Owner-managed Firms Research Articles

Achieving Optimal Business-IT Alignment in Small Firms: A Dynamic Perspective

This study uses Charmaz's (2006) constructivist grounded theory to examine how small enterprises dynamically connect IT adoption with business goals. To explore small company IT alignment practices, the research uses a qualitative approach to conduct in-depth interpretive interviews with 31 owner-managers. The study methodically analyses grounded data to find processes and concept interrelationships, examining contextual elements, actions, reactions, repercussions, and results. This analysis creates a new framework for business-IT alignment: adaptation, anticipation, synchronisation, and collaboration. Each state shows how small enterprises balance technological and commercial goals, presenting a detailed view of how they do so. This reactive alignment method allows small enterprises to adapt their IT plans to external changes or business needs. Anticipation is a proactive alignment strategy that positions organisations to strategically harness technological advances by anticipating future business and IT needs. Synchronisation occurs when IT and business strategy match in real time, harmonising IT systems and business operations. Collaboration involves deeper integration where IT and business goals are co-created through communication and cooperation. The study's methodology helps policymakers, researchers, and small firm owner-managers predict and analyse business-IT alignment behaviours. This methodology diagnoses alignment states and improves IT adoption strategies and business objectives-IT integration. These findings are important for IT-business alignment theories, especially in small enterprises with resource restrictions and unpredictable contexts.

Cognitive styles and dynamic managerial capabilities: implications for SMEs in a transition economy

PurposeThe dynamism of competition in international markets requires managers to react accordingly and ensure the firm's survival and competitiveness. This study examines the impact of cognitive styles and dynamic managerial capabilities (DMC) on a firm's international performance and the mediating role of these capabilities in the relationship between cognitive styles and international performance.Design/methodology/approachThis study adopts a quantitative cross-sectional research design, employing a sample of 306 firm owner-managers from exporting companies in Kosovo.FindingsThe findings suggest that managers' cognitive styles positively influence firm international performance, including their impact on DMC. Results also indicate that only managerial cognition mediates cognitive styles' effects on a firm's international performance, compared to managers' social capital.Originality/valueIn this study, the authors contribute to the literature by integrating cognitive styles with DMC in a transition country. Moreover, the authors demonstrate that DMC mediate the impact of cognitive styles on the firm international performance.

Compensation Shifting from Salary to Dividends

This paper examines whether owner-managers of small firms use their compensation strategically to change reported earnings. We identify an institutional setting, Denmark, in which the owner-manager has the discretion to shift compensation from salary to dividends and hence increase reported earnings at almost no direct cost due to approximate tax neutrality between the two income streams. Three findings emerge. First, owner-managers are twice as likely to decrease their salary when doing so can result in meeting or beating the zero earnings benchmark. Second, those decreasing their salaries to beat the benchmark are 45% more likely to increase dividends simultaneously than those who can beat the benchmark but do not. This indicates that reporting incentives shape compensation shifting. Third, owner-managed firms enjoy about 6% (EUR 1070) lower interest rates (interest expenses), than firms reporting losses, when they beat the benchmark by simultaneously decreasing salaries and increasing dividends. Our results highlight that owner-managers can manage reported earnings by altering their own compensation, which has economic consequences for the firm. This has implications for users of owner-managed firms’ financial reports because reported earnings would seem a poor contracting signal for these firms.

Ownership Structure, Incentives, and Asset Returns

We develop a dynamic equilibrium model to derive the endogenous relations among firms’ ownership structures, managerial incentives, and asset returns. Ownership concentration is positively related to managerial incentives (PPS) but is negatively related to its expected stock (dollar) return, and volatility. If initial block ownership is above (below) its steady-state level, block ownership and managerial PPS decrease (increase) over time to their steady-state levels, whereas the expected stock returns, return volatilities, and the price impacts of block trades increase (decrease). The convergence of these variables to their respective steady-state levels is faster for firms that are less productive, that are riskier, and whose earnings are more sensitive to managerial actions. The price impact of block trades is larger in firms that are more productive and smaller in firms whose earnings are more sensitive to managerial actions. Changes in the expected stock return over time are negatively affected by changes in block ownership but positively affected by changes in managerial incentives. Relative to owner-managed firms, more widely owned firms have lower expected stock returns and volatilities, faster dispersion of block ownership, and smaller but more variable price impacts of block trades. Compared with diffusely owned firms, firms with significant blockholdings have lower expected stock returns, higher return volatilities, and less powerful managerial incentives. This paper was accepted by Tomasz Piskorski, finance. Funding: H. W. (H.) Jung and Q. Zeng received an internal research grant (AUD 15,000) in 2015 from the Faculty of Business and Economics at the University of Melbourne. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4696 .

