Socioemotional Wealth Research Articles

Exogenous Shocks and the Adaptive Capacity of Family Firms: Everything New in the COVID-19 Pandemic?

The COVID-19 pandemic has been and is currently still affecting organizations of any size and in any industry and research still lacks profound insights into the managerial implications of this phenomenon. In particular, it is unclear how family firms, which are the economic backbone of most of the countries affected by the pandemic, have adapted to COVID-19. This paper addresses this gap by drawing on a rich body of evidence collected from 90 interviews and secondary data in a longitudinal case study of four German family firms. We develop a framework for understanding how family firms adapt to exogenous shocks such as the COVID-19 pandemic and find that the exogenous shock further reinforces the family firm’s resource constraints and the family’s fear of losing their socioemotional wealth (SEW). These motivational sources, in turn, trigger behavioral changes in both the firm and the family. In addition to a temporarily induced short-term orientation, these changes manifest in a (pseudo-)family cohesion, less rigid mental models, and a utilization of digital technologies. Organizational outcomes such as new alliances, digital platforms, and the adaptive capacity of family firms are the result of these behavioral changes. By providing a comprehensive understanding of how COVID-19 affects family firms, the insights from our study contribute to innovation research, business practice, and policy-making alike. More broadly, we provide innovation scholars with a theoretical comprehension of how exogenous shocks can challenge our canonical understanding of organizations’ (innovative) behavior.

A Real Options View on Minority Acquisitions by Family Firms

Acquisitions involve high levels of uncertainty because resources are committed to risky acquisition activities even before the actual performance outcomes of these investments are known. In this study we examine the likelihood of using minority acquisitions as a risk reducing mechanism by family firms. Based on an analysis of a panel dataset of S&P 500 firms, we find that the acquisition decisions of family firms are consistent with the real options theory. We observe that family firms engage in related minority acquisitions because of their limited downside risk on socioemotional wealth.

The Pillars of Family Firm Performance? How Owner Manager's Values impact SEW and Performance

While research has often claimed that individual actors' values and consequently behaviour impact the performance of a firm significantly, empirical underpinning about the mechanisms is missing. Especially in family firms, this is crucial to understand, as owner-manager exert an extraordinary influence on values, goals, and their respective firm's behaviour. Therefore, this study aims to connect individual values of the owner-manager to the performance of a family firm, mediated by socioemotional wealth. To help understand this phenomenon, we used structural equation modelling on a dataset of 673 family firms. Based upon upper-echelon theory, our results indicate that person-focused values impact performance directly while social-focused values impact performance mediated by SEW.

Desire-belief-opportunity Framework and A Typology of Family Firms Evidenced in Internationalization

To disentangle the inconsistent predictions derived from the socioemotional wealth construct (SEW), the study proposes a typology of family firms (FFs) referring to the desire-belief-opportunity (DBO) framework in the sociology literature. Specifically, the three ideal types of FFs including born-family firms (BFFs), acquired-family firms (AFFs), and born-again-family firms (BAFFs) are defined and theorized with propositions related to their internationalization behaviors, which constitute the most representative risky decisions. Both theoretical arguments and case illustrations have preliminarily corroborated the distinctiveness among those FFs categorized by the family legacy and governance dimensions such that the different beliefs and available opportunity set would trigger different internationalization actions along with the intention, scale, and scope dimensions. This theoretical framework should enrich the conceptualization of SEW by introducing heterogeneous dynamics that originate from their configuration pathways while presenting a further extension of the family legacy concept. It thus offers a new wrench to reconcile the inconsistent predictions of SEW in family business literature from a micro-foundation perspective particularly. In addition to the advantage of capturing the equifinality and thus opening a new avenue for empirical examinations, the typology has urged integration of multiple perspectives that go beyond SEW and thus added new ingredients to the agency theory as well.

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.

Meeting Halfway? an Instrumental Approach of Family Firms’ Voluntary Information Disclosure

Whether and how family firms overcome public perception bias due to the perceived asymmetric treatment between family and nonfamily interests is under heated debate. Drawing insights from the instrumental stakeholder theory and the literature of voluntary disclosures, we propose family firms can overcome this bias by utilizing instrumental voluntary disclosure. Specifically, we distinguish between the intensity of information disclosure and the contents of information disclosed and develop the arguments in the context of voluntary information disclosure of newly established foreign subsidiaries. We posit that voluntarily disclosing more information can signal professionalization and alleviates concerns associated with family involvements. Disclosing information insensitive to socioemotional wealth, on the other hand, allows family firms to protect the core interests of the controlling families. We also highlight that the perceived salience of investor protection and family value protection in the host countries serves as important boundary conditions. We find support for our argument in a hand-collected sample of 425 newly established foreign subsidiaries from 283 Chinese publicly listed family firms from 2010 to 2017. Evidence from post-hoc analyses of foreign subsidiary survival and qualitative evidence further strengthens our arguments. We contribute to the literature of family business, voluntary disclosures, and the stakeholder theory.

