimately positively or negatively impact family business growth. Our theory, which is tested using a longitudinal sample of unlisted Belgian family firms, contributes primarily to the literature related to the determinants of family firm growth, which, to date, has paid limited attention to the combined effect of different family involvement factors.