Family Business Performance: A Perspective of Family Influence.
| Autor | Alves, Catarina Afonso |
1 Introduction
Family businesses (FBs) constitute the predominant form of ownership in current markets (e.g., Carney, Van Essen, Gedajlovic, & Heugens, 2015)and findings gleaned from publicly listed firms may not apply to the ubiquitous, but less frequently studied, privately held family firm (PFF). In Portugal, the Portuguese Family Businesses Association (AEF) estimates that over 60% of Gross Domestic Product and 50% of employment is generated by such companies, "with their ownership, whether totally or partially, in the hands of one or more family members, and the family [holds] control over the management of the company" (AEF, n.d.). The majority of small- and medium-sized companies (SMEs) are family-owned and their presence extends across various sectors of activity (AEF, n.d.). In this context, the FB emerges as a complex and heterogeneous entity due to the dynamics existing within the respective family and the different levels of influence that its members establish and maintain within the company (Gersick, Davis, Hampton, & Lansberg, 1997), within the scope of which certain factors serve to moderate or influence this relationship (Miralles-Marcelo, Miralles-Quiros, & Lisboa, 2014).
Research into FBs has focused upon how the family-owned status impacts on companies, especially in terms of their performance. According to some authors, the family dimension appears as a factor of weakness, especially because FBs tend to fail during the transition between generations (Gallo, 1995), with only 30% of companies surviving the first generation (Beckhard & Dyer, 1983; Ward, 1987). In Portugal, however, only 50% of FBs fail to make it down to the second generation (AEP, 2011; Lisboa, 2018). The family influence is described as a source of conflict and disorganisation (Donnelley, 2006; Kets de Vries, 1994) alongside references to a lack of professionalism and nepotism (Dyer, 1989). From a different perspective, Westhead and Howorth (2007) refer to how FBs attain greater longevity than non-family businesses (NFB), which derives from the commitments of the family in the long term and their strong sense of loyalty to the company (Denison, Lief, & Ward, 2004).
Some research findings point to FBs achieving higher levels of financial performance than their peers (NFBs) (e.g., Anderson & Reeb, 2003; Craig & Dibrell, 2006; Gonzalez-Cruz & Cruz-Ros, 2016; Tsao, Chen, & Wang, 2016), correspondingly explained by more effective management, reduced agency costs as a result of the overlap in the relationship between the owner (principal) and the manager (agent) of the company and the general long-term orientation of family ownership in conjunction with the system of values, the bond between the family and the business, and lower debt levels due to the risk aversion of family members (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Le Breton-Miller & Miller, 2009). However, Schulze, Lubatkin, Dino, and Buchholtz (2001) take a different position as regards the implications of agency costs in FBs, warning of higher costs due to altruism and the ineffectiveness of control mechanisms that is characteristic of family-owned firms.
According to Tagiuri and Davis (1996), the results achieved by FBs show the interactions between the needs of the family and those of the company. These companies pursue goals that represent a combination of economic and financial goals, as with any other firm, and the non-economic goals that derive from family participation in the company (e.g., Chua, Chrisman, De Massis, & Wang, 2018; Holt, Pearson, Carr, & Barnett, 2017).
Observing the family group, Holt et al. (2017) identify non-economic outcomes associated with family group involvement (e.g., family cohesion--emotional and cognitive, feelings of belonging, trans-generational sustainability, family identity) and external perceptions of the family group (e.g., family image and prestige, community embeddedness, family legacy). From the company perspective, the non-economic outcomes interlink with the company's operations (e.g., employee satisfaction, organisational commitment, stewardship behaviours) and the external perceptions of the company (e.g., customer satisfaction, firm reputation and image, social responsibility). Chua et al. (2018) maintain that understanding just how these different systems (business and family) impact on performance (economic-financial and non-economic) is fundamental to ensuring the longevity of a family business.
Despite the recognised importance of non-financial goals to FBs (Chrisman, Chua, Pearson, & Barnett, 2012; Chua et al., 2018), there are only a handful of studies on this theme.
