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Vol. 11(11), pp. 229-240, 14 June, 2017
DOI: 10.5897/AJBM2017.8288
Article Number: 0B2940E64707
ISSN 1993-8233
Copyright © 2017
Author(s) retain the copyright of this article
http://www.academicjournals.org/AJBM
African Journal of Business Management
Full Length Research Paper
Firm performance and economic crisis: Family versus
non-family businesses in Italy
Francesca Maria Cesaroni*, Denisse Chamochumbi and Annalisa Sentuti
Department of Economics, Society and Politics, University of Urbino Carlo Bo, v. Saffi 42, 61029 - Urbino (PU), Italy.
This study investigates the performance of medium-sized family businesses – hereafter MSFBs –
during the economic recession by comparing family and non-family firms, and correlating the
organisational performance to the family ownership and firms’ solvency. An empirical research study
was carried out on a sample of 128 Italian medium-sized businesses – hereafter MSBs - (76 family and
52 non-family businesses). We used the AIDA – Bureau van Dijk database to collect data referring to
three years 2007, 2009 and 2014, respectively corresponding to the pre-crisis phase – 2007, the great
recession – 2009, and the post-crisis phase – 2014. STATA software was used for analysing data and
the analysis was organised into three steps. First, we collected the descriptive statistics. Then, we used
a t-test to determine if businesses’ performance and solvency significantly differ in family and non-
family businesses subgroups. In the last step, we performed a regression analysis to examine the
relationship between firms’ profitability (dependent variable) and family ownership and solvency
(independent variables). Contrary to previous research, we found that MSFBs performed worse at each
stage of the crisis, especially during the harshest phase of the crisis. Results also show that family
ownership negatively affected businesses’ profitability. On the contrary, solvency positively affected
firms’ profitability at each stage of the crisis. Finally, we analysed and discussed a model case study, to
better understand financial and economic dynamics of family firms during the analysed period.
Although family firms’ performance during the recession period has been widely studied, they generally
referred to large companies. Analyses haven’t considered MSBs, even if in recent years they have
played an important role in several economic systems and show some distinctive features that can
significantly differentiate them from large companies. The main contribution this study brings to the
literature is investigating family business performance during a downturn, paying attention to MSBs.
Key words: Family business, medium-sized enterprises, performance, solvency, economic crisis.
INTRODUCTION
Family firms play a significant role in several economic
systems, in both industrialised and developing countries. According to one of the most acknowledged definitions, a
family firm is a governed and/or managed with
*Corresponding author. E-mail: francesca.cesaroni@uniurb.it.
Authors agree that this article remain permanently open access under the terms of the Creative Commons Attribution
License 4.0 International License
230 Afr. J. Bus. Manage.
the intention to shape and pursue the vision of the
business held by a dominant coalition controlled by
members of the same family or a small number of
families in a manner that is potentially sustainable across
generations of the family or (Chrisman et al.,
1999).
However, this definition cannot be used to determine
the exact number of existing family businesses, or to
carry out comparative studies between different
countries. In fact, several analyses on the presence of
family businesses in different countries, as well as
numerous empirical studies on this topic, use different
variables to operationalise the definition of family
business and to measure the number of such companies
(Astrachan et al., 2002; Klein et al., 2005).
Despite these difficulties, the available data clearly
shows the presence, in Italy, of a very high percentage of
family businesses. One of the most recent statistics
shows that, in Italy, more than 75% of enterprises are
family businesses, and this figure is not very different
from that of leading countries in Europe (Germany 75%;
France 75%, UK 65%; Spain 85%) (according to the
estimations of the European Family Businesses
Federation).
Consequently, in business research, knowing the
performance of these enterprises and their motivations is
of great concern, in order to understand how and if
performance is affected by family involvement in
ownership and governance (Gallo et al., 2004; Allouche
et al., 2008; Amann and Jaussaud, 2012; Basco, 2013;
Minichilli, et al., 2015).
Indeed, in studies on family businesses, the influence
of family ownership and control on business performance
is one of the most debated issues in recent years (Mazzi,
2012; Basco, 2013; Minichilli et al., 2015). Several
scholars conducted research on this subject, adopting
diverse theoretical perspectives. The agency theory, the
stewardship theory, the resource based view and the
socioemotional wealth were primary positions taken.
Nevertheless, these studies do not offer unambiguous
results (Enriques and Volpin, 2007; et al., 2012).
Some authors, following the agency theory framework,
claim that family firms are more efficient than non-family
firms (Fama and Jensen, 1983). When family members
are involved in business ownership and management,
risks of opportunistic behaviours (by managers) are
reduced. So agency problems are absent thanks to the
alignment of interests and objectives (Villalonga and
Amit, 2006).
In contrast with this traditional point of view, other
scholars have found that owner-manager and owner-
owner complications (Villalonga and Amit, 2006) exist,
because of possible negative relationships between
family ownership and company performance. The main
obstacles that can occur in family businesses include
pursuing private benefits (Gómez-Mejía et al., 2001),
entrenchment (Shleifer and Vishny, 1997), adverse
selection (Lubatkin et al., 2005), nepotism and taking
advantage of unearned benefits (Schulze et al., 2001).