Gender diversity in firm ownership: Direct and indirect effects on firm-level innovation across 29 emerging economies

Despite recent evidence linking various measures of gender diversity in the firm with firm-level innovation, we know little about the mediating channels underlying this relation. Building on and extending the Upper Echelon and entrepreneurship literature, we address the following question: how, i.e., through which mediating channels does gender diversity in ownership-management gets at the heart of firm innovation? We use cross-sectional survey data collected in a random sampling of 7848 firm owner-managers across 29 emerging economies during 2012–2016 to test our hypotheses. Our findings demonstrate both direct and indirect effects of our focal independent variable. Specifically, firms with greater gender diversity in ownership are more likely to invest in R&D and rely upon external capital, with such differentials explaining sizeable proportions of higher likelihoods of overall innovativeness, as well as technological and non-technological innovation exhibited by their firms. Our post-analytical extensions reveal gender diversity among the workforce and human-resource-management practices that support employees' creativity and learning as additional mediating channels through which gender diversity in ownership likely impacts firm innovation. Furthermore, gender diversity in ownership allows firms from less-advanced emerging economies to catch up in their overall innovativeness with firms from more-advanced emerging economies.

The role of the board of directors in the value creation process and performance of family businesses

An important feature of family firms is that the controlling shareholders normally aim to maintain their investment in the long term. The theme of performance stability might be of great importance for a family firm’s survival over time. We hypothesize that family firm owner-managers are likely to choose as board members those outsiders who are able to help the firm overcome problems of performance stability over time. We then test the hypotheses through empirical analysis. Our findings suggest that the number of independents on the board of a family firm has no impact on performance stability. Instead, we find that interlocking directors can provide a significant contribution to the achieving of lower performance variability.

Should I sell part of my family firm? Exploring the drivers of a minority sale

PurposeThis study aims to extend the research in the field of external investments in family firms. It contributes to the literature by analyzing the drivers of the family firm owner-managers selling a minority stake to a strategic investor. This type of external investment might be of great interest to family firms because the family firm owner-managers can secure control over the firm and preserve socioemotional wealth while simultaneously generating additional financing and gaining strategic and managerial know-how. Likewise, minority investments in family firms might also be of high interest to strategic investors, thus enabling close collaborations (e.g. in R&D, purchasing and sales) with minor equity investments.Design/methodology/approachThis study tests the hypotheses using a vignette study leveraging 327 observations from family firm owner-managers.FindingsBased on the socioemotional wealth perspective, this study hypothesizes that the degree of family prominence, the degree of employee orientation and pure family management influence the willingness to sell. In addition, this study hypothesizes that the moderating effect of a below-average financial performance weakens the abovementioned direct effects. This study finds support for most hypotheses.Originality/valueThis study extends the research in the field of external investments in family firms. It contributes to the literature by analyzing the drivers of the family firm owner-managers selling a minority stake to a strategic investor.

Marketing and performance in small firms: the role of networking

PurposeThe purpose of the paper is to advance knowledge of small firm performance by explicating how networking helps small firms carry out marketing and perform better.Design/methodology/approachAn online survey of small firm owner-managers in a regional economy of the UK was executed. Hypotheses were tested including the proposition that networking proactiveness moderates the relationship between market orientation (MO) and performance.FindingsIt was found that networking is undertaken by all small firms across a spectrum of business types. Networking is seen as applicable, it results in valuable outcomes and these outcomes contribute to marketing. The contribution increases with firm size and is valued more in small firms with a dedicated marketing function. Proactive networking creates greater value than reactive networking, but proactive networking in and of itself does not lead to greater performance. Rather, networking proactiveness moderates the relationship between MO and performance.Practical implicationsIt is argued that networking should not be dismissed as “not quite proper” marketing and should be harnessed as a way of compensating for marketing activities that are outside the reach of the small firm. Small firms are advised to adopt a proactive approach to their networking activities, as without a reasonable level of proactiveness, there is likely to be no benefit in being market oriented.Originality/valueThere has been little research that has examined the specific ways in which networking contributes to marketing and none that probes if and to what extent this contribution makes a difference to overall firm performance. This paper addresses this gap.

