Private Family Firms Research Articles

Corporate social performance in family firms: a meta-analysis

PurposeEmpirical studies provide conflicting conclusions regarding the corporate social performance (CSP) of family firms. The purpose of this paper is to synthesize the existing empirical evidence and examine the potential role of research design and contextual factors.Design/methodology/approachA meta-analysis of existing empirical studies was performed to examine the role of sampling, measurement and contextual factors in explaining the different and often conflicting results of empirical studies in the family business literature.FindingsThe overall relationship between family firms and CSP is positive. The relationship between family firms and CSP is positive for private family firms but is negative for public family firms. The relationship between family firms and CSP is positive when family involvement includes both family ownership and management as opposed to only family ownership or family management. Private family firms care more and public family firms care less about the community, environment, and employees than private and public nonfamily firms. The relationship between family firms and CSP is stronger in institutional environments with weak labor and corporate governance regulatory frameworks.Research limitations/implicationsThe operationalization of both the family firm and CSP constructs significantly predicts the magnitude and direction of the relationship between family firms and CSP.Practical implicationsFamily firms should become more skilled at measuring and disseminating information about the firm’s CSP. Family firms should work to improve public perceptions about the CSP of family firms.Social implicationsPolicy should encourage family firms to remain privately owned by the family. Policy should also incentivize the involvement of family owners in the management of family firms.Originality/valueAlthough several literature reviews address the relationship between family firms and CSP, this is the first review to use the meta-analysis method. The authors contribute to the family business literature by analyzing how differences in study-, firm- and country-level factors can explain some of the variance in the results of the studies in the literature.

Where have all the countries of origin gone? A note on the neglect of firm nationality in family business studies

PurposeThe purpose of this paper is to present arguments for the inclusion of greater sampling detail in comparative studies of family business that includes country of origin/ownership.Design/methodology/approachThis paper is a commentary piece from a scholar focused on family business studies.FindingsThis commentary paper challenges several past family business studies and argues that mixing small family firms with foreign-owned family firms (subsidiaries of foreign companies) into one research sample of “family firms” can represent a significant source of bias. The authors assume that this bias is likely to be more pronounced in samples of privately-held family firms.Originality/valueWhile most of the author’sknowledge on family firms is based on analyses of publicly-held firms, current editors of scholarly journals call for more research on privately-held firms since they represent the vast majority of firms worldwide. The development of the knowledge about private family firms crucially depends on the reliability of results. This paper emphasizes the need for research samples of comparable firms and more comments on the sampling process.

Exploring Top Management Team Composition in Private Family Firms

Exploring Top Management Team Composition in Private Family Firms

La medición de la familia en las empresas familiares privadas: un modelo de red bayesiana

<p><span lang="EN-US">The objective of this analysis was to identify the causality among variables that originate the highest level of <em>familiness </em>in private family firms. The Bayesian Networks (BN) theory was applied to measure the effectiveness of resources and capabilities provided by the family members within a family business to understand causal relations among variables by using probabilistic reasoning throughout a graphic. Re­sults showed that if salary of family members was higher than salary of employees in the same position, if family members shared information among themselves, and if family firms presented family-employee bonds, there was an 83%, 70%, and 79% of probability of having a high level <em>familiness</em>, respectively. The limitation of the study is that any modification in the BN might show different outcomes. These findings expand the knowledge on family business discipline and suggest a path for family business’ leaders to increase <em>familiness</em>. If family firms want to strengthen their competitive advantage, the main variables they should focus, among all the resources and capabilities that represent <em>familiness</em>, are salaries of family members, sharing information, and family-employee bonds.</span></p>

The Governance and Finance of Norwegian Family Firms: Main Characteristics of the Population

Little is known about the family firm as an economic entity except for the very few family firms that are public. Our paper describes a wide range of governance and finance characteristics in the population of all private and public family firms with limited liability. We find that the family firm is the dominating organizational form in the economy, and that family firms behave and perform differently than other firms. We use proprietary data from Norway in 2000–2015 to describe main characteristics of family firms, which we define as firms where more than half the equity is owned by individuals related by blood or marriage. A firm is either an individual entity or a business group. Analyzing about 86,000 firms per year, we find that family firms account for 66% of all firms in the economy, 33% of employment, 22% of sales, and 13% of the assets. We find that family firms have very concentrated ownership regardless of firm size, and that most firms have owners from the controlling family, only. The family’s dominance at the shareholder meeting carries over to the CEO and to the board, which is unusually small. The distribution of firm size is lognormal, growth is independent of size, and family firms are smaller and grow less than nonfamily firms do. Family firms are more labor intensive, and small family firms are particularly liquid, risky, and young. The financing and dividend policy is quite similar in family firms and nonfamily firms. We find a performance premium for family firms. This premium exists for family firms vs. nonfamily firms as a whole, across firms with different size, across firms with and without minority owners, and across most industries.