In the last years some scholars have examined the
connection between the family nature of a firm and its
performance during a period of economic downturn. Their
analyses proved that family businesses enjoy better
performance than non-family businesses in various
countries (Allouche et al., 2008; Amann and Jaussaud,
2012; Wu et al., 2012; Crespí and Martín-Oliver, 2015),
given that they have a sounder financial situation (Amann
and Jaussaud, 2012; Crespí and Martín-Oliver, 2015). In
Italy other scholars have found similar results (Minichilli et
al., 2015; Macciocchi and Tiscini, 2016).
Most research focused on large firms; studies on Italian
Medium-Sized Businesses (hereafter MSBs) during the
latest economic recession are nonexistent. Nonetheless,
in Italy MSBs typify an important class of firms and have
been playing an increasingly role in the economic
system. This is why the aim of this paper is contribute to
the development of this research field by concentrating
on Italian MSBs. In particular, our aim is to compare
Italian medium-sized family and non-family businesses,
investigating whether or not family firms have presented
higher solvency and profitability ratios during the recent
economic downturn. In this paper, the results of our
empirical research are presented.
LITERATURE REVIEW
Family ownership and control and firms’
performance
The agency theory framework has been widely used to
investigate the relation between corporate governance
and performance and additionally to contrast family
and non-family businesses (Erbetta et al., 2013). Such
studies have not produced unequivocal results (Enriquez
and Volpin, 2007).
It has been claimed by some researchers that family
firms typify a more efficient governance structure than
non-family firms (Morck, 1988), owing to the fact that the
concentration of ownership is in the hands of a small
number of shareholders and the co-occurrence between
ownership and control (Jensen and Meckling, 1976;
Shleifer and Vishny, 1997).
The deep involvement of family members in ownership,
management and control reduces the threat of
opportunistic conduct and decreases possible problems
emerging from the deviation of interests between
principal and agent (Jensen and Meckling, 1976). As a
result, conflicts are less frequent and business owners
don't need to monitor managers and directors to promote
alignment between managers, family and business
objectives as often (Chrisman et al., 2004; Fama and
Jensen 1983; Jensen and Meckling, 1976).
Furthermore, the number of shareholders in family
firms is typically low, which favours the formation of a
single, shared view of the company. For the same reason
decisions are usually quicker and the chance of
managers compromising interests and
jeopardising firm performance is lower (Shleifer and
Vishny, 1997).
In conclusion, according to the agency theory, family
firms can achieve better results than non-family firms.
According to Carney (2005), this result also stems from
the fact that the coincidence between ownership and
control produces three dominant behaviours: thrift,
personality and particularism, causing family businesses
to differ from other companies and allow reductions in
agency costs, with positive consequences on business
performance.
Other scholars have adopted the stewardship theory
and affirm that family firms are characterized by long-run
objectives and perspective, in view of the fact that their
main concern is to establish the longevity of their firms
(Breton-Miller and Miller, 2009).
Therefore, family businesses endure less managerial
myopia (Stein, 1988, 1989), given that investment
policies are more efficient (James and Harvey, 1999) and
are effect to lesser degree by short-term economic
conditions (Allouche et al., 2008). According to this view,
the attitude of the stewards is a source of competitive
advantage that positively affects the performance of
family businesses (Eddleston and Kellermanns, 2007;
Miller et al., 2008).
The concept has been used by some
scholars to characterise the posture of family firms,
motivated by the shared well-being, mutual support and
uniqueness of vision among family members. As a result,
altruism contributes to lowering the likelyhood of
opportunistic behaviour and helps to reduce agency costs
(Parsons, 1986; Eisenhardt, 1989a; Schulze et al., 2001;
Corbetta and Salvato, 2004).
Conversely, different researchers have claimed that
altruism can be quite asymmetric in family firms and can
jeopardise performance and shareholder value
(Schulze et al., 2001). Family members may show
preference for their private interests, risking the longevity
of the business (free riding, opportunistic behaviours,
shirking).
Furthermore, family ownership may also exclude family
firms from external control mechanism. In family
companies, top managers often have low professional
expertise, as they are very often selected among family
members. On the contrary public companies use the
market to select managers with qualified skills and
consistent with the needs of the company (Lauterbach
and Vaninsky, 1999; Lane et al., 2006).
These last reflections are in stark contrast to what is
claimed by agency theory perspective. In line with this
reasoning, family businesses could show high agency
costs and this cause us to question family firms as a
more efficient governance model.
Cesaroni et al. 231
The resource-based (hereafter RBV) is another
perspective of analysis, which believes that resources are
the foundation of a performance. If resources are
unparalleled, adaptable to environment and rooted
steadfastly in the business, they become a prospective
source of competitive advantage (Penrose, 1959;
Wernerfelt, 1984).
According to Habbershon and Williams (1999),
is the heart of resources and proficiencies
assembled by family businesses. Familiness stems from
the intercommunication of family subsystems:
family, family members and business. Determined
factorscoined as are the outcome of this
interaction. They make resources and capabilities unique
and affect the performance of a family firm.
From this point of view, family firms can be regarded as
a dynamic system, able to give rise to unique
competences (distinctive familiness) or impede them from
occurring (constrictive familiness), therefore affecting
wealth creation. As a consequence, family businesses
can be sharp stewards of their resources, because of
their longtime perspective (Arregle et al., 2007).
