Does Family Involvement Influence Firm Performance? Exploring the Mediating Effects of Board Processes and Tasks

Abstract

Following calls to capture the consequences of family involvement in the business, this article empirically investigates the mediating role of board processes (i.e., effort norms, use of knowledge and skills, and cognitive conflicts) and board (control and strategy) tasks in the relationship between family involvement and firm performance in small and medium-sized companies. To address this purpose, we developed a theoretical model using family business and corporate governance literature. We collected data from one sample of small and medium-sized enterprises, and we applied structural equation modeling to validate and test constructs and relationships. Our results show that (a) family involvement in the business has a positive impact on effort norms and use of knowledge and skills, and a negative one on cognitive conflicts, (b) board processes have generally a positive influence on board tasks performance, and (c) board strategy task performance positively influences firm financial performance, while board control tasks do not have a significant impact. Results have implications for both research and practice.

Entrepreneurial orientation and firm performance in family SMEs: the moderating effects of family, women, and strategic involvement in the board of directors

“…We focus on the importance of boards in this relationship, given that entrepreneurial success in family businesses is largely determined by the ideas contributed by board directors (Miller and Le Breton-Miller 2006). Boards' contributions depend, however, on their level of diversity (Hillman and Dalziel, 2003;Maseda et al 2015) and strategic involvement (Machold et al 2011) because they give advice on various strategy issues, from formulation to outcomes (Zahra et al 2009), that may compensate for the managerial shortcomings from which many family SMEs suffer (Zattoni et al 2015). Hence, we focus on the potential moderating impact on this relationship of two main diversity factors, family involvement and female involvement, in boards with different strategic involvement levels.…”

“…Boards of directors represent the highest decision making level and play various roles related to strategic processes (Zattoni et al 2015). The literature on the role of boards of directors depicts boards as a source of competitiveness and an essential contributor to firm value creation (Pugliese et al 2009).…”

“…Finally, we contribute to the family business literature by examining family involvement at the board level. The existing literature does not offer conclusive results about how family involvement may affect the board's various tasks and processes (Zattoni et al 2015), or entrepreneurship in particular. We help fill this gap by examining the effect of family involvement in the board on the EO-firm performance relationship in family SMEs.…”

The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context

“…The study adapted the two-stage approach of assessing the measurement model before the structural model, which has been widely accepted in prior studies (e.g., Medsker, Williams, & Holahan 1994;Zattoni, Gnan, & Huse 2012). Exploratory Factor Analysis (EFA) (i.e., principal axis factoring with Oblique factor rotation) and Confirmatory Factor Analysis (CFA) were first conducted to examine the reliability, validity, and goodness of fit for the measurement model.…”

“…But consideration was given to a potential nested model with a direct path from Financial Literacy to Growth Asset Allocation (as evidenced in Gallery et al 2011a;Sachse et al 2012 (Zattoni et al 2012). …”