Family involvement and firms’ establishment mode choice in foreign markets

Abstract

Extant literature on foreign entry increasingly recognizes firms' heterogeneity as a potential reason for inconsistency in results on the establishment mode choice, that is, whether and under which conditions firms should choose to enter a new country through a greenfield investment or an acquisition. Our study contributes to this debate by identifying family ownership and family involvement in management as potential powerful sources of such heterogeneity. Integrating international business studies with both corporate finance literature on family firms and recent contributions from the Socio Emotional Wealth perspective on family ownership, we claim that, due to greater risk aversion and lower access to information, the family involvement both in the firm ownership and management leads to a higher propensity towards greenfield initiatives (vs acquisitions). However, we also find that such a propensity decreases with international experience especially in family-owned firms given the greater ability of professionalized management to overcome family-related concerns on making acquisitions. Our analysis on 1045 foreign initiatives undertaken by 311 Italian family and non-family firms between 2003 and 2013 confirms our expectations, indicating family ownership as a significant driver of firms' international strategies.

The pursuit of international opportunities in family firms: Generational differences and the role of knowledge‐based resources

“…As noted earlier, the willingness and ability perspective in family business research suggests that the drivers of decision making in family business are, respectively, (a) the economic and noneconomic goals of family owners (Berrone, Cruz, & Gomez‐Mejia, ; Chrisman et al, ; Chrisman & Patel, ) and (b) the power and discretion to govern the firm conferred by the extent of ownership the family holds (Carney, ). In terms of international strategy, family owners have an economic incentive to diversify the firm in order to reduce overall variance in expected returns, increase expected returns (Alessandri & Seth, ; Boellis et al, ; Chen, Hsu, & Chang, ; Goranova, Alessandri, Brandes, & Dharwadkar, ; Pukall & Calabrò, ; Zahra, ), and/or conform to industry norms (Miller, Le Breton‐Miller, & Lester, ). Accordingly, family owners should have economic incentives to internationalize in order to increase returns, reduce dependence on a single source of revenues in the domestic market, and/or justify the family's control to external constituencies by conforming to the actions of competitors.…”

“…Moreover, prior family business literature points to important differences in internationalization between family and nonfamily firms (Gallo & Garcia Pont, ; Gallo & Sveen, ; Pukall & Calabrò, ). This research stream generally shows a negative relationship between family ownership and internationalization (e.g., Banalieva & Eddleston, ; Boellis, Mariotti, Minichilli, & Piscitello, ; Fernández & Nieto, ; Gomez‐Mejia, Makri, & Larraza‐Kintana, ), suggesting that family firms are often risk averse and reluctant to expand beyond domestic boundaries . Although internationalization of family firms has received attention (Gallo & Garcia Pont, ; Gallo & Sveen, ; Gomez‐Mejia et al, ; Pukall & Calabrò, ; Singla, Veliyath, & George, ; Zahra, ), important gaps in the literature remain.…”

The impact of family ownership on establishment and ownership modes in foreign direct investment: The moderating role of corruption in host countries

“…Further, Boellis et al () empirically found that Italian family firms are more likely to choose greenfield investment over acquisition. Nevertheless, their study dichotomously distinguished between family and nonfamily firms and did not explicitly examine the impact of the degree of family ownership.…”

“…Family firms are defined as those “in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time” (Miller, Le Breton‐Miller, Lester, & Cannella, , p. 836). Although a few attempts (Boellis, Mariotti, Minichilli, & Piscitello, ; Filatotchev, Strange, Piesse, & Lien, ; Pinho, ; Pukall & Calabrò, ) have been made to examine family firms’ entry mode choices, their empirical findings are mixed: they showed that family firms tend to prefer more commitment to local subsidiaries in market entries (Boellis et al, ) or less commitment (Filatotchev et al, ), or they reported no findings (Pinho, ). These inconclusive results suggest that a relationship between family ownership and entry mode choices exists in the presence of boundary conditions.…”

Science’s reproducibility and replicability crisis: International business is not immune

“…Specifically, the goal of inferential statistics is to maximize the predictive power of a model based on the data available by minimizing errors in prediction using sample scores (Cascio & Aguinis, 2005). For example, ordinary least squares (OLS) regression, which is one of the most frequently used data-analytic approaches in IB and other fields (e.g., Aguinis, Pierce, Bosco, & Muslin, 2009;Boellis, Mariotti, Minichilli, & Piscitello, 2016;Fitzsimmons, Liao, & Thomas, 2017;Fung, Zhou, & Zhu, 2016), minimizes the sum of the squared differences between fitted values and observed values. Unsystematic capitalization on chance is addressed by conducting inferential tests of the parameter estimates that include their standard errors, thereby providing information about the precision in the estimation process (i.e., larger sample sizes are associated with greater precision and smaller standard errors).…”