At the same time, however, will to control the
company can limit financing options. Moreover, nepotism
and entrenchment can prevent family firms from hiring
qualified and competent managers (Bloom and Van
Reenen, 2007; Mehrotra et al., 2011).
A new theoretical framework -
(SEW) (Gómez-Mejía et al., 2007; Berrone et al., 2012) -
was recently formulated to research on family firms and it
is also adopted in the analysis of the family influence on
a performance (Sciascia et al., 2014). According to
this theoretical framework, decisions in family firms are
heavily conditioned by their desire to protect SEW and
maintain non-economic benefits -
en. Family-centred, non-economic objectives
generate a stock of socioemotional wealth that results in
a unique outcome for family businesses.
Recently, Sciascia et al. (2014) focused on the role of
family management and its influence on family
profitability. Adhering to the SEW perspective, they
carried out an empirical research study on a sample of
Italian family businesses. Their results prove that family
management can contribute to the improvement of a
family firm's performance in later generational stages. In
fact, authors argue that, in earlier generational stages,
family firms are more focused on their socioemotional
wealth, while in later phases they are more concerned
with financial performance.
Similar results have been obtained from Arrondo-
Garcia et al. (2016). They adopted the SEW perspective
and analysed the performance of a sample of large
Spanish family companies during the recent economic
crisis. Their results show that first generation family
businesses had worse financial performance (return on
equity) compared to older family businesses during the
same period (2006-2011). Debicki et al. (2017) offered
232 Afr. J. Bus. Manage.
some explanations about how pursuing non-economic
objectives affects family business financial performance.
However, further research are needed on this topic in
order to better explain if and how family firms can reach
better performance (Daspit et al., 2017)
In conclusion, clear-cut results are still missing and
additional analysis on this subject matter is needed. As
already highlighted by Mazzi (2012), none of the
discussed theories have been able to exhaustively
explain what is, if it exists, the link between family
performance and family involvement in the business.
Different theoretical perspectives could be adopted to
analyse the relationship between business performance
and governance model, because each theory generates
different hypotheses. That being the case, difficult to
put forward an explicit hypothesis on this topic. This
uncertainty also remains when findings from empirical
analyses are considered, as they are often characterised
by ambiguous outcomes et al., 2012).
This is why we have formulated some research
questions about the relationship between family
ownership and control and firms performance.
Family firms performance and economic downturns
Several researchers in the last years have doubted the
ability of family businesses to come up against periods of
crisis and have compared performances of family and
non-family businesses.
Some authors (Allouche et al., 2008) investigated
Japanese family and non-family firms in two separate
years 1998 and 2003 respectively indicated by the
Asian economic crisis and a period of economic recovery.
These scholars demonstrated that family firms are able to
outperform non-family firms.
Amann and Jaussaud (2012) produced evidence that
family businesses are more impervious to crises, are
more fast to recover, enjoy better performance and have
a more vigorous financial structure, with better solvency
ratios and lower leverage ratios. Other authors studied
performance of the worl largest companies from 2005
to 2008 and discovered that in periods of recession family
companies performed better than non-family companies
(Wu et al., 2012).
According to them, family businesses are able to make
faster decisions and are more decisive in cutting costs,
thanks to shared objectives among owners, managers,
employees and executives. Scholars have also insisted
that non-family firms perform better than family firms
during economic upturn, given that family emphasis
on control can reduce risk propensity and diminish the
creativity and motivation needed to innovate.
Furthermore, it is clear that companies need qualified
management skills in periods of recession, to be better
able to tackle the crisis with effective actions. In periods
of economic crisis not enough for firms to be able to
ensure their short-term survival. In fact they should also
be able to prepare strategic initiatives that can ensure
their long-term competitiveness (Sternad, 2012; Cesaroni
and Sentuti, 2016). Family businesses, unfortunately,
may not have sufficient managerial skills to execute such
initiatives, given that they mainly select managers among
family members, rather than turn to the market (Lane et
al., 2006).
Other scholars have insisted that periods of recession
can highlight owner-owner agency problems Agency
problem II (Villalonga and Amit, 2006). In fact, a crisis
may prompt an owner family to take advantage of their
position to achieve private benefits rather than up the
company's profitability and competitiveness (Gómez-
Mejía et al., 2001).
Contrastingly, other scholars have noticed that during
economic downturns owner family predominantly make
long-term oriented decisions for the survival of the
business. Additionally, in order to strengthen the
financial structures, an owner family would
invest increase the share of capital invested in the
company and give up dividends (Macciocchi and Tiscini,
2016).
In accordance with this point of view, economic
downturns could underline a distinguishing trait of family
businesses, often set apart by their low predisposition to
debt. As long long-term survival is their primary concern,
owner families would be very prudent when making
financing choices, so they don't increase their leverage
ratio and avoid putting the company's control at risk
because of a great dependence on lenders (Allouche et
al., 2008; Amman and Jaussaud, 2012).
So far, analyses on relationship between family nature
of a firm and its performance have mainly considered
large firms. Analyses on MSBs still been
performed, even though they play an increasingly
important role in many countries, such as in Italy. In Italy
MSBs are able to contribute to economic growth
employment and innovation (UnionCamere, 2014). As a
further matter, they also have some unique traits that can
significantly distinguish them from large and listed firms
(Palazzi, 2012). This is why we wonder whether findings
emerged from previous research on performance and
economic crisisthat mainly referred to large family firms
can be generalized to medium-sized ones.
