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Family firm employment behavior during a financial crisis: Does generational stage matter?
Abstract
Family firms are claimed to be long-term oriented and aim at preserving their non-financial business family objectives, which is also reflected in their employment behavior. While family firms’ behavioral and strategic responses to declining performance have received some academic attention, studies acknowledging family firm generational stage are rarer. In this article, we assess the “employment smoothing” hypothesis, according to which both first- and later-generation family firms restrain from laying off their employees despite financial pressure. We use statistical data from over 4000 Finnish companies to examine the differences in employment behavior between family and non-family SMEs and address the family firm’s generational stage. By differentiating between various phases of the financial crisis that peaked during 2008–2009, we explore several dimensions of employment variability, such as changes in the number of employees, within-firm time variation, and standard deviation in employment to test our hypothesis. We find that first-generation family firms are agile—they introduce changes swiftly by cutting their personnel at the start of financial pressure and restrain from doing so during later years. On the other hand, later-generation family businesses are more stable in their employment behavior than first-generation family businesses and non-family businesses—they introduce employment changes only after their profitability has remained at a lower level for a prolonged period following the start of the crisis.
... The impact of economic cycles on firms is substantial, affecting both family and nonfamily businesses. However, prior research suggests that family firms may display inherently different behaviours during crises (Heino et al., 2024;Škare and Porada-Rochoń, 2021). They tend to adopt a longer-term orientation in their management strategy (Donckels & Fröhlich, 1991;Ward, 1997), which makes them less volatile and more resilient to adverse economic conditions and profit declines (Bauweraerts & Colot, 2013). ...
... The findings address calls from such authors as Le Breton- Miller and Miller (2016) to consider context more thoroughly in family business research. Additionally, the results underscore the difficulty of making generalised statements and the importance of accounting for heterogeneity (Heino et al., 2024). From a practical standpoint, the findings reveal that professionalised family firms suffer more intensely during recessionary phases, but also indicate that they are better prepared to recover in terms of employment during periods of economic expansion. ...
Esta investigación tiene como objetivo estudiar el efecto de la propiedad familiar de la empresa y la separación entre propiedad y gestión, en el rendimiento empresarial medido en términos de creación de empleo. Para ello se comparan las diferencias entre empresas familiares y no familiares, así como entre aquellas empresas dirigidas por profesionales externos a la propiedad y aquellas en las que las tareas de dirección son asumidas por los propietarios. Aprovechando la estructura de panel de la muestra, el trabajo se completa con el estudio de la influencia del ciclo económico, en función de las distintas combinaciones de estructura de propiedad y gestión. Una de las principales conclusiones del estudio cuestiona que las empresas familiares superen de forma generalizada a las no familiares en términos de creación de empleo. Aunque esto se aplica a las empresas no profesionalizadas, que representan la mayoría de las empresas familiares, no se observa en las empresas profesionalizadas. Al diferenciar el efecto del ciclo económico en función de sus fases, se observa que, entre las empresas no profesionalizadas, no aparecen diferencias entre empresas familiares y no familiares tanto en la fase recesiva como en la de recuperación. Sin embargo, entre las empresas profesionalizadas, las familiares sufren más los efectos de la fase recesiva y muestran una mayor capacidad de recuperación del empleo en la fase de recuperación.
... In that sense, some studies on family businesses have focused on the impact of intergenerational succession and heterogeneity (Li et al. 2023). Family firms are less studied in generational contexts; however, their longterm sustainability is crucial for the economy (Heino, Alimov, and Tuominen 2024). Thus, the company's assets or personnel management raise interest when considering the family's capacity to adapt and manage internal processes (Olson et al. 2003). ...
Sustainability and business success require ongoing analysis of variables that can impact the stability, efficiency, and evolution of family businesses. To this end, a study based on the environmental, social, and governmental (ESG) variables linked to financial performance was conducted on 93 publicly traded family businesses in the global retail and consumer markets sector in 2023, utilizing data from Thomson Reuters Eikon. Control variables, such as company size, number of employees, and indebtedness, were incorporated. The methodology employed involved a partial least squares structural equation modeling (PLS‐SEM) using SmartPLS. This analysis underscores the importance of social initiatives in enhancing financial outcomes for family businesses in the retail and consumer markets sector above the rest of the selected key variables. The originality of this research lies in its distinctive focus on the social dimension as the primary factor influencing the financial outcomes of family businesses. By highlighting the importance of social initiatives, the study provides an empirical basis that enables academics and business leaders to consider key variables in business development. This facilitates the design of strategies centered on these elements, contributing to the advancement of knowledge in the management of family businesses and their long‐term sustainability.