The objective of this article is thus to analyse the relationship that exists between the level of influence of the family on levels of FB performance from both the financial and the non-financial perspectives. In order to measure family influence, we applied the scale developed by Astrachan, Klein and Smyrnios (2002), which measures family influence (F) across three dimensions: power (P), experience (E) and culture (C)--the F-PEC scale.
The objective of this research is to contribute to the theoretical framework on FBs using the following approach: (1) measure "family influence" using the F-PEC scale developed by Astrachan et al. (2002) and (2) observe performance from a perspective that considers non-economic objectives and financial performance.
Furthermore, this article focuses on the family influence in companies through adopting not only the financial dimension but also non-financial objectives. Also, we take into account the long-term involvement of the family in the ownership and management of the company in order to reflect the respective levels of commitment (Rau, Astrachan, & Smyrnios, 2018), which are attributes that, according to Chrisman et al. (2012), establish a necessary condition for determining the familiness of the company.
The structure of the article is as follows. Section two presents a literature review of family influence (F-PEC) and performance as well as setting out the respective research hypotheses. Section three describes the sample, the methodology and the variables used. The results and our analysis feature in section four. Section five presents the conclusions, emphasising the study's contributions both in theoretical fields and as regards the implications for economic agents.
2 Literature Review and Research Hypotheses
2.1 The family influence
Traditionally, the definition of FBs involves one or more members of a family wielding considerable control over the company, due to their significant percentage of ownership (capital) (Allouche & Amann, 2000). For Tagiuri and Davis (1996, p. 203), maintaining FBs relies on three pillars: direction/management, family and ownership. According to these authors, "there are two or more extended family members who influence the direction of the business through the exercise of kinship ties, management roles, or ownership rights". Meanwhile, Chua, Chrisman and Sharma (1999) define a FB as one that is managed on the basis of handing down the firm from generation to generation in order to obtain a formal or implicit vision of the business as the property of a single family or a small number of families. Furthermore, Gallo and Ribeiro (1996) consider that FBs embody an important interconnecting bond between the company and the family and that part of this shared culture stems from basic assumptions regarding actions and values, where this culture is not only permanent but also voluntarily shared.
According to Chua et al. (1999), the uniqueness of FBs arises from the family itself: "what makes a family business unique is that the pattern of ownership, governance, management, and succession materially influences the firm's goals, strategies, structure, and the manner in which each is formulated, designed, and implemented" (Chua et al. 1999, p. 22).
Additionally, Shanker and Astrachan (1996) and Astrachan and Shanker (2003) differentiate family firms from the involvement of family members in business decision making. Along these same lines, Astrachan et al. (2002) develop a measurement scale (the F-PEC scale) that measures the level of family influence in any organisation considering three dimensions: power (P), experience (E) and culture (C). According to Astrachan et al. (2002), the purpose of F-PEC extends beyond characterising family-owned or non-family-owned companies in order to identify the level of involvement and influence of the family in the company.
2.1.1 F-Power Dimension
In the power dimension, family members enact their influence through involvement in the ownership, the governance and the management of FBs. Their influence through ownership is exercised by their participation in the company capital, and their influence through governance and management is evaluated by the representativeness of the family on the governance and management boards.
According to Astrachan et al. (2002), family members may have different levels of involvement due to the number of shares/quotas they own, or the seats held on the management board. Across this dimension, agency theory and stewardship theory may help in grasping the (positive or negative) influence that the family maintains over the company, especially in terms of its performance (e.g., Madison, Holt, Kellermanns, & Ranft, 2016).
We note that text on agency theory has been introduced which is not in our original version. It should be deleted and the paragraph replaced by
"The agency theory is based on the separation between company ownership (principal) and the manager (agent), implying that the shareholders (owners) hold only limited control over managers' decisions while they have a priori divergent interests and risks preferences (Jensen & Meckling, 1976) which may lead to a relationship with potential conflicts of interest between the parties. Hence, the use of monitoring and control mechanisms allows...
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