Family- and non-family-related reasons for entrepreneurial exits

PurposeThis study examines the family- and non-family-related reasons that may determine the choice of the anticipated entrepreneurial exit strategy (exit intention).Design/methodology/approachThe study is based on a survey of 267 owner-managers of micro-and small-sized firms in Poland and focuses on their exit intentions (rather than actual actions) as precursors to entrepreneurial exit. Structural equation modelling (SEM) was used to test the hypotheses.FindingsThe results show that family-related reasons may encourage entrepreneurs to choose the stewardship strategy over the financial harvest or voluntary cessation strategies, while non-family-related reasons such as maintaining financial independence and health may encourage the choice of the financial harvest or the voluntary cessation strategy.Originality/valueThis research contributes to both the entrepreneurial exit literature and psychological ownership theory by demonstrating the potential relevance of psychological ownership in the selection of exit strategies.

Transition of Owner-Manager Faith into the Professional Environment

I develop a model explaining the process of owner-managers transitioning their Christian faith into the professional environment. Based on 20 interviews with representatives from eleven Christian-led, owner-managed firms, I find that the belief in accountability towards God, the belief in fate, and the urge to apply a moral code of conduct serve as the basis for owner-manager purpose. I find that Christian owner-managers understand their purpose in serving God and, in the context of their professional environment, in bringing God closer to stakeholders. Furthermore, my study sheds light on how Christian owner-managers enact their faith on the individual and organizational level. Thus, the developed model offers an understanding about the transition of Christian faith of owner-managers into their professional environment.

Why Family Firms Sell or Do Not Sell Shares to Investors

This study extends the research in the field of external succession in family firms. It contributes to the literature by analyzing the drivers of family firm owner managers selling a minority stake to a strategic investor. This type of external succession might be of great interest to family firms because family firm owner managers are able to secure control over the firm and hence preserve socioemotional wealth while simultaneously generating additional financing as well as gaining strategic and managerial knowhow. Likewise, minority investments in family firms might be also of high interest to strategic investors thus enabling close collaborations (e.g., in R&D, purchasing and sales), with minor equity investment. Based on the socioemotional wealth perspective we hypothesize that the degree of family prominence, the degree of employee orientation and a pure family management influence the willingness to sell. In addition, we hypothesize that the moderating effect of a below-average financial performance reverses the influence of the abovementioned direct effects. We test our hypotheses using a vignette study leveraging 327 observations from family firm owner managers.

Adaptive capability of micro agribusiness firms: Qualitative evidence from the Philippines

Handicraft production is seen to be a promising opportunity to provide sustainable productive employment in the rural areas of the Philippines. The full implementation of the Regional Comprehensive Economic Partnership opened opportunities for bigger international market but ushered in tougher challenges; this study aims to explore the concept of adaptive capability of micro handicraft firms in response to effects brought by this economic and trade agreement. Semi-structured, in-depth interviews with eight owner-managers, and two separate focus group discussions composed of six owner-managers of micro agricultural handicraft firms was conducted. Thematic analysis yielded three characteristics of adaptive capability: 1) value creation through product and process improvement complemented with customer service, 2) organizational agility and flexibility in decision making through their skilled and knowledgeable workforce with the use of available information, and 3) organizational resourcefulness to tap into the services provided by institutions and into online platforms provided by telecommunication infrastructure for product placement and promotion. These characteristics enable these firms to make necessary actions, decisions, and strategies which are dynamic and adaptive to the trade environment. However, they are facing hardships in terms of prioritization and inclusiveness in the value chain; sources of financial capital, access to technology and information are among the important factors to develop their adaptive capability. This study's original contribution to knowledge is the hierarchical thematic framework of adaptive capability and that the methodology used has uncovered underlying indirect factors that may be considered mediators that add depth to the understanding of the concept of adaptive capability.