An Empirical Examination of the Compensation-Dividend Relation to Compare Conflict Resolution Strategies at Public versus Private Firms

While agency theory predicts that the unification of ownership and control of private family firms reduces agency concerns, some prior studies suggest that the complex family relationships of private, family firms increases agency conflicts. To investigate these conflicting predictions, this study empirically examines with regression analysis how executive total compensation levels relate to dividends at public versus private firms to compare the conflict resolution strategies of public versus private firms. For public firms, this study finds a positive compensation-dividend relation, indicating that public firms increase total compensation levels to reward executives for supporting firms’ dividend policies and realign the interests of owners and managers from the conflict created by dividends. Drawing from special access to Forms 1120, this study examines a large sample of privately held U.S. firms. For private firms, this study finds a negative compensation-dividend relation, indicating that private, family firms do not use compensation to realign the interests of owners and managers and overcome the conflict created by dividends. This new evidence suggests that the ownership structure of private, family firms systematically mitigates agency concerns to some degree. On a practical level, this study indicates that firms can provide compensation arrangements that support firms’ dividend policies, and that regulatory agencies should continue to focus on public firms where the great dispersion of ownership systematically increases agency concerns.

Family involvement in publicly traded firms and firm performance: a meta-analysis

PurposeThis study aims to investigate the effects of family involvement in corporations on firm performance. It remains unclear whether family-owned companies, or companies with other forms of family involvement in the corporate governance, perform better than firms with no family involvement. Furthermore, the study focuses on family involvement in publicly traded firms, which are different from private family firms. Hence, knowledge about family firms will be enriched through a closer look at the publicly traded family firms and shed further light onto the heterogeneity among family firms.Design/methodology/approachThe present study uses a meta-analysis of the extant research on family involvement and publicly traded family firm performance. The authors synthesize past research, identify and reconcile mixed findings and expand the understanding of the phenomenon.FindingsInvolvement of the founding family members in firm governance tends to improve firm performance, albeit the effect is rather weak. However, the effect varies greatly depending on the type of family involvement and the measure of performance. The authors also identify regional differences, as well as variations by the firm size and study design. Furthermore, under-researched areas are identified for future research.Practical implicationsThe results of the study would be useful in guiding organizational design and investment decisions.Originality/valueBy using the meta-analytic approach, the present study provides a comprehensive review of the empirical evidence available on the issue so far. Most importantly, the authors were able to conduct a series of tests to assess the moderating effects of a number of factors that could not be evaluated in any individual study in the meta-analytic database.

Strategic distinctiveness in family firms: Firm institutional heterogeneity and configurational multidimensionality

Institutional theorists argue that strategic distinctiveness is constrained by institutional forces that induce firms to conform. Strategy scholars, for their part, have long advocated the benefits of distinctiveness as sources of competitive advantage. In straddling these positions, we argue that: a) firms vary in their institutional environments and therefore reflect different modes and levels of distinctiveness, and b) strategies are multidimensional, and the need for alignment or “configuration” among these dimensions affects both the degree and functionality of distinctiveness. Firms’ heterogeneity, and the variety of institutional forces to which they are exposed, make family firms ideal populations for exploring these issues. We examine public and private family firms, finding that the former are more apt to conform to industry financial norms than private firms. Although such conformity aids public firm performance, consistent with a configurational rationale, the very high and very low levels of distinctiveness, often required to achieve alignment, work best for private firms. We also find that non-family leaders outperform under these extreme and therefore challenging levels of distinctiveness.

