Promoting organizational diversity and preserving socioemotional wealth: can family businesses balance the two?

Abstract

PurposeA key characteristic for a family firm, preservation of socioemotional wealth, may appear to be at conflict with the concept of organizational diversity. The authors investigate how organizational diversity, captured through heterogeneity in ownership structure, diversity in the senior management team, interfaces with the concept of the socioemotional wealth of family businesses in an emerging economy, when these firms pursue inorganic growth strategies.Design/methodology/approachDrawing on the concepts of socioemotional wealth, behavioral agency theory and bifurcation bias, the authors develop perspectives on how ownership structure, family influence in executive management and institutional shareholding influence a family firm's internationalization strategies captured through propensity to pursue cross-border M&A – an activity that may threaten the preservation of socioemotional wealth. The authors also explore the role of business group affiliation, another organizational diversity construct, and contingent parameters like past financial performance and export intensity in this study. The authors take pooled data over 15 years, involving 346 large firms from India, which are family-controlled, to carry out the study.FindingsThe authors’ empirical analysis shows that family stake in the company and family members' presence in the executive team negatively influence the propensity to pursue cross-border M&A activities. A firm's affiliation to a business group moderates these negative relationships. On the other hand, the presence of institutional shareholders, positive past financial performance and export intensity positively influence cross-border M&A propensity.Originality/valueThe results establish that family businesses' attempts to preserve socioemotional wealth may come at the cost of promoting organizational diversity.

Strategic Change in Family Firms: A Review From an Institutional Environment and Firm Size Perspective

“…Kim et al, 2019). Importantly, with an increased family stake and family members’ presence on executive teams, the propensity to pursue cross-border mergers and acquisitions (M&A) declines (Das, 2022).…”

“…Research shows a U-shaped relationship between family ownership and divestments (Praet, 2013) and family firms with family CEOs are less likely to divest than family firms with nonfamily CEOs (H. Kim et al, 2019). Importantly, with an increased family stake and family members' presence on executive teams, the propensity to pursue cross-border mergers and acquisitions (M&A) declines (Das, 2022).…”