According to et al. (2012) the relationship
between the family nature of a firm and its performance is
more favourable and potent in larger firms than in smaller
firms. They did a meta-analysis to demonstrate this
hypothesis but their results did not provide positive
feedback.
Therefore, they called for further research to explore
the impact of size in the relationship between family
nature of a firm and its performance. As a consequence,
it is significant to carry out further research and involve
companies of all size classes, because so far analyses
have only really taken large companies into
consideration. For this reason our goal is to extend the
scope of the analysis, considering medium-sized family
firms. In particular, we want to understand if during the
recent economic downturn:
RQ1: family firms perform better than non-family firms;
RQ2: family firms show a higher equity ratio than non-
family firms.
METHODOLOGY
Data collection
In order to answer the study research questions, an empirical
research was carried out with the aim to compare the profitability
and solvency of Medium-Sized Family Businesses (hereafter
MSFBs) and non-family owned businesses during the recent
recession. Following the definition given by the European Union
Commission Recommendation in 2003, we classify a firm as
medium when it has more than 50 employees but less than 250 and
generates annual sales between 10 and 50 million euros.
Family businesses were identified considering companies in
which a family holds a share of capital that allows it to control the
company. We only considered private (non-listed) companies and
classified a firm as a family business when an individual or a family
(two or more family members) holds more than 50% of equity (Naldi
et al., 2013, Minichilli et al., 2010). Since there an official
database of Italian family businesses, we adopted a manual
procedure to classify companies as family or non-family
businesses, conducting an in-depth review of the ownership
structure of the selected firms.
The empirical research study was conducted in Italy. This country
is particularly interesting when analysing experiences
during the recession because of the greater impact and duration of
the crisis in Italy. Precisely, the research focused on MSBs located
in Central Italy. This macro areaincluding Marche, Lazio, Tuscany
and Umbria regionsis an important socio-economic zone with
specific features consistent with our research questions: the
industry structure and the latest economic trends.
From the point of view of industrial structure, this field exhibits the
typical characteristics of an Italian industry, such as industrial
dualism and a distinct productive specialisation in traditional
sectors. Additionally, there is a very high number of MSBs, made up
of 13% of the national total (Mediobanca and UnionCamere, 2015)
and 83% of businesses are family owned (UnionCamere, 2014).
According to the latest economic trends, the recession that began
in 2008 has uniformly not had an effect on Italian regions.
According to the Bank of Italy Reports (Bank of Italy, 2009), the
economy of Central Italy was severely affected in all sectors.
Evidence of this is the substantial losses in terms of industrial value
added from 2007 to 2013, amounting to -20.4%. This percentage is
higher than that of Northern Italy where the North-West reported a
15.8% decrease and the North-East, -16.6%. However, in Southern
Italy was the loss much more substantial, -29.9% (Bank of Italy,
2014).
In the first step of this research, we selected firms located in the
Marche and Umbria regions, a geographical area with an extremely
high presence of family businesses (UnionCamere, 2014) as well
as a notable number of MSBs (Mediobanca and UnionCamere,
2015). In the next step of our research, the analysis will be
broadened to include all medium-sized family and non-family
businesses situated in Central Italy.
Data on firm profitability and solvency were collected for three
years, characterised by profoundly different economic conditions:
Cesaroni et al. 233
2007, the pre-crisis phase; 2009, the great recession; and 2014, the
post-crisis phase. We collected data from the AIDA Bureau van
Dijk database, which includes a wide range of financial and non-
financial information on approximately 1 million Italian companies.
Applying the size and geographical area criteria, an ultimate
sample of 128 MSBs was selected, representing 33% of the total
number of MSBs in Central Italy (based on AIDA database). In
2007, there were 76 family businesses (about 60%) and 52 non-
family businesses (40%). In addition, some firms changed their
ownership structure from non-family to family ownership during the
period of observation. As a result, in 2014, family businesses made
up 67% of the database. This data is in alignment with prior studies,
which confirm the prevalence of family businesses in the Italian
economic system (Macciocchi and Tiscini, 2016; Faccio and Lang,
2002).
Data analysis
The following performance indicators and financial ratios were
chosen to evaluate profitability and solvency:
(1) The Ebitda profit margin. I equal to earnings before interest,
tax, depreciation and amortisation (Ebitda) divided by overall
turnover and was adopted in order to measure firms profitability.
(2) The equity ratio. This ratio expresses the amount of assets
financed by owners' investments, by comparing the total equity in
the company to the total assets.
STATA software was used for data analysis, divided into three
phases:
(1) We described the basic features of our sample providing the
descriptive statistics for the main variables we used in our analysis:
turnover, seniority, employees, industry, Ebitda margin and
equity ratio (Table 1).
(2) We employed an independent t-test (Hamilton, 2013) to
distinguish similarities and notable differences in profitability and
solvency between family and non-family firms in the three years
included in our analysis: 2007, 2009, 2014 (Tables 2 and 3).