Private equity investors and family firms: The role of exit intentions and conflicts

This study examines private equity minority investors’ exit from family firms and its consequences for owner families. The authors theoretically discuss potential conflicts that might influence the exit decision, alternative exit routes, and the intentions of the family owners to exit the business along with the private equity investors. Subsequently, the theoretical insights were tested empirically using a case-based research approach. Four private equity firms provided data on 14 cases of completed minority private equity investments from Germany. Semi-structured interviews with investment managers offered further information regarding the analysed cases. Empirical findings reveal that conflicts of interest over the exit of private equity minority investors only rarely arise. Moreover, differences between planned and applied exit routes are mainly caused by changes in the economic situation of the company and/or in the conditions of financial markets and are related to changes in family owners’ exit intentions

Exploring open innovation in entrepreneurial private family firms in low- and medium-technology industries

resources to cope with issues that arise in the various stages of the innovation process. These are often lacking in private family small and medium-sized enterprises (SMEs). Such firms usually do not possess the required diversity of in-house resources and expertise, which makes it extremely difficult for them to rely solely on in-house innovation activities. Opening their boundaries and collaborating are, therefore, essential for innovation success. Open innovation (OI) – strategic collaboration with external partners to develop new technological innovations through sharing, using, and integrating knowledge – involves loosening control and allowing for a high degree of interdependence among the partners in the innovation process. However, engaging in OI poses major challenges to family firms. Their willingness to engage in OI activities might be seriously hampered by a fear of control loss and/or by multiple and potentially conflicting goals within the family firm and family system. Some family firms successfully meet these challenges, others do not. Therefore, our main objective is to explore a diversity of OI processes in private family SMEs and to examine the ways in which family firms can rise to the challenges and succeed in innovating openly. In this respect, we recognize that OI processes are a specific type of strategic change that may involve various iterative cycles of internal change in which the firm may never reach a final state. The state of openness and the supporting internal characteristics need to be constantly scrutinized and maintained.

Institutional logics, family firm governance and performance

Positive and negative views of family firms and their performance abound. Although there have been explanations for this divergence based on conditions of governance and context, the institutional environment has been less thoroughly explored as a source of these differences. We argue that the blend of family and market institutional logics in the regional communities where firms operate can have an important impact on the governance arrangements and financial performance of family firms. Specifically, we find that family-intensive governance is more common where family logic predominates in a region, and does best when this logic remains at modest levels or is countered by market logic. We test and support these notions in a comprehensive sample of private family firms in Italy, an ideal context in which distinct historically-determined logics exists among its 20 regions.

Expert Insights on the Motives and Process of Selling Private Family Firms

This study examines private family firm owners’ motives for selling their firms to external (non-family) buyers. The study contributes to understanding of the sale process in the family business co...

Are Family Firms Good Employers?

Family firms employ about 60 percent of the global workforce. While it is widely assumed that they are good employers, data about their conduct is mixed. In this study, we extend stewardship and agency theories to test competing propositions about the impact of family on employment practices using data from 14,961 private Belgian firms over a 19-year period. Higher investments, lower dividend payout, and higher risk tolerance indicate that family firms are better financial stewards of their companies than nonfamily firms. However, family firms are worse organizational stewards than nonfamily firms: They offer lower compensation, invest less in employee training, and exhibit higher voluntary turnover and lower labor productivity. Further, and contrary to earlier research, we find that financial practices in private family firms do not change over time, and that the deleterious influence of family on employment practices rises with both firm age and with heightened family involvement. Together, our findings suggest that a more nuanced understanding of stewardship and agency theory is needed to understand the impact of family on the governance of private firms.

Socio‐Emotional Wealth Separation and Decision‐Making Quality in Family Firm TMTs: The Moderating Role of Psychological Safety

ABSTRACTSocio‐emotional wealth (SEW), defined as the firm's non‐financial aspects meeting the family's affective needs, has become the dominant paradigm in family firm research. Recent debate acknowledges potential SEW heterogeneity within family firms. This study considers the effect of polarizing opinions on SEW preservation among TMT members as a source of separation in the TMT. More concretely, we study the effect of SEW separation on TMT decision‐making quality, while taking into consideration behavioural integration as a team process and psychological safety as a team context. Based on a unique multiple respondent sample of 300 managers from 55 Belgian private family firms, we find that behavioural integration mediates the negative effect of SEW separation on TMT decision‐making quality. In addition, we find that the negative effect of SEW separation on behavioural integration is mitigated by psychological safety and even turns into a positive effect at high levels of psychological safety.

