Does transitioning from family to non-family controlled firm influence internationalization?

Abstract

Purpose The purpose of this paper is to study the internationalization of family firms, exploring specifically if the transition from family control to non-family control (losing family managerial influence) affects a firm’s export activity. Design/methodology/approach Based on panel data for Spanish firms from 2006 to 2012, a random effect tobit and probit regression and a propensity score matching were run on a sample of 225 firms moving from family to non-family control (switchers) matched with 4,213 firms remaining under family control (non-switchers). Findings Although from a static viewpoint family controlled firms export less than their non-family counterparts, from a dynamic perspective family firms remaining under family control (non-switchers) are associated with a fall in export activity in comparison with family firms transitioning to non-family control (switchers). Both findings are related back to the socioemotional wealth (SEW) perspective. Research limitations/implications The findings of this study shed light on the trade-offs that family firms experience in order to balance their desire to increase their internationalization (and the risk associated with it) and their wish to maintain SEW. Practical implications The findings should encourage family owners and managers to take long-term strategic decisions leading to internationalization which, although risky, will prevent subsequent loss of SEW in terms of family control. Originality/value This work provides evidence concerning family firms’ willingness to undertake risky activities, such as internationalization, considering the threats to their wealth.

Family firm internationalization: Past research and an agenda for the future

“…In the main, researchers assume that family firm owners and managers are inherently risk averse and will tend to adopt entry mode strategies that minimize various risks, such as committing too many resources to a single venture (Filatotchev, Strange, Piesse, & Lien, 2007) or dealing with uncertainty (Kao & Kuo, 2017;Kao, Kuo, & Chang, 2013;Kuo, Kao, Chang, & Chiu, 2012). Family firms may also select entry modes that minimize the risk of SEW dissipation (e.g., Monreal-Pérez & Sánchez-Marín, 2017;Scholes, Mustafa, & Chen, 2016). However, different theoretical perspectives suggest that risk aversion may lead to different entry mode preferences.…”

“…SEW-framed studies diverge on the effects of SEW on family firms' foreign entry mode choices. Some scholars assert that family firms prefer to enter foreign markets through low commitment modes such as export in order to minimize the potential SEW dissipation risk associated with FDI (Monreal- Pérez & Sánchez-Marín, 2017;Scholes et al, 2016). However, WOS afford family firms greater control over operations and therefore may be preferred by family firms that seek to protect SEW (Abdellatif, Amann, & Jaussaud, 2010;Pongelli, Calabrò , & Basco, 2019;Pongelli, Caroli, & Cucculelli, 2016).…”

Delimitation of the experience factor in the decision to select international markets by Spanish SMEs: The influence of psychic distance

“…During the early stages of the internationalization process, SMEs generally tend to choose to internationalize in geographically nearby market countries, with a subsequent dispersion of decisions as the sequence order progresses. In particular, there is an increase in the number of potential market countries after the second selection of export markets (Monreal-Pérez & Sánchez-Marín, 2017). In the absence of experience, SMEs tend to choose to export to those potential export markets that involve assuming the lowest possible risks, since the selection decisions of potential markets are concentrated in those countries that are more similar to the native country.…”

“…The analysis focuses on SMEs, as it is not considered desirable to combine all types of companies within the same study due to the differences between large companies and SMEs in terms of availability of resources, since it is assumed that large firms have a greater ability to overcome the limitations imposed by the construction of psychic distance when selecting international markets (Monreal-Pérez & Sánchez-Marín, 2017). The accumulation of resources and experience, a priori, may allow larger companies to focus exclusively on specific business objectives in their export decisions without taking other considerations into account (León et al, 2018).…”

“…The selection of export markets by similarity to the native market of the company is the motivation factor of psychic proximity which is more closely related to the concept of psychic distance. It is interesting to note that this incentive of psychic proximity exercises a moderating role on risk aversion at the beginning of the internationalization process (Monreal-Pérez & Sánchez-Marín, 2017).…”