Are Family Successors Born for Conservatism? Evidence on CEO Succession and Exploratory Ventures

The literature of CEO succession in family firms has long been accumulating but the findings are still inconclusive. Some question the performance implication of CEO origin while others suggest the importance of the contextual approach to the post-succession performance effects. Drawing from the agency and socioemotional wealth perspectives on the micro-foundation of firm strategy, this study aims to revisit the family successor effect on the post-succession exploratory ventures, and how this relationship is conditioned by individual-, board-, and organizational-level factors. In a sample of 487 CEO succession of Taiwan family firms in traditional industries over the period of 2001~2013, the empirical results show that family CEOs are more exploratory-oriented than non-family CEOs. However, relay succession or family involvement in board negatively moderates family CEO effect on a focal firm’s pursuit of exploratory ventures. Also, the post-succession exploratory strategy is more significant among firms of larger size. This study contributes to the family business literature by clarifying the mixed findings with greater attention to the behavioral side of successions.

Do Family Firms Pollute Less? – Was an Incomplete Question

While prior research suggests that family firms pollute less, the key explanation we have is the socioemotional wealth perspective, which suggests that family firms are more careful with their toxic emissions due to subjectively higher reputational costs that may follow a harm discovery. At the same time, it is relevant to note that not all types of environmental performance are regulated or even monitored to turn on the loss aversion rationale. An example is the energy efficiency context where a common socioemotional wisdom would not give any preference to family-owned firms. Nevertheless, studying the electricity consumption of 1,683 Canadian firms over a 5-year period between 2012 and 2016, we find that family-managed firms still consume less energy to attain the same level of sales (holding industry and other resource consumption factors constant). This questions whether the reputational concerns of the owners is a key reason to a lower pollution in family firms and also rejects a common assumption that doing so has an efficiency cost. We provide an alternative rationale.

Does it pay more to be green in family firms than in non-family firms?

The contradictory empirical evidence about whether the effect of companies' environmental investments on financial results is positive, negative or not significant has been explained by the different conditions and contexts that facilitate or hinder the ability to generate a win–win situation. This explanation has gradually led the academic debate to consider the factors and conditions that moderate such a relationship. In this document, we analyse the relevant but scarcely studied moderating effect of the condition of being a family firm, by integrating the socioemotional wealth (SEW) perspective into the natural-resource-based view (NRBV). Based on the analysis of panel data from 2936 Spanish manufacturing firms, covering the period 2009–2016, we offer empirical evidence showing that the financial benefits derived from environmental investment are positive and significant in family firms, while this is not so in non-family firms. Furthermore, our results show that intrinsic characteristics such as the sector, size or age of the company also condition the financial results of environmental investments.

CEO succession game in family firms: Owners vs. advisors

ABSTRACT Succession in family firms is an extremely difficult and complex event in which advisors are often involved or sought. Advisors, especially business consultants, frequently play an important role in shaping and guiding such complex strategic processes. Nevertheless, it is not clear whether and to what extent the involvement of advisors, especially business consultants, in family firm succession impact the outcome of succession planning processes, such as the choice of the next chief executive officer (CEO). We explore whether family-owner socioemotional wealth, measured through their level of commitment to the firm, influences the preference for a family CEO versus a nonfamily CEO and acceptance of the advisor role in the succession planning process. We test the research questions on a sample of family firms located in the United States.

Aspirations of Chinese families-in-business: Development of a reliable measurement instrument

Although previous studies have recognized the contingent nature of family firms’ aspirations, they have largely neglected cross-cultural heterogeneity. Drawing on the behavioral theory and socio-emotional wealth perspective (SEW), we reexamine the construct of family aspirations in a Chinese context. We argue that Chinese family firms have culturally specific aspirations that can influence their strategic behaviors. Based on a three-phase study employing both qualitative and quantitative methods, we develop and validate a measure of aspirations of Chinese families-in-business. Six dimensions of Chinese family aspirations are explored: family harmony, financial wealth, health and longevity, continuity of family line, family honor and guanxi, and great ambitions for the younger generation. Our findings also identify a set of topics that can be pursued in future research using our Chinese family aspirations scale.

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.

Family firms and their participation in cross-border acquisition waves: evidence from India

PurposeFrom the socioemotional wealth (SEW) perspective, family firms prioritize non-financial goals and show risk averse behaviour towards conducting acquisitions. In this paper, we study family firms' acquisitive behaviour while participating in CBA waves. Scholars have largely treated the cross border acquisition (CBA) wave and non-wave environments as homogeneous. We theorize that these two environments differ in their uncertainty and risk profiles on account of temporal clustering of acquisition deals. Accordingly, based on the SEW perspective, we examine the preference of family firms to participate in CBA waves.Design/methodology/approach The paper is based on CBAs conducted by Indian family firms between 2000 and 2018. These waves are identified by conducting a simulation based methodology.FindingsOur findings suggest that foreign institutional ownership, firm age and acquisition relatedness moderate the relationship between family control and participation in CBA waves.Originality/valueOur paper contributes towards the acquisitive behavior of family firms and their participation in CBA waves.