(3) We employed a regression model for each year of analysis to
assess if and how performance is affected by ownership
structure and solvency, (Table 4). The Ebitda margin was used as
the dependent variable. As independent variables we applied:
(1) A dummy variable (FAM), which equals one when the firm is a
family-owned business and zero in any other way.
(2) The equity ratio (EQUITY).
(3) An interaction variable acquired by multiplying the variables
FAM and EQUITY, in order to determine the combined effect of the
previously mentioned variables on profitability. The variable
EQUITY was converted into a dummy, taking 0.30 (approximately
correlating with the distribution median) as the threshold value.
Therefore, we coded 1, if a firm shows a value equal to or above
0.30, and 0 in any other way.
In accordance with prior studies on family performance
(Claessens et al., 2002; Colombo et al., 2014), we examined some
control variables: company size, industry, company seniority.
Company size (TURNOVER) is measured by overall turnover per
year. Company seniority (SENIORITY) is calculated by the number
of years the firm has been in business. Both variables are altered
by the natural logarithm. Lastly, we checked the industry
(INDUSTRY) by using dummy variables based on the Italian
industrial sectors (ATECO, 2007): code 1 for manufacturing firms;
0, otherwise.
234 Afr. J. Bus. Manage.
Table 1. Descriptive statistics for family and non-family business.
Variable
2007
2009
2014
Family
Non-
family
All
Family
Non-
family
All
Family
Non-family
All
Sample
N
76
52
128
81
47
128
87
41
128
Turnover (1)
Mean
22228.46
20689.56
21603.28
19730.78
17507.83
18914.54
23762.31
20297.29
22652.42
Std
7202.99
7554.19
7357.42
7860.52
4887.52
6980.66
905031
7315.29
8657.63
Seniority
Mean
25.55
22.28
24.23
27.46
24.11
26.23
31.73
30.15
31.23
Std
12.63
14.44
13.43
12.41
14.94
13.43
12.55
15.26
13.43
Employees
Mean
96.08
112.04
112.04
97.96
113.45
103.65
102.49
116.88
107.1
Std
35.74
42.96
42.96
31.79
43.20
36.99
32.37
45.76
37.61
Industry
Manufacturing
64
35
99
69
30
99
74
25
99
Non-
manufacturing
12
17
29
12
17
29
13
16
29
EBITDA/Sales
Mean
9.24
10.17
9.62
8.43
10.34
9.13
8.08
9.75
8.61
Std
4.99
5.28
5.11
5.08
7.42
6.09
6.16
7.37
6.59
Equity
Mean
28.16
23.82
26.39
36.19
29.31
33.66
38.47
33.40
36.8
Std
17.42
17.84
17.66
19.59
18.91
19.55
21.14
20.12
20.88
(1) Turnover is given in
Case study
According to Eisenhardt (1989b), the combination of quantitative
data with qualitative evidence can be highly synergistic. Qualitative
method can bolster quantitative findings and better underline
relationships revealed in the quantitative analysis.
In this perspective, data analysis was followed by a case study,
involving a MSFB that greatly improved its solvency and managed
to keep its economic performance despite the economic recession.
For these reasons, the selected company represents an exemplary
case study. useful to better understand financial and economic
dynamics of a prosperous family firm during the analysed period.
The case analysed was selected within the sub-sample of family
business.
Data collected from AIDA BvD database was combined with key
data gathered by two in-depth, semi-structured, face-to-face
interviews. Guided by a checklist, interviews were carried out in the
company and involved the founder and his daughter (the future
successor to the firm). Questions were aimed to collect information
regarding the founder, ownership, the successor, the
impact of the crisis and the actions taken to deal with it. Interviews
were recorded and transcribed verbatim. Data and information were
analysed and results are presented and shortly discussed in the
section devoted to the case study..
FINDINGS AND DISCUSSION
Table 1 shows the descriptive statistics from two sub-
samples with regard to the period of three years
considered. During the crisis period, all the selected
companies decreased their sales (from about 21.6 mln
in 2007 to about 18.9 mln in 2009). Turnover began to
increase during the post-crisis phase and in 2014 it
attained a level higher than in the pre-crisis period (about
22.6 mln Family turnover was higher than non-
family turnover throughout the three years period.
In line with previous research (Corbetta et al., 2015),
family-owned businesses have a longer life than non-
family businesses. Family firms are also smaller than
non-family firms. Manufacturing firms are more numerous
both in the entire sample and in the sub-samples. This
data situation is congruous with the economic structure of
the geographical area analysed, distinguished by an high
proportion of manufacturing companies (Istat, 2015).
Ebitda margin reveals that the entire sample endured a
slow but steady decline during the analysed period.
However, the profitability of non-family firms is without fail
higher than that of family firms: 10.17 versus 9.24 in
2007, 10.34 versus 8.43 in 2009 and 9.75 versus 8.08 in
2014. Moreover, we found that while the profitability of
family businesses declined in 2009, non-family firms
reported a somewhat of an increase as compared to
2007. These findings are preliminary proof that,
regardless of the economic situation, medium-sized non-
family firms performed always better than MSFBs,
particularly in 2009, characterized by a particularly harsh
crisis.
Overall, sample companies improved their solvency
level during the analysed period, passing from 26.39% in
Cesaroni et al. 235
Table 2. Comparative profitability family versus non-family business.