... The cash flow of a company is measured by the ratio of net cash flows generated from operating activities to total assets [55]. Profitability (ROA) is evaluated using the ratio of a company's net profit to its average total assets [56]. Book to Market Ratio (BM) is calculated by dividing the company's book value by its market value [57]. ...
Enterprise resilience refers to the capacity of businesses to effectively respond to crises and achieve sustainable development over the long term. It serves as a crucial assurance for businesses to attain high-quality growth. The current worry among policy makers and academia revolves around the impact of commercial system change on the resilience of firms. This article examines the reform of the commercial system as a “quasi natural experiment” by comparing manually collected data on the reform with data on Chinese A-share listed companies from 2011 to 2022. It thoroughly analyses the effects and mechanisms of the reform on corporate resilience. The research findings suggest that implementing reforms in the commercial system can improve the ability of firms to withstand and recover from challenges. This is primarily accomplished by decreasing limitations on obtaining funding, minimising expenses associated with institutional transactions, and strengthening the capacity for technological innovation. This conclusion remains strong and reliable even after conducting a series of experiments to ensure its robustness and addressing any potential issues related to endogeneity. Furthermore, the reformation of the commercial system has a more potent impact on bolstering the resilience of private firms, large-scale enterprises, highly competitive enterprises, and high-tech enterprises. The research findings of this article have significant implications for advancing the reform of the commercial system, strengthening enterprise resilience, and achieving high-quality development of firms.
Combining insights from the socioemotional wealth and institutional perspectives, we hypothesize that firms controlled by families offer greater job security to employees relative to non‐family firms, and this positive employment effect is amplified in riskier institutional environments around the world. Using an unbalanced panel of 3181 listed firms from 33 countries over a 10‐year period, we provide strong support for our hypotheses: family‐controlled firms on average are less likely to reduce their workforce compared to their non‐family counterparts, and this differential effect is magnified in weak institutional environments characterized by high political risk. These findings indicate that socioemotional wealth in family firms has a positive impact on employee welfare and that the use of a cross‐country design serves to bridge discrepancies or inconsistencies in single country studies that have been done in the past. From a practical perspective we conclude that the beneficial role of socioemotional wealth on employment relations is more evident when it is needed the most, namely under a dysfunctional institutional environment.
Family firms often struggle to recruit skilled non-family employees. Applying a mixed-method strategy, this article investigates the changing perception of family firms as attractive employers in the context of the COVID-19 pandemic. Experimental results indicate that family firms benefit from a greater popularity amid crises owing to perceptions that they offer greater job security and compensation. Qualitative findings expand on these results by identifying new attractiveness-relevant factors that only come into play amid crises—specifically, multifaceted conceptions of family firms’ crisis responses and their importance for local communities and economies contribute to their situational appeal.
This study explores the downsizing propensity of family and non-family firms by considering their territorial embeddedness during both periods of economic stability and financial crisis. By drawing on a panel dataset of Spanish manufacturing firms for the period 2002–2015, we show that, all things being equal, family firms have a lower propensity to downsizing than non-family firms. When considering the effect of territorial embeddedness, we found that territorially embedded family firms have an even lower propensity to downsizing than their non-family counterparts. Furthermore, the concern of territorially embedded family firms for their employees’ welfare was particularly pronounced during the years of the global financial crisis. This result is explained by the existence of socially proximate relationships with the firms’ immediate surroundings, based on similarity and a sense of belonging, which push deeply rooted family firms to treat their employees as salient stakeholders during hard times. Overall, our study stresses the importance of local roots in moderating the relationship between family firms and downsizing.
Although business restructuring occurs frequently and it is important for the prosperity of family firms across generations, research on family firms has largely evolved separately from research on business restructuring. This is a missed opportunity, since the two domains are complementary, and understanding the context, process, content, and outcome dimensions is relevant to both research streams. We address this by examining the intersection between research on business restructuring and family firms to improve our knowledge of each area and inform future research. To achieve this goal, we review and organize research across different dimensions to create an integrative framework. Building on current research, we focus on 88 studies at the intersection of family firm and business restructuring research to develop a model that identifies research needs and suggests directions for future research.
Purpose
Within a very short period of time, the worldwide pandemic triggered by the novel coronavirus has not only claimed numerous lives but also caused severe limitations to daily private as well as business life. Just about every company has been affected in one way or another. This first empirical study on the effects of the COVID-19 crisis on family firms allows initial conclusions to be drawn about family firm crisis management.