Financial performance and non‐family CEO turnover in private family firms under different conditions of ownership and governance

AbstractManuscript TypeEmpiricalResearch Question/IssueFamily firms, as insider‐controlled companies, should be less likely to exhibit CEO turnover after poor performance and may thus promote enhanced focus on long‐term goals. However, when a non‐family CEO is in charge, the relatively limited empirical evidence is contrasting. Some studies find that only family CEOs are immune from the threat of dismissal following poor financial performance, while other studies show that family firms discipline their CEOs for poor financial performance regardless of their family status. In this work, we try to reconcile these contrasting findings and investigate what ownership and governance conditions influence the owners’ pressure on the CEO to achieve short‐term financial results.Research findings/insightsDrawing on a longitudinal dataset that covers the entire population of Italian medium and large family companies, we find that when family ownership is concentrated in the hands of few family shareholders or there is a low number of family members involved in the board of directors, non‐family CEOs are less likely to be dismissed after poor performance.Theoretical/Academic ImplicationsOur study, adopting the behavioral agency theory as the guiding framework, highlights the importance for governance decisions of the potential goal divergence among principals in closely held ownership structures. Our results also add to the still scant literature on the relationship between family owners and non‐family CEOs.Practitioner/Policy ImplicationsOur research suggests that, in the decision to hire a non‐family CEO, family business owners should not only assess their gaps in managerial skills but also carefully consider the ownership structure and family involvement conditions. On the side of professional non‐family managers, our results offer insights on ways to address the employment relationship with the controlling family.

The effect of intrafamily agency conflicts on audit demand in private family firms: The moderating role of the board of directors

While the value of external audits was long considered to be minimal for private family firms, some exceptional studies indicate that external audits are demanded by these firms to reduce the agency conflicts between family and non-family members. Using a sample of Belgian private family firms, this study empirically shows that (high quality) auditors are also hired to mitigate agency conflicts among family members. Since these intrafamily agency conflicts are mainly based on emotions instead of economically rational behavior and are therefore difficult to grasp by compositional proxies, they are identified by the level of family cohesion. Moreover, this study shows that the monitoring effectiveness of the board of directors weakens the association between the level of intrafamily agency conflicts and audit (quality) demand, indicating that the audit demand effect of intrafamily agency conflicts decreases when family firms are able to reduce the related agency costs internally.

Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation

Family business research suggests that family involvement in the board (FIB) may have both positive and negative effects on entrepreneurship. To reconcile these conflicting views, this study builds on stewardship theory, agency theory, and the resource-based view and proposes a nonlinear relationship between FIB and entrepreneurial orientation (EO) to explore how board task performance moderates this relationship. Using a sample of 208 Belgian private family firms, the findings show an inverted U-shaped relationship between FIB and EO, with EO declining beyond moderate levels of FIB. Furthermore, board monitoring task limits the negative effects of high FIB on EO, whereas the board service task does not have any significant effect. This study offers a more nuanced view of the governance conditions that affect EO in the context of private family firms, an overlooked topic in the family business field.

Company metamorphosis: professionalization waves, family firms and management buyouts

We explore the process of professionalization pre- and post-buyout (MBO) or buyin (MBI) of former private family firms using longitudinal evidence from six UK family firms undergoing an MBO/I in 1998. Professionalization behaviour was monitored up to 2014. Previous studies have conceptualized professionalization as a threshold to be attained. We demonstrate that professionalization is a complex process occurring in waves, triggered by changes in firm ownership and management. Waves of professionalization converge during the MBO/I process. Buyouts provide a funnelling mechanism enabling diverse control systems to be standardized. Post-MBO/I, divergence in the professionalization process reoccurs contingent on firm-specific contexts. Professionalization focuses on operations when stewardship relationships predominate, but on agency control mechanisms when there is increased potential for agency costs. Buyout organizational form is an important transitory phase facilitating the professionalization process. Professionalization is not a once-for-all development stage.

The impact of family CEO’s ownership and the moderating effect of the second largest owner in private family firms

This study explores two ownership issues in private family firms. First, we investigate the relationship between the ownership of family CEOs and firm performance, and postulate that this relationship in private family firms is more complex than the inverted “U” relationship found in public family firms. Second, we predict a potential moderating effect of the second largest owner, who may exert a monitoring role on family CEOs. We focus on private family firms as recent studies show that private family firms have distinct features compared to public family firms, and that findings documented in public family firms may not apply to the ubiquitous, but much less studied, private family firms. We have applied agency theory to develop the two hypotheses, used secondary data on a large sample of private family firms, utilized an adjusted conventional quadratic technique to test the hypotheses, and validated the findings using a second method of piecewise linear specification. The results show that the non-linear relationship between the ownership of family CEOs and firm performance is more complicated than the often-documented inverted “U” shape from public firms. Meanwhile, the second largest owner with a high enough ownership stake can impose a positive moderating effect by mitigating potential agency problems caused by family CEOs.

Family ownership and capital structure decision: an empirical analysis of private family firms.

While family ownership dispersion is seen as influencing firm performance, the impact of such dispersion on debt level is still largely unexplored. This study helps to explain why intra-family equi...