Variable
Family
Non-family
p
N
Sample
Mean
Std
Sample
Mean
Std
EBITDA/SALES_07
128
76
9.24
5.28
52
10.17
5.28
0.32
EBITDA/SALES_09
128
81
8.43
5.08
47
10.34
7.42
0.08*
EBITDA/SALES_14
128
87
8.08
6.16
41
9.75
7.37
0.18
Significance level: *p(10%); ***p (5%); ***p (1%).
Tables 3. Comparative equity ratio: Family versus non-family business.
Variable
Family
Non-family
p
N
Sample
Mean
Std
Sample
Mean
Std
Equity_07
128
76
28.16
17.42
52
23.81
17.84
0.17
Equity_09
128
81
36.18
19.59
47
29.31
18.90
0.05**
Equity_14
128
84
38.47
21.14
41
33.40
20.12
0.20
Significance level: *p(10%); ***p (3%); ***p (1%).
2007 to 33.66% in 2009 and reaching 36.80% in 2014. In
this span of time family firms experienced greater
improvements in their solvency level and displayed a
higher equity ratio than non-family firms did: 28.16% vs
23.82% in 2007, 36.17% vs 29.30% in 2009 and 38.47%
vs 33.40 in 2014. To assess whether family and non-
family profitability and equity ratio are statistically
different from each other we used the t-test (Tables 2 and
3).
Evidence displays that non-family businesses
performed considerable better than family firms at 10% (p
= 0.08) in the year of recession (2009). The same result
is corroborated for 2007 and 2014, however, throughout
these years the differences between family and non-
family firms are at exceptional levels (respectively p =
0.32 and p = 0.18).
On the contrary, regarding financial structure, results
show that in 2009 family businesses encountered a level
of equity ratio significantly higher than that of non-family
firms at 5% (p = 0.05) during the economic recession.
This tendency is confirmed both for 2007 and 2014, but
the differences between the two sub-samples t
important (respectively p = 0.17 and p = 0.20). Lastly, the
regression model permitted us to assess if and how
family ownership and equity ratio had an effect on
profitability (Table 4).
Results reveal that family ownership (FAM) is always
negatively and statistically related to company profitability
in any type of economic condition (p = 0.04 in 2007; p =
0.08 in 2009; p = 0.10 in 2014). Simultaneously, the level
of equity ratio (EQUITY) is always positively and
statistically important at 1% when related to company
profitability in diverse economic conditions, for all three
years.
Moreover, we evaluated the combination effect of
family ownership and equity ratio (EQUITY*FAM) on
profitability. Results reveal that the interaction variable is
positively associated to the profitability of the business
during the pre-crisis period (2007) and negatively
associated during the period of crisis (2009) and the
recovery period (2014). Even if the correlation between
ownership and solvency never becomes significant over
the time, the tendency is clear. This means that family
solvency, during economic downturn and
upturn, cannot counterbalance the negative influence of
family ownership on profitability
In the last phase, we examined the control variable,
and the industry variable (INDUSTRY) reveals a positive
outcome for profitability over the time, except in 2007,
which is negative. However, this impact is not significant
during the three years. The firm seniority variable
(SENIORITY) displays a negative impact on profitability
during the crisis (2009) and post-crisis period (2014), not
counting the pre-crisis time (2007). Nevertheless, the
impact is always statistically beside the point. The
turnover variable (TURNOVER) reveals a positive
influence on margin Ebitda during the analysed period.
However, one should observe that there is a positive and
significance influence on recovery time (2014).
With this analysis, we answered the study RQs. The
first RQ from this study inquired about Italian MSFBs and
if they performed better than non-family firms during the
recent economic recession. We discovered that family
and non-family businesses underwent different levels of
performance. However, without warning, family
businesses achieved worse economic performance than
non-family firms in every type of economic situation,
especially in periods of recession. This result conflicts
236 Afr. J. Bus. Manage.
Table 4. Regression analyses.
Independent variable
2007
2009
2014
Coef.
Std. Err
P> (t)
Coef.
Std. Err
P> (t)
Coef.
Std. Err
P> (t)
FAM
-1.971
0.979
0.04**
-2.366
1.359
0.08*
-2.450
1.498
0.10*
EQUITY
0.090
0.032
0.00***
0.090
0.036
0.01***
0.111
0.036
0.00***
EQUITY* FAM
2.378
1.500
0.11
-1.0449
1.716
0.54
-1.189
1.828
0.51
INDUSTRY
-0.322
1.034
0.75
0.740
1.317
0.57
1.044
1.365
0.44
Ln (SENIORITY)
0.010
0.632
0.98
-0.155
0.904
0.86
-0.285
1.197
0.81
Ln (TURNOVER)
0.508
1.284
0.69
3.258
1.589
0.43
4.334
1.571
0.00***
Number of firms
127
128
128
F
5.04***
2.75***
4.25***
R-squared
0.201
0.120
0.174
Hetetroskedasticity test
Chi2 (1)=2.41
Chi2 (1)=2.23
Chi2 (1)=0.08
Significance level: *p(10%); ***p (5%); ***p (1%).
with those from previous research (Allouche et al., 2008;
Amann and Jaussaud, 2012; Macciocchi and Tiscini,
2016; Wu et al., 2012), which revealed that family firms
achieved better profitability level than non-family firms,
above all during economic recession. However, these
studies focused their attention on large companies, while
our analysis only examines MSBs.