Design/methodology/approach
Exploratory qualitative research design based on 27 semi-structured interviews with key informants of family firms of all sizes in five Western European countries that are in different stages of the crisis.
Findings
The COVID-19 crisis represents a new type and quality of challenge for companies. These companies are applying measures that can be assigned to three different strategies to adapt to the crisis in the short term and emerge from it stronger in the long run. Our findings show how companies in all industries and of all sizes adapt their business models to changing environmental conditions within a short period of time. Finally, the findings also show that the crisis is bringing about a significant yet unintended cultural change. On the one hand, a stronger solidarity and cohesion within the company was observed, while on the other hand, the crisis has led to a tentative digitalization.
Originality/value
To the knowledge of the authors, this is the first empirical study in the management realm on the impacts of COVID-19 on (family) firms. It provides cross-national evidence of family firms' current reactions to the crisis.
Family firms are often associated with the notion of greater stability. The goal of this article is to explore the differences in privately held family and nonfamily firms in various terms of stability, including stability in number of employees, revenue, earnings and assets. Using multiple linear regression analysis in a sample of 384 family and 1 795 nonfamily firms from the Czech Republic, we found that family firms tend to be more stable in terms of revenue and number of employees, but only during times of crisis. However, their greater employment stability results in a worse labor productivity and their earnings become more volatile. During the post-crisis period, there are no significant differences in stability between family and nonfamily firms. Moreover, family firms have been found to grow less during both economic downturn and recovery. We suggest that the feature of stability so often attributed to family firms by popular, but also academic papers, should be used with caution.
The study's purpose is to examine the relative importance of direct disaster assistance to family‐owned small firms on their survival and success while considering the components of their adaptive capacity after experiencing Hurricane Katrina. This study employed data from the 2013 and 2015 Small Business Survival and Demise after a Natural Disaster Project (SBSD), a project funded by the National Science Foundation. The logistic regression results show that family businesses with SBA loans (or loan guarantees) were significantly more likely to survive. In addition, family businesses where household and family issues were more frequently in conflict with work demands were more likely to survive. On the other hand, the OLS regression results indicate that family businesses with more stress and more family–business conflict were less likely to succeed.
There are competing theoretical explanations and conflicting empirical evidence for the IPO underpricing phenomenon in family firms. The behavioral agency model predicts that loss-averse family firms discount their shares more than non-family firms in order to minimize losses of socioemotional wealth (SEW). By contrast, the endowment effect in prospect theory suggests that family owners maximize their financial wealth (FW) by including SEW in their perceptions of firm value and demanding a higher IPO price to relinquish it. We reconcile these seemingly incompatible predictions by adding insights on the dynamic properties of the reference point in decision framing. Conceiving IPO pricing as a two-stage gamble, we theorize that initial SEW losses entailed by the listing decision increase the disposition of family owners to underprice IPO shares to possibly offset these losses, or to “break even”. In doing so, we advance the behavioral agency model with the aversion to loss realization logic to explain how the decision frames and preferences of family owners change during the IPO process, depending on initial losses of current SEW and new expectations of future SEW. Our analysis of 1,807 IPOs in Europe supports our theoretical expectations, clarifying the trade-off between FW and SEW and explicating the dynamic properties of mixed gambles in family firms.
A huge body of research has addressed the impact of corporate social performance (CSP) on corporate financial performance. However, prior literature provides only limited evidence of the impact of CSP on firm risk. The aim of this paper is to investigate the impact of CSP operationalized by environmental, social, and governance factors on market-based firm risk in Europe. Three risk measures are analyzed: systematic, idiosyncratic, and total risk. On the basis of a large European panel dataset of 8752 firm-year observations covering the period 2002–2014, we find that a higher CSP decreases total and idiosyncratic risk. Looking at the three dimensions of CSP, we show that social performance has a significantly negative effect on all three risk measures. Environmental performance generally decreases idiosyncratic risk, whereas total risk and systematic risk are only affected in environmentally sensitive industries. In contrast, we cannot detect a significant effect of corporate governance performance on firm risk. Our findings suggest that a higher CSP and a higher performance regarding the social dimension in particular have the potential to increase firm value through lower firm risk. Overall, our evidence fosters the assumption that there is a business case to be made for corporate social responsibility.