Expectation- Reality Discrepancies of Successor Attributes of Family Businesses

Family businesses are the pillar of strength to all the economies throughout the world. It is not surprising that majority of the businesses in the world are family businesses. Family business comprise of 90 percent of the businesses in India contributing to 90 percent national output and 79 percent employment. However, it has been found that the average life span of a family business is 24 years . 70 percent of family businesses fail or are sold before they are passed on to the second generation and almost 90 percent do not make it to the third generation , while 3 percent survive to a fourth or beyond . One of the reasons for the failure of family business is due to expectation – reality discrepancies between business owners perceived ideal successor attributes versus prospective successors perceived ideal attributes for family businesses. This study compares the successor attributes that potential Indian successors of family business consider most important with the findings of the successor attributes that Indian family business owners consider most important. The current study collected the data from 134 potential successors of family businesses from a reputed business school in Hyderabad and compared the findings with the successor attributes expected from the owner managers of the family firms.

Customer Retention Practices in Micro and Small Food Agro-Processing Enterprises in Tanzania

Customer retention practices are crucial for survival and success especially for micro and small enterprise which have limited resources to engage in continuous marketing activities for attracting new customers. This study was set to investigate the customer retention practices in micro and small food agro-processing firms. The study draws from the Customer Bonding theory examining customer retention practices from market perspective as applied in micro and small food agro-processing firms. The study employed quantitative research approach and a cross- sectional survey design. Data were collected from 302 owner-managers of food agro-processing firms in Dar es Salaam, Morogoro and Arusha. Descriptive analysis was done on the responses of customer retention practices employed by the firms. The paper demonstrates that, food agro-processing MSEs employ customer retention practices. It was established that, they do customer needs assessment, analyze competitors’ activities and behaviours and they coordinate internal functions to increase customer value. Likewise, the study established that, employees of these firms portray positive behaviours towards customers and that there are commendable relationships between the firm and the suppliers of raw materials for food processing. The findings add to the existing body of literature on highly demanded knowledge on market focused customer retention practices which are mostly needed in firms operating in competitive business environment like food agro-processing. In addition, customer retention practices are highly recommended in MSEs due to their limited resources to continually recruit new customers. Notably, the investigated customer retention practices can be tested in other firms and sub-sectors with the focus of enhancing customer bonds with the business.

Moderating influence of religiosity on the causality between taxpaying attitudes and tax compliance behaviour of entrepreneurial firms in Nigeria

PurposeThis paper aims to investigate the moderating influence of religiosity on the effect of taxpaying attitudes on the tax compliance behaviour of entrepreneurial firms in Nigeria.Design/methodology/approachUsing a cross-sectional survey design, we collected primary data from 368 owner managers of entrepreneurial firms in Southwest Nigeria using structured questionnaires. Respondents were purposefully selected based on the purposive sampling technique. The data collected with the structured questionnaires were analysed using descriptive and inferential statistics. Two linear regression models were compared.FindingsEstimations in Models 1 and 2 suggest that taxpayers’ attitudes and religiosity (intra- and interreligiosity) have significant effects on the tax compliance behaviour of firms, but the influence of intrareligiosity is insignificant. Estimations in Model 3 suggest that taxpaying attitudes without the moderating influence of religiosity exerted a significant effect on tax compliance behaviour by 13%, while taxpaying attitudes with the moderating influence of religiosity exerted 17%. Estimations in Model 4 suggest that taxpaying attitudes with the moderating influence of the interreligiosity dimension had a more significant contribution to the changes in tax compliance behaviour than the intrareligious dimension.Research limitations/implicationsFrom the findings, the following policy implications can be deduced: (i) if taxpayers’ attitudes improved and religiosity was leveraged by the tax authorities, tax compliance behaviour of entrepreneurial firms would be induced in Nigeria; (ii) the consistent positive influence is a strong indication that religious values are critical elements of tax compliance interventions that should be considered by policymakers when designing public policies on tax evasion and avoidance in developing countries.Originality/valueWe bridge the gaps in the literature because our study affirmed that taxes are religiously driven. In addition, the study validates the applicability of theory of planned behaviour in investigating the moderating influence of religiosity on the causality between taxpaying attitude and tax compliance in the developing context.