The second RQ questioned the level of equity ratio of
Italian MSFBs, and if it was higher than non-family firms
during the recent crisis. Our findings display that the
equity ratio augmented for both the sub-samples from the
pre-crisis to the upturn period. Nevertheless, family
businesses presented a higher ratio as compared to non-
family firms for each year. This result is congruous with
Macciocchi and Tiscini (2016), who demonstrated that
family firms encountered much more financial support
from their shareholders during the economic downturn.
So, a higher equity ratio may reveal family businesses
stance on maintaining control of the business
during the economic crisis and to affirm the required
financial resources in economic upturn.
These findings are somewhat unexpected. In fact, the
study analysis reveals that family firms had higher equity
ratio than non-family firms but lower profitability.
However, if a firm has a sounder financial structure as it
is less leveraged, it should be more capable to deal with
period of crisis and to achieve higher profitability level. In
order to better comprehend how family ownership and
equity ratio have had an impact on performance, a
regression model was carried out the interaction variable
was incorporated.
Results demonstrate that family ownership had a
negative effect on economic performance, while solvency
positively influenced profitability. The first proof is in
contrast with the traditional view corroborated by the
agency theory and proposes that MSFBs present a more
efficient governance structure that of non-family ones. On
the contrary, solvency appears to take on a pivotal role in
each economic condition in order to maintain business
profitability. In conclusion, regardless of the economic
conditions, both family and non-family businesses should
be less leveraged and should augment their equity ratio.
Analysing the combination effect of family ownership and
solvency level on profitability, however, we discovered
that the favourable influence of a high solvency level is
not sufficient to ensure higher profitability during the
economic downturn and upturn, because the negative
effect of family ownership always proves superior.
Unfortunately, we obtain data on firms
governance and managerialization, and so we cannot
give an explanation for the reason for such results.
However, we can hypothesise that some problems may
become apparent from these aspects. In fact, even if
MSFBs are more often than not characterised by a
significant level of professionalisation (Palazzi, 2012),
managers involved are often appointed among family
members and frequently have less skills than those in
public companies (Lauterbach and Vanisky, 1999; Lane
et al. 2006). Prior research underlined that non-family
professional managers may have a pertinent role in
family firms (Songini and Vola, 2015), and according to
Lane et al. (2006), companies should turn to the market
for talented people. This is primarily true in a period of
economic crisis, when high-level managerial skills are
crucial for the selection and implementation of effective
strategies, which can be used to confront the crisis
without undermining the competitiveness
(Sternard, 2012). Thus, a lack of suitable managerial
skills could undermine the competitiveness of the
business and reduce its economic performance. In this
perspective, results are consistent with the perspective of
considered by the RBV as a factor that may
prevent the development of the business and affect their
performance (Bloom and Van Reenen, 2007; Mehrotra
Cesaroni et al. 237
et al., 2011).
At the same time, a second explanation could be
related to the cost structure of the business.
and Romano (2013) analysed how Italian family
businesses reacted to the economic crisis in terms of
workforce level adjustment. These authors provided
empirical evidence that Italian family and non-family firms
adopted divergent paths in their employment policies. In
particular, during the recent recession, family firms
safeguarded workplaces more than non-family
businesses did. According to the authors, this choice is
due to the crucial role of the non-pecuniary benefits of the
family business owners and is based on the
psychological relation that ties them to their community of
reference. Thus, the poor economic performance of
family businesses could be due to fixed labour costs,
which remained stable even if the economic performance
declined. This approach could further worsen the family
efficiency and performance. In this perspective,
SEW argumentsthe non-economic and socioemotional
goals prevail over the financial and economic goals
(Berrone et al., 2012) are particularly consistent with our
results.
An exemplary case study
After the statistical analysis of the data, in this session we
briefly present and discuss a case study, involving a
family firm included in our sample. The selected company
River Valley can be considered an exemplary case,
as during the period under observation 2007-2014
greatly improved its solvency and managed to keep its
economic performance, despite the economic recession.
River Valley Ltd. was founded in 1999 by Matt Whales
1
. Matt and his family hold the majority share of the
company, while a Polish partner holds the minority share.
The company designs and manufactures heat
exchangers. The company has experienced rapid growth
in the last years. Today one of the most important
producers worldwide of aluminum and copper heat
exchangers for domestic gas boilers. also entering the
market of aluminum parallel flow condensers for the
refrigeration and climatization industry. River Valley
strategic guidelines are innovation and quality. In fact it
has always invested in design and manufacturing
innovation, technical competitiveness, product quality, full
cooperation with their clients to develop new projects.
The company has not given up this policy in spite of the
economic and financial crisis that started in the late 2008.
In fact, River Valley continued to invest heavily in
research and development, new equipment, machinery
and human resources. The new investments enabled it to
improve efficiency in production processes and to gain
new markets, especially abroad, thanks to its high quality
1
Proper names have been altered for privacy reasons.
products. Consequently, although in 2009 the
economic performance worsened (Table 5), in 2014 its
financial statements shows strong signs of improvement.