This paper studies differences in family and non-family firms’ access to bank lending during the 2007-2009 financial crisis. The hypothesis is that the former’s incentive structure results in less agency conflict in the borrower-lender relationship. Using highly detailed data on bank-firm relations, we exploit the reduction in bank lending in Italy following the crisis in October 2008. We find statistically and economically significant evidence that credit to family firms contracted less sharply than that to non-family firms. The results are robust to observable ex-ante differences between the two types of firms and to time-varying bank fixed effects. We show, further, that the difference is related to an increased role for soft information in some Italian banks’ operations, following the Lehman Brothers failure. Finally, by identifying a match between those banks and family firms, we can control for time-varying unobserved heterogeneity among the firms and validate the hypothesis that our results are supply-driven.
Manuscript Type
Empirical
Research Question/Issue
Our study seeks to explain the relationship between publicly listed family‐controlled firms ( FCFs ) and investor and employee outcomes before and during the global financial crisis. Theoretically, we develop hypotheses suggesting that FCF resilience is beneficial to both investor and employees. Employing a large firm‐level data set of 2,949 firms across 27 E uropean countries, we test the hypotheses that FCF s' long‐term orientation makes them resilient to the effects of economic shocks. In addition, using hierarchical linear modeling we evaluate family firm investor and employee outcomes, and the moderating impact of legal institutions protecting minority investors and employees.
Research Findings/Insights
We find that FCF s financially outperform non‐ FCF s during the financial crisis, beginning in 2007 and reaching its lowest point in 2009, but show no significant differences during the stable‐growth period between 2004 and 2006. We evaluate two employee outcomes: downsizing and wage decreases. We find that FCF s are less likely to downsize their workforce or cut wages in both pre‐crisis and crisis conditions. Based upon hypotheses founded in the comparative capitalisms logic, we find significant institutional effects that are contrary to our predictions. Our findings suggest that investors and employees of FCFs achieve more favorable outcomes for their interests when the rules pertaining to investor protection and their enforcement are poorly developed.
Theoretical/Academic Implications
We contribute to the emerging literature on the institution‐based view of comparative corporate governance by demonstrating that family‐controlled firms' stakeholder outcomes are contingent upon legal protection for employees and investors under contrasting economic circumstances.
Practitioner/Policy Implications
Family owners, employees and minority investors should consider both firm‐level and country‐level governance institutions when investing in different countries, especially in times of economic crisis as jurisdiction‐level institutions and firm ownership choices produce variable outcomes for different stakeholders in both crisis and non‐crisis conditions.
Previous research suggests that the distinctive nature of family firms, including both specific advantages and disadvantages related to their particular agency situation, influences innovation activities. Most studies, however, view family firms as homogeneous entities and thus neglect the heterogeneity of family firms when comparing them with nonfamily firms. One important factor of this firm heterogeneity is family influence in terms of ownership, management, and governance. A data set of large German publicly traded firms between 2000 and 2009 is used to test how these three dimensions of family influence predict innovation input and output. The results show that family participation in management and governance has a negative impact on innovation input and a positive influence on innovation output. This suggests that family members are risk averse and reluctant to invest in innovation, but at the same time do so more effectively.
The family businesses play an important role regarding the dynamism and strength of the European economy, long-term stability and sustainability. Many of the challenges facing family businesses also concern Small and Medium Sized Enterprises (SMEs), but due to the fact that family businesses involve three overlapping elements (the family, the business, and the ownership) they are different from other types of businesses. In Europe the family business sector is dominated by particularly micro enterprises with less than 10 employees and SMEs. Across Europe around 70-80% of all enterprises are family businesses. The current financial crisis has influenced negatively the majority of business activities and many family businesses found themselves in a new turbulent financial environment where uncertainty dominates and the market characteristics are radically reversed.
Although research has shown the ability to exit from both successful and unsuccessful ventures is important to founders, families, firms, industries, and overall economic health, exiting from a family firm can be especially challenging. In this paper, we examine exit strategies in the context of the family firm and the family firm portfolio. Drawing upon threshold theory and the socioemotional wealth perspective, we develop a model that provides guiding theoretical explanations for exit strategies. We address two questions: (1) why do family owners develop specific exit strategies, and (2) how do these strategies differ within family firms and family firm portfolios? In doing so, we contribute to family business, portfolio entrepreneurship, and exit literatures.