Coopetition and international entrepreneurship: the influence of a competitor orientation

PurposeGuided by a relational, stakeholder perspective of resource-based theory, the purpose of the current investigation is to help unpack the complexity of the performance-enhancing nature of coopetition for international entrepreneurs, namely the interplay between collaboration and competition. The context features under-resourced wine producers owned and managed by entrepreneurs that have implemented an internationalised business model. The focus of the study involves the influence of a “competitor orientation”, namely when decision-makers understand the short-term strengths, weaknesses, long-term capabilities and strategies of key current and potential rivals.Design/methodology/approachData collection primarily featured semi-structured interviews with owner-managers of wine-producing firms in New Zealand that reflected heterogeneity amongst international entrepreneurs' strategies targeting different product markets within their respective business models. Secondary data were also collected where possible. Specifically, interviewees' firms exhibited different portfolios involving wine sales (with varying export intensities) together with augmented sales of tourism-related products/services focussed on the domestic market.FindingsCoopetition activities amongst international entrepreneurs varied; i.e. influenced by respective owner-managers' competitor orientations. Illustrations of different decision-makers' business models within a 2 × 2 matrix feature those with a low- or high-export intensity, together with a narrow or augmented product portfolio. Internationalising entrepreneurs' perceptions varied regarding the extent to which their respective business model was oriented towards local cluster-based domestic tourism with limited export sales, as opposed to those with national and more importantly international wine sales. Possessing and acting upon relevant knowledge manifested in which competitors international entrepreneurs collaborated with and the extent to which this took place across product-market strategies. In turn, this enabled particular decision-makers to exhibit flexibility; hence, entrepreneurs enter and exit certain markets together with changing export intensities, as varying opportunities were identified and exploited.Originality/valueAlthough the performance-enhancing nature of coopetition is largely established in prior literature, the complexity of that relationship remains relatively under-researched, not least, amongst international entrepreneurs. More specifically, the extent to which decision-makers that are engaged in coopetition exhibit a competitor orientation remains under-researched. Unique insights feature a 2 × 2 matrix in order to provide originality regarding international entrepreneurs' respective product-market strategies within their business models that are underpinned by varying coopetition relationships and competitor orientations.

From the Throne to the Kingdom: Employee Empowerment in Owner-Managed Firms

I develop a model explaining procedural aspects of employee empowerment in owner-managed companies. Based on 22 interviews with representatives from six owner-managed firms active in the Swiss main- and ancillary construction industry, I find that firm complexity and resource necessity act as a regulator for growth ambitions forcing these firms to empower their employees. I find that employee empowerment in owner-managed firms can be executed through mechanisms of participative leadership, professionalization of collaboration and ownership dispersion. Furthermore, my study sheds light on effects of employee empowerment such as benefits tied to reduced owner-manager dependence or downsides linked to increased agency costs. My model thus presents integrative theorizing of the drivers, mechanisms, and effects of employee empowerment in owner-manager firms.

How vulnerability enriches family firm relationships: A social exchange perspective

Vulnerability is a defining and fundamental but under-researched, quality of many family firms. We define family vulnerability (FV) as the degree to which family owners and executives realistically perceive that they and their firms are susceptible to material and socioemotional losses from their ventures. Building on social exchange theory, we offer a model that specifies conditions by which FV allows family firm owner-managers to establish mutually beneficial and enduring relationships with prospective resource providers. These relationships improve strategic options for such parties who gain support when they most need it and are more committed and loyal to those who provide it, thereby engendering goodwill and social capital.

Technology Acquisition and SMEs Performance, the Role of Innovation, Export and the Perception of Owner-Managers

Sufficient literature supports small and medium ‘enterprises’ (SMEs) significant role in emerging and mature economies. Still, the same research highlights varying challenges that innovative firms in developing economies face, like access to formal credit and external markets. This study examines the effect of a capital budget’s proportion for acquiring new technology and sale performance between 2017–2019 using a sample of 101 Kenyan SMEs. The ordinary least square moderated mediation results indicate that: (1) the proportion of the capital budget allocated for the acquisition of technology positively and significantly influences sales; (2) the index of moderated mediation suggests that the perception of firm owner-managers towards the availability of formal credit moderates the mediated relationship between the capital budget’s portion spent on technology and sales as mediated by innovation activities. However, the index is insignificant for the second mediator, export longevity. However, in the final model, both the level of innovation and export longevity positively and substantially affect sales.

The paradox of investment timing in small business: Why do firms invest when it is too late?

ABSTRACT This article aims to tell the “gamble of resurrection” story for small owner-managed firms. Analyzing a set of private firms in Vietnam, we find that for firms that are less financially constrained, an increase in the degree of financing constraints leads to a decrease in the use of entrepreneurs’ personal capital. However, once critical value of constraints is reached, this relationship reverses. Specifically, deferring investments that would otherwise be in time may result in firms’ experiencing such serious financial distress that the entrepreneurs will invest their personal capital to try and maintain their firms’ survival even though it may be too late.