Reassessing debt-financing decisions in family firms: Family involvement on the board of directors and generational stage

This paper re-examines the factors influencing debt-financing decisions in family firms, considering the importance of socioemotional wealth and heterogeneity issues. In particular, we explore the board of directors and generational stage as key explicative factors of heterogeneity in family businesses. Focusing on a large sample of Spanish family firms, we estimate a partial least squares model, whose results show that the higher the level of family involvement on the board of directors and the lower the generational stage, the higher the debt level of the family firm. Consequently, in addition to traditional determinants of the level of debt, the above variables should be considered to better understand the heterogeneous debt-financing decisions of family firms, and this has practical implications for them and their internal and external relationships.

Employment policies in private loss firms: Return to profitability and the role of family CEOs

We study employment policies in private loss firms and their impact on loss reversal. We show that employee retention positively affects the likelihood of a return to profitability in firms with family CEOs, who are typically averse to employee dismissals for reasons mainly related to preserving socioemotional wealth. This effect is more pronounced for firms with transitory (i.e., less severe) losses. Further analysis suggests that productivity improvement following employee retention is the main economic channel of our results. A lack of socioemotional wealth also helps explain the negative association between employee retention and loss reversal in firms with outside CEOs. This pronounced duality of performance responses to employee retention supports prior findings on the importance of socioemotional wealth for family firms. In light of the crisis induced by COVID-19, our findings can provide insights that may enhance the efficacy of employee retention-related government schemes assisting firm recovery.

Can controlling family involvement promote firms to fulfill environmental responsibilities?—Evidence from China

Socioemotional wealth (SEW) suggests that family firms will pay more attention to social interests. Current research investigates how environmental responsibility is related to the family's involvement in environmental policymaking. Empirical analysis shows that the proportion of family ownership is negatively associated with the family firm's environmental responsibility. However, SEW will enhance environmental responsibility when a family member serves as the company's chairman. There is a significant inverted U‐shaped relationship between the length of family involvement and corporate environmental responsibility. We further discuss these relationships based on different types of environmental responsibility and family firms. This study expands the discussion on environmental responsibility management of family firms.

The first turnaround response of family firms in a crisis situation

Building on recent advances in the socioemotional wealth (SEW) literature and the concept of bifurcation bias, we explore the first turnaround response of family firms to a decline in financial performance. We argue that heterogeneity among family firms in terms of their levels of family ownership and family involvement in management alters their response to an economic crisis situation. We also contend that severity of a crisis situation significantly moderates the relationships. Our multi-level analysis of a sample of crisis situations pertaining to family firms supports our hypotheses.

Born to rebel? The owner birth order and R&D investments in Chinese family firms

AbstractFamily background has a significant impact on family firms’ strategies such as innovation investments. Going beyond prior studies that exclusively focus on how family governance and management factors determine research and development (R&D) investment decisions, this study investigates a family science factor: family firm owner's birth order, defined as the relative rank of the owner in terms of the age hierarchy among siblings in the family. Joining the family niche model of birth order and socioemotional wealth perspective, we propose that later‐born family firm owners tend to be risk‐takers and invest more in R&D projects compared with their earlier‐born counterparts. We further examine how the two other powerful decision‐makers within family firms (i.e., chairperson of the board and CEO) enable or constrain the owner's birth order–R&D investment relationship. We contend that the positive birth order impact on R&D investment is weaker when a family member is the chairperson of the board, while such a relationship is stronger in the presence of owner–CEO duality. We confirm our hypotheses using a sample of 605 firm‐year observations from Chinese‐listed family firms between 2006 and 2014. This study demonstrates the important impact of family science factors on innovation heterogeneities, which is understudied in the family firm innovation literature.

For love or money? Family versus financial blockholders in international acquisitions

AbstractResearch Question/IssueWe study the relationship between family blockholding of voting rights and the relative size of international acquisitions, and the moderating effect of two types of financial blockholders (pressure‐resistant and pressure‐sensitive blockholders).Research Findings/InsightsEmploying an international sample of 8,687 non‐financial cross‐border acquisitions conducted by 4,630 acquirer firms from 40 home markets to 66 host countries between 2004 and 2013, we find a U‐shaped relationship between family blockholding of voting rights and the relative size of international acquisitions. Further, we find evidence that this relationship is moderated by the presence and type of financial blockholders. While pressure‐resistant financial blockholders shift this relationship downwards (due to intensified conflicts), pressure‐sensitive financial blockholders shift it upwards.Theoretical/Academic ImplicationsWe contribute to the literature on family firm governance and internationalization on several fronts. First, we revisit the predominant logic of linear effects of the family blockholding. We suggest the family blockholding's effects are related to nonlinear risk preferences of family owners, expressed through socioemotional wealth (SEW) slack. Second, we suggest that the “dominant shareholder interest” assumption of family firms, usually based on the controlling family's SEW should be interpreted contingent upon the interests of other financial shareholders. Finally, using family‐financial blockholder conflicts as the scenario, we suggest that principal‐principal conflicts depend on the composition of the conflicting blockholders, specifically, upon the nature of their relations with the firm.Practitioner/Policy ImplicationsThis study offers insights to policymakers and those interested in incentivizing family ownership that family owners' risk behaviors should be understood and discussed in the context of different financial blockholders as a reference group.

A New Era for EJFB

A New Era for EJFB