How does family involvement affect a firm's internationalization? An investigation of Indian family firms

Abstract

Research Summary: We investigate whether and how family ownership and management influence firms' internationalization strategies in an emerging economy in which family firms are dominant. Anchoring on the willingness and ability framework and drawing on the socioemotional wealth perspective and agency theory, we theorize how the heterogeneity among family firms in their ownership structures, concentration, and family involvement in management shapes the firms' internationalization strategies. We also theorize how certain contingencies, such as the presence of foreign institutional ownership and family management, moderate the relationship between family ownership and internationalization strategy. We test our predictions by using a proprietary, longitudinal panel dataset of 303 leading family firms from India and find support for most of our theoretical predictions. Managerial Summary: Internationalization has emerged as a dominant strategy for firms in a globally interconnected world. We observe that ownership structure and management have significant bearing on internationalization strategies of family firms, as family owners and managers are more averse to internationalization. Family firms' aversion to internationalize is more pronounced when families can exercise greater control on firms' actions through the combined effect of higher family ownership (primarily through strategic control) and family's participation in management (through strategic, administrative, and operational control). However, certain contingencies, such as the higher ownership of foreign institutions and presence of professional managers, help business families improve their understanding of international markets, reduce the fear of the unknown, and better appreciate the benefits of internationalization, thereby aiding greater internationalization of family firms.

Influence of Family Involvement on Family Firm Internationalization: The Moderating Effects of Industrial and Institutional Environments

“…First, family ownership and management positively impacted internationalization depth and breadth. This result was in line with previous research [2,3,26], but it did not support the viewpoint that family management negatively influences family firm internationalization [5,8,25]. Second, environmental munificence weakened the effect of family ownership on internationalization depth, as well as the effect of family management on internationalization breadth, whereas environmental munificence intensified the effect of family management on internationalization depth.…”

“…The results were still robust considering the moderating effects of environmental munificence, institutional environment, and political ties (see Model 3, Model 4, Model 5, and Model 6). Thus, our result was in line with previous research [2,3,26], but it did not support the viewpoint that family management negatively impacts on family firm internationalization [5,8,25]. This positive effect was likely due to lower agency cost, as well as more family and network resources resulting from family involvement in ownership and management.…”

“…As internationalization is often associated with high risks and uncertain returns [4,23], family firms with higher family ownership are less likely to engage in international activities. Most empirical studies support the negative effect of family ownership on the internationalization of family firms [4,24,25]. However, higher family ownership also means that family firms may acquire more family resources for internationalization, and that family owners have a strong tendency to monitor managers so as to reduce the agency cost in the internationalization process.…”

“…Therefore, the firms with high levels of family management often lack of managerial capabilities and international market knowledge, which are fundamental for family firms to overcome the uncertainties in the internationalization process [34]. Most empirical studies support the viewpoint that family management has a negative effect on family firm internationalization [5,8,25]. However, family involvement in management may facilitate family firms to internationalize, mainly because of the lower agency costs in the internationalization process and the lower family members' perceived risks with complex investment decisions that accompany internationalization [2].…”

Information Technology Investment, Environmental Hostility, and Firm Performance: The Roles of Family Ownership in an Emerging Economy

“…We use firm revenue to measure firm performance. The family ownership is measured by the proportion of shares held by Indian individuals and undivided Hindu Page 860 families as promoters [41]. Previous research applied the concept of environmental munificence, which "refers to the extent to which a firm's environment supports sustained growth" in research on IT investment and firm performance [42].…”