This study analyzes the extent to which family firms adopt distinct restructuring strategies (employee downsizing, management dismissals, asset retrenchment, dividend cuts) in response to declining performance. We hypothesize that family firms select different restructuring strategies than non-family firms because of the mixed gamble between economic benefits and socioemotional wealth (SEW), and that this difference diminishes as the severity of decline increases. The hypotheses were tested with a sample of 357 decline incidences in 283 German firms between 2005 and 2018 and are largely confirmed; at low decline severity, family firms downsize and retrench less, but this tendency is reversed as the severity increases. They tend to cut dividends more strongly and are less willing to dismiss managers, irrespective of their decline severity.
We examine the behavior of family firms during the COVID-19 pandemic through the lens of Miller and Le Breton-Miller’s (2005) “4C model” of continuity, community, connection, and command. We show how some family firms embracing temporally and socially extended priorities have excelled along these Cs and conducted themselves as exemplary citizens during the COVID crisis. By contrast some family firms with more restricted priorities have behaved in ethically disreputable ways. We discuss the contingencies that affect these forms of behavior and suggest why family firms may be subject to both positive and negative ethical extremes.
Against the backdrop of the current Covid-19 pandemic and the related world economic crisis, we reflect on the role of the business family as a pivotal resource in family firm crisis management. We discuss how business families respond to the pandemic outbreak and how some accomplish to turn challenges into opportunities and manage to emerge from the crisis even stronger than before. Related to that, we develop a research agenda on crisis management in family firms and the specific role of the business family in this regard. We also introduce the four articles in this special issue which were initially presented at the 3rd International Family Business Research Forum (IFBRF) at WU Vienna in September 2017. All four articles tackle core topics in family business research and practice, including succession, innovation and family governance, which are core elements for building a resilient business family.
New digital technologies have prompted many firms, including family firms, to innovate their business models. We study the role of dynamic capabilities as mediator in the relationship between family influence and digital business model innovation (BMI), and the moderating role of environmental dynamism. Based on unique survey data from 1,444 German firms with and without family influence, we reveal that knowledge exploitation, risk management, and marketing capabilities mediate the positive relationship between family influence and digital BMI. Surprisingly, and contrary to our assumption, we find that the positive relationship between family influence and dynamic capabilities is weakened rather than strengthened by environmental dynamism. Our findings hold important implications for family business innovation and digital BMI research, offering valuable insights into the role of dynamic capabilities and environmental dynamism in the digital economy.
The purpose of this paper is to analyze if choices made by family businesses (FBs) regarding job
stability in economic recessions are different, on average, to those made by nonfamily firms. Moreover, the
study tries to elucidate if this potential difference depends on the family generation that is in charge. The
analysis relies upon a sample of 55,091 Spanish firms, as Spain is one of the countries that suffered the greatest
impact of the 2008 Great Recession,
https://www.emerald.com/insight/content/doi/10.1108/JFBM-06-2020-0055/full/html?skipTracking=true
Employee downsizing is a crucial choice that transcends the firm’s boundaries and has profound social implications. While the topic has been on researchers’ agenda for a long time, literature is still looking for a finer understanding of downsizing in family firms, which are the majority of employers worldwide. Using the Socio-Emotional Wealth perspective, this study explores the contingency effect of sales internationalization strategy on the relationship between family firm status and employee downsizing. Based on a large sample of private Spanish firms, our results reveal that the negative effect of family firm status on downsizing is mitigated at higher levels of export intensity, global focus and when export is done directly.
This study seeks to investigate whether family firms are more likely to downsize their workforce than their non‐family counterparts. Drawing on socioemotional wealth approach, we first explore the effect of family presence on workforce downsizing. Furthermore, we examine the moderating role of R&D activity on the family presence–downsizing relationship. Our sample covers a panel of manufacturing SMEs in Spain over the 1993–2014 period. We find that family firms are less likely to downsize than non‐family firms. Our results also reveal a negative association between R&D activity and workforce downsizing. Finally, the relationship between family presence and downsizing is contingent upon R&D activity, that is, family firms engaged in R&D activities are less likely to downsize than non‐innovative family firms.
We investigate the impact of corporate governance on accounting and market performance relationships of family firms during the Global Financial Crisis (GFC). We expect the monitoring aspects of corporate governance to complement the long‐term orientation of family firms, improving the value relevance of accounting and market performance during times of exogenous financial shocks such as the GFC. We find that the family‐firm value is more sensitive to book value than earnings changes. We also find better corporate governance, irrespective of whether it is a family firm or non‐family firm, is associated with better accounting and market performance during the GFC.
