Family Firm Heterogeneity and Corporate Policy: Evidence from Diversification Decisions

Abstract

Manuscript Type: EmpiricalResearch Question/Issue: This paper empirically tests how founders and their families affect business segment diversification. We contribute to the literature by studying the distinct effects of family ownership, management, and supervision on diversification strategies. Research Findings/Insights: We use a large panel dataset of listed German firms. Our results indicate a sharp contrast between firms owned by families and those in which the family holds an active management position. Firms owned by families have higher levels of diversification. However, the opposite is true for firms managed by families. Furthermore, other large shareholders perform a monitoring role and induce family owners to concentrate on their core business. Theoretical/Academic Implications: This paper clearly confirms that family firms comprise a heterogeneous group of firms. Thus, empirical research in this area should carefully distinguish the impact of different channels (i.e., management vs. ownership) families may use to influence corporate decision making. For diversification decisions, we can even show that family ownership and management have an opposite impact. Founding families have to trade off the desire to preserve financial wealth (via diversification) with the risk of losing control and endangering their socioemotional wealth (SEW). Practitioner/Policy Implications: For policy makers, our results underline that family firms are not a homogeneous group of firms. Hence, it is important to consider their heterogeneity in the political discussion. For example, needs and preferences of family managed firms may differ substantially from those of family owned firms. Equity investors and debt providers should also be aware of this family firm heterogeneity.

The mixed gamble of internationalization in family and nonfamily firms: The moderating role of organizational slack

“…While the mixed gamble has been applied to managerial risk taking (Martin et al, ), family firm R&D investments (Gomez‐Mejia et al, ), family firm IPOs (Kotlar et al, in press), and family firm acquisitions (Gomez‐Mejia et al, in press), it has not yet been applied to internationalization strategies. In addition, scholars have demonstrated that different types of family firms and different forms of family influence can affect diversification strategies (Schmid et al, ), FDI (Liang et al, ), foreign entry mode (Boellis et al, ), decision‐making orientation (Kappes & Schmid, ), corporate venturing (Calabro et al, ), and performance (Basco & Rodriguez, ; Sacristan‐Navarro et al, ). Extending such research on family firm heterogeneity, our findings suggest that the nature of family involvement can alter the mixed gamble of internationalization decisions.…”

“…Family firm involvement can occur through ownership of shares (and, thus, voting rights), presence of family members on the board of directors, and family members occupying leadership positions in the top management team. These different forms of involvement have implications for the family's influence on operational and strategic decisions and also the ability to pursue family interests and protect SEW (Boellis et al, ; Liang et al, ; Schmid et al, ). Thus, we contend that this heterogeneity among family firms will lead to different perceptions of the mixed gamble of internationalization and, thus, variation across internationalization strategies.…”

“…Family involvement through holding leadership positions, such as the CEO or chairman of the board (Boellis et al, ), allows the owning family to have an active hand in the daily operations and decision making of the firm (Naldi, Cennamo, Corbetta, & Gomez‐Mejia, ), including the allocation of resources. We refer to this type of firm as “family‐managed.” With decision‐making control over the firm's resources (Liang et al, ), the family‐managed firm can take actions to preserve the firm for future generations, thus ensuring a long‐term orientation in decisions (Kappes & Schmid, ) and the protection of family interests, including SEW (Boellis et al, ; Schmid et al, ).…”

Capital Structure Adjustment in Brazilian Family Firms

“…In particular, scholars have investigated the differing performance between family and nonfamily companies (e.g., Anderson & Reeb, 2003a;Miller, Le Breton-Miller, Lester, & Cannella, 2007;Wagner, Block, Miller, Schwens, & Xi, 2015). Many studies suggest significant heterogeneity between these types of firms, which leads to differences in performance, investment rates (e.g., Kuo & Hung, 2012;Schmid, Ampenberger, Kaserer, & Achleitner, 2015), and financing policy (e.g., Crespí & Martín-Oliver, 2015;López-Gracia & Sánchez-Andújar, 2007). Despite this vast literature, there is no consensus about whether family companies outperform non-family companies.…”

Corporate Governance: Mechanisms for Control and Alignment of Interests of Participants of Corporate Relations in the Transitive Economy

“…Works devoted to analysis of participation of stakeholders in the corporate governance system, in particular determinacy and feasibility of their interests (van Essen et al, 2015;Bruno, 2015;Uysal and Tsetsura, 2015;Ayuso et al, 2014;Lai and Chen, 2014) represent a special stratum of literature. At the moment, research of the effect of nepotism on corporate governance specifics also became relevant (Rees and Rodionova, 2015;Schmid et al, 2015).…”