This investment policy was made possible thanks to the
decision to continually reinvest profits to self-finance the
company. In fact more than 12% of investments were
self-financed. This attitude proved successful and
enabled the company to improve its profitability and to
strengthen its financial position. In the period 2007 to
20114, in fact, the debt / equity ratio more than halved
and the solvency ratio greatly increased.
From this point of view, the experience of this company
clearly confirms previous analyses (Macciocchi and
Tiscini, 2016) showing family low predisposition to
indebtedness and the availability of the owner family to
give up dividends in order to strengthen the
financial structures. Behind this attitude of prudence in
financing decisions is the desire of the owner family not
to put at risk the long-term survival of the company and to
maintain the s control in the long run.
At the same time, this case demonstrates the
importance of innovation to maintain the company's long-
term competitiveness. Thanks to a solid financial
structure, the company has been able to pursue a
constant policy of technological innovation and
investment in R&D. The latter played a key role in
enabling the company to improve the company's
competitiveness and overcome the crisis with improved
economic performance.
CONCLUSIONS
Starting with the analysis of different theories addressing
the binomial family business and performance, this article
compares family and non-family firms during the recent
recession. Contrary to previous research, which mainly
focused on large firms and listed companies (Allouche et
al., 2008; Amann and Jaussaud, 2012; Wu et al., 2012;
Macciocchi and Tiscini, 2016), we only considered private
MSBs. The study findings show that MSFBs
underperformed compared to non-family firms during the
period of recession. Moreover we highlight that solvency
level played a crucial role in positively influencing
business profitability.
The study extends previous research about family
performance during the recent economic
crisis (Amann and Jaussaud, 2012; Minichilli et al., 2015
Macciocchi and Tiscini, 2016) by exploring the influence
of family control in private MSBs. In contrast to other
research, always carried out in Italy, but referring to large
companies (Macciocchi and Tiscini, 2016), we have
found that the family nature of a firm can have a negative
influence on its profitability.
Moreover, according to the study findings, a higher
level of solvency cannot offset this negative effect. Based
on previous research (Lauterbach and Vanisky, 1999;
Lane et al., 2006; Romano and 2013), we
238 Afr. J. Bus. Manage.
Table 5. River valley Ltd. Financial performance (1).
Variable
Turnover
Ebitda
ROA
ROE
Ebitda/Sales
Debt/Equity
Solvency
2007
24.033
2.367
7.4
10.1
9.6
2.1
16.8
2009
18.950
1.914
4.4
6
10
1.8
20.3
2014
47.532
4.562
8.4
19.1
9.5
1
23.9
(1)Turnover and Ebitda are given in
suppose that the reason for this difference can be
twofold. On one hand, according to the concept of
considered by RBV, the lowest
performance of family businesses compared to non-
family firms could be due to the nepotism phenomenon,
which can undermine the managerialisation and
professionalisation of the business. In fact, due to
nepotism, managerial skillsespecially crucial during
economic crisisare restricted to those possessed by
family members. On the other hand, consistent with SEW
assumptions, poor performance of family businesses
could be due to their desire to safeguard workplaces
more than non-family businesses have donein order to
preserve their relationship with their community and
possible even their imagine. In other words, even during
economic crisis, MSFBs confirmed that non-economic
purposes prevail over the financial and economic goals.
So future research should be designed to further
investigates the characteristics of MSFBs - management
level and governance system first of all. The aim should
be to understand how these features can affect the
performance of these businesses.
This study has several limitations that may extend
opportunities for future research. First, we consider a
specific and restricted geographical area, and this has
influenced our results and limited their generalisation. A
wider national study and a multi-country empirical
research comparing family and non-family
performance during economic crisis across different
nations are suggested. Second, the relationship between
family ownership and profitability has been analysed
overlooking other variables related to ownership
(presence of family or non-family shareholders),
governance model (board composition and
managerialisation level) and generation in control (first,
second, etc.). Indeed these variables could affect
company performance. We also take into
consideration that different types of family businesses
exist based on a diverse level of family control and/or
diverse involvement of family members in business
ownership and governance. Future research should
consider these variables, maintaining the focus on MSBs.
Third, we only used the Ebitda profit margin as a
performance indicator. Other performance indicators (in
primis, Return on Assets-ROA and Return on Equity-
ROE) should be applied in future research.
This study also has some implications for practice.
First, evidence shows that in every type of economic
condition, solvency level plays a crucial role in order to
preserve a profitability. In other words,
regardless of the economic situation, both family and
non-family businesses should increase their solvency
level in order to enhance the performance of the firm.
Second, some considerations arise about the
professionalisation and managerialisation of MSFBs. In
line with Sciascia et al. (2014), we affirm that family
firms must necessarily be managed by non-family
members. However, as the authors suggest, family firms
may improve their performance thanks to
introduction of adequate governance mechanisms (for
example, a board of directors, including independent
directors) and the use of an incentive system oriented to
focus family attention on financial We
think this is particularly true for MSFBs in which
managers assume a key role in maintaining the
competitiveness of the business, especially during
recession. However, further analysis on the relation
between family nature of MSBs and firm performance is
needed, in order to offer family businesses behavioural
guidelines that are suitable for their specific features.
CONFLICTS OF INTERESTS
The authors have not declared any conflicts of interest.
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