While research tends to focus on how family members respond to and manage crises arising in family businesses, nonfamily members play important roles as well. In this qualitative study, we demonstrate how nonfamily actors—employees, customers, and vendors—engage in institutional preservation work to save a family business. We develop a theoretical model of how a diffuse constellation of low-power individuals can come to identify and act as agents of institutional preservation and identify the three subprocesses comprising preservation work: intensifying and harnessing emotions, building collective identity, and articulating shared interests. This model offers insight into how nonfamily members can come to exert control over family businesses and contributes to emerging literature on the role of emotional escalation and social media in institutional and family business research.
Using a firm-level international panel data set, we study if unemployment insurance offered by the government and by firms are substitutes. We exploit cross-country and time-series variation in public unemployment insurance as a shifter of workers’ demand for insurance within firms, and family versus nonfamily ownership as a shifter of firms’ supply of insurance. Our evidence supports the substitutability hypothesis: employment stability in family firms is greater, and the wage discount larger, in countries and periods with less generous public unemployment insurance, whereas no such substitutability emerges for nonfamily firms.
Received July 18, 2015; editorial decision August 8, 2017 by Editor Francesca Cornelli.
Investments in research and development (R&D) are essential to innovation, long-term value creation, and wealth accumulation. Since family wealth and firm performance are tightly coupled in family firms, how they invest during times of economic distress matters to their wealth accumulation over the generations. In this study, we examined the impact of the 2007 Great Recession on the R&D decisions of publicly-listed family firms in the United States. We compared family and non-family U.S. firms, excluding those in the financial sector, with total assets greater than $1 million for the period 1992 to 2015. Using the behavioral agency model, we hypothesized that among firms that were not financially constrained during the economic crisis, family firms were more likely than non-family firms to invest in R&D. The results support this hypothesis, lending credence to the notion that family firms undertook more risks when performance is below their long-term aspirations during economic downturns.
Little is known about the relationship between family firms and downsizing. This study aims to close this gap. The study distinguishes between family management and family ownership as two distinct dimensions of family firms and analyzes their respective influences on downsizing. The findings suggest that the extent of family ownership decreases the likelihood of deep job cuts, whereas family management has no impact. However, family management is found to moderate the relationship between firm profitability and the likelihood of downsizing. It is suggested that family owners care more about their reputation for social responsibility than do other owners, motivating them to avoid deep job cuts.
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.
This paper provides new evidence on whether family firms performed better during the global financial crisis (2008–2010). Using the dataset of the S&P 500 nonfinancial firms during the period 2006–2010, we find that family firms outperformed nonfamily firms during the crisis. Among family firms, the ones that contributed to the outperformance were those where the founder was still present. We also find that during the global financial crisis, founder firms invested significantly less and had better access to the credit market than nonfamily firms. Our analysis suggests that the superior performance of founder firms is largely caused by their having less incentive to overinvest in order to boost short-term earnings during the crisis.
This article analyses whether the Global Financial Crisis (GFC) has differentially affected the growth, risk taking and performance of family businesses depending on the generation in control. Adopting a socioemotional wealth approach, we expect that stronger emotional attachment to the firm in first-generation family businesses leads these businesses to commit more resources and take greater risks than multi-generational family businesses during crisis periods. Nevertheless, their special interest in non-financial goals leads us to predict that first-generation family businesses will perform worse during crises. Evidence from a data sample of private, unlisted and large Spanish firms (6,315) throughout Spain’s particularly deep crisis over the 2006–2011 period shows that first-generation family firms grew more and increased their debt ratios significantly more than multi-generational family firms during the global financial crisis. However, based on return on equity, and consistent with our conjecture, first-generation family businesses performed worse than multi-generational family businesses during this period.
IntroductionWhy Family Firms?What Is a Family Firm?Ownership and Control: Family and Nonfamily BlockholdersInside the Family Firm: Family Influence and Intergenerational IssuesFamily Firms and Research DesignSummary and Conclusions
Discussion QuestionsAbout the Authors
In this study I find that employment in family firms is less sensitive to performance and product market fluctuations. I show this by investigating aggregate fluctuations at the industry level as well as idiosyncratic firm level shocks. By differentiating between temporary and permanent shocks at the firm level, I find that family firms appear to be less anxious to translate temporary shocks into changes in employment. This supports the idea that family firms are able to offer their employees implicit employment protection. Family firms are believed to have longer time horizons, and are as owners more easily identified with their company and its actions. These are features that could make family firms more cautious in terms of adjusting their employment. Unlike previous contributions, I am able to identify all family firms, both private and public, by using full population data from tax registers.
It is generally accepted that a family's involvement in the business makes the family business unique; but the literature continues to have difficulty defining the family business. We argue for a distinction between theoretical and operational definitions. A theoretical definition must identify the esence that distinguishes the family business from other businesses. It is the standard against which operational definitions must be measured. We propose a theoretical definition based on behavior as the essence of a family business. Our conceptual analysis shows that most of the operational definitions based on the components of family involvement overlap with our theoretical definition. Our empirical results suggest, however, that the components of family involvement typically used in operational definitions are weak predictors of intentions and, therefore, are not always reliable for distinguishing family businesses from non-family ones.
Using newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we find that family control is negatively related to the dividend payout ratio. Family firms are also less (more) likely to increase (omit) dividends than nonfamily firms. These negative associations between family firms and dividend policy are more pronounced during the recent global financial crisis suggesting that controlling families have incentives to expropriate more firm resources during crises than in normal times.This article is protected by copyright. All rights reserved
The behavioral agency model suggests that to preserve socioemotional wealth, lossaverse family firms usually invest less in R&D than nonfamily firms. However, behavioral agency model predictions are inconsistent with the well-accepted premise that family firms have a long-term investment orientation. We reconcile these seemingly incompatible predictions by adding insights from the myopic loss aversion framework, which deals with the impact of decision-making time horizons. The combination of these two prospect theory derivatives led us to hypothesize that family firms usually invest less in R&D than nonfamily firms but the variability of their investments will be greater owing to differences in the compatibility of long- and short-term family goals with the economic goals of a firm. However, when performance is below aspiration levels, we theorize that family goals and economic goals tend to converge. In this situation, the R&D investments of family firms are expected to increase and the variability of those investments decrease, relative to nonfamily firms. Analysis of 964 publicly held family and nonfamily firms from the Standard & Poor's 1500 between 1998 and 2007 support our hypotheses, confirming a need to take the heterogeneity of family firms more fully into account.
In making a decision to enter into a long-term employment relationship with a firm, job seekers often compare their needs and values with the perceived organizational characteristics of the firm. In the case of family firms, the communication of family influence can be a unique factor in shaping beliefs about firm attributes. Family influence is often associated with trustworthiness, security, and stability. However, family influence is also associated with inflexibility and resistance to change. Using the idea of person–organization fit, we hypothesize that although family influence attracts job seekers in general, applicants who value conservation or self-transcendence are particularly attracted, while applicants who emphasize openness to change or self-enhancement are less attracted. Furthermore, we propose that the attractive effects of family influence are more pronounced in more hostile economic environments. We find evidence for our hypotheses using a conjoint experiment and 5,600 assessments of family influence nested within 175 job seekers.
We analyze whether gender interactions at the top of the corporate hierarchy affect corporate performance. Using a comprehensive data set of family-controlled firms in Italy, we find that female directors significantly improve the operating profitability of female-led companies. To mitigate endogeneity concerns, we assess executive transitions using a triple-difference approach complemented by propensity score matching and instrumental variables. Finally, we show that the positive effect of female interactions on profitability is reduced when the firm is located in geographic areas characterized by gender prejudices and when the firm is large.
This paper was accepted by Brad Barber, finance.
Manuscript Type
Empirical
Research Question/Issue
We explore whether family firms have easier access to debt during crises than nonfamily firms. We adapt the leverage equation from the corporate finance literature and estimate the differences in the leverages of family and nonfamily firms between expansion and crisis periods.
Research Findings/Insights
The capital structure of family firms is based less on external finance than that of nonfamily firms. Nevertheless, during crisis periods, family firms are less subject to credit restrictions than nonfamily firms and, thus, the impact of the lack of credit on their capital structure is less severe in the former than in the later.
Theoretical/Academic Implications
We provide a reliable test of the access of family firms to external finance in a market with severe financial constraints. A precise empirical definition of family firms contributes to the study of the differential characteristics of this group of firms.
Practitioner/Policy Implications
This paper shows the relevance of family firms in the economy under difficult financial conditions. The finding that lenders can be less reluctant to lend to family firms during a crisis encourages policies promoting a long‐term view of these firms and their control across generations. The results can also be useful at the time of designing policies related to the access of credit during expansion and crisis periods.
Although previous research focused on private firms has revealed that family involvement generally has an insignificant or negative effect on performance, the effects of family on the performance of non-listed firms has not been tested based on a clearly defined relationship. This study considers the limited evidence regarding the performance of private family firms and the debate about whether lone founder and family firms perform differently. It replicates and provides a deeper examination of the Miller et al. (2007) paper for private family firms. Therefore, our contribution is mainly empirical. Our results indicate that lone-founder firms perform better than family businesses (FBs) in a private firm context. Our findings also reveal that firms with family involvement do not significantly outperform other firms. Nevertheless, when FBs are characterized by ownership concentration and non-family management, their performance is significantly lower than other firms.
https://onlinelibrary.wiley.com/doi/full/10.1111/corg.12060.
Empirical
We investigate the joint effects of family control and the regulatory environment on entrepreneurial growth through the lens of socio-emotional wealth (SEW) theory.
Taking into consideration both economic and non-economic goals of entrepreneurial firms, measured by sales growth and employment growth respectively, we find that, compared to their non-family-controlled counterparts, family-controlled firms tend to have lower sales growth rates, but higher employment growth rates. Furthermore, less favorable regulatory environments reduce both sales and workforce growth rates to a greater extent for family-controlled firms than for non-family-controlled firms.
We add to the corporate governance and family business management literature by documenting that the regulatory environment moderates the corporate governance effect of family control on the economic and non-economic goals of family-controlled firms. The findings also contribute to the family business management literature by enriching and providing strong evidence in favor of the SEW theory through our exploration of the moderating role that macro-governance plays in the family control-SEW relation. This research also makes contributions to the entrepreneurship literature, laying a foundation for future empirical studies on entrepreneurial growth by separating its economic from its non-economic dimensions.
Our findings provide practical implications for both policy makers and entrepreneurs. They not only help entrepreneurs better understand growth strategies in various macro-governance settings, but also provide governments and policymakers with potential policy implications to encourage entrepreneurial and economic growth. Policies that improve the macro-governance environment can help family firms to prosper by contributing to their economic and non-economic growth, both of which are important for economic development.
Prior research has not fully explained whether the relationship between family management and profitability is positive or negative in private family firms. This issue is critical for further theoretical development in the field and holds high practical relevance, given that the appointment or exclusion of family managers is a decision virtually any family firm is faced with. To explain inconsistencies in the literature, we build on the socioemotional wealth perspective to argue that family management is positively related to profitability at later generational stages, when a decreased need for socioemotional wealth preservation induces family managers to focus more on increasing financial wealth. We tested and confirmed our hypothesis via OLS regression on a data set of 233 Italian family-owned firms utilizing lagged data on profitability.
The behavioral agency model suggests family firms invest less in R&D than nonfamily firms to protect their socioemotional wealth. Studies support this contention but do not explain how family firms make R&D investments. We hypothesize that when performance exceeds aspirations, family firms manage socioemotional and economic objectives by making exploitative R&D investments that lead to more reliable and less risky sales levels. However, performance below aspirations leads to exploratory R&D investments that result in potentially higher but less reliable sales levels. Using a risk abatement model, our analyses of 847 firms over 10 years supports our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.
Prior empirical research finds positive, negative and neutral relationships between family involvement in business and firm performance. We argue that some of the challenges that have plagued empirical research in this field are related to the measurement of family involvement in business. Real-world family firms are not binary entities. Rather, they can be better characterized by heterogeneous configurations formed by different components of family involvement in the enterprise. These alternative configurations can be systematically captured using set-theoretic methods. Applying this methodology to a cross-national sample of 6592 companies, we identify which particular configurations are associated with superior financial performance. Our results lend support to the configurational hypothesis, which posits that the impact of family involvement in business is not the product of the components of family involvement in isolation but that it is subject to substantial complementarity and substitution effects.
We ask whether choices aimed at preserving socioemotional wealth (SEW) represent an asset or a liability in family-controlled firms. Specifically, we consider one major SEW-preserving mechanism—having as chief executive officer (CEO) a member of the controlling family—and hypothesize that this choice is (1) an asset in business contexts, such as industrial districts, in which tacit rules and social norms are relatively more important, but (2) a potential liability in contexts like stock exchange markets, where formal regulations and transparency principles take center stage. The results from our empirical analysis confirm these hypotheses.
This article aims to increase our understanding of family firms’ entrepreneurial risk-taking behavior by looking at the differences between family and nonfamily firms and by studying variations among family firms. We find empirical support for a positive influence of a nonfamily CEO on the family firm’s level of entrepreneurial risk taking during the initial years of his or her CEO tenure and a leveling out of entrepreneurial risk taking as the CEO tenure of the nonfamily CEO is extended. We build on the concept of psychological ownership to explain these new findings.