Family Influence on Performance of Family Small and Medium Enterprises (Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application) 9813348453, 9789813348455

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Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application

Ana Paula Matias Gama Catarina Afonso Alves

Family Influence on Performance of Family Small and Medium Enterprises

Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application

Series Editor Kıymet Tunca Çalıyurt, Iktisadi ve Idari Bilimler Fakultes, Trakya University Balkan Yerleskesi, Edirne, Turkey

This Scopus indexed series acts as a forum for book publications on current research arising from debates about key topics that have emerged from global economic crises during the past several years. The importance of governance and the will to deal with corruption, fraud, and bad practice, are themes featured in volumes published in the series. These topics are not only of concern to businesses and their investors, but also to governments and supranational organizations, such as the United Nations and the European Union. Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application takes on a distinctive perspective to explore crucial issues that currently have little or no coverage. Thus the series integrates both theoretical developments and practical experiences to feature themes that are topical, or are deemed to become topical within a short time. The series welcomes interdisciplinary research covering the topics of accounting, auditing, governance, and fraud.

More information about this series at http://www.springer.com/series/13615

Ana Paula Matias Gama · Catarina Afonso Alves

Family Influence on Performance of Family Small and Medium Enterprises

Ana Paula Matias Gama Department of Management and Economics University of Beira Interior Covilhã, Portugal

Catarina Afonso Alves Polytechnic of Guarda Guarda, Portugal

ISSN 2509-7873 ISSN 2509-7881 (electronic) Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application ISBN 978-981-33-4845-5 ISBN 978-981-33-4846-2 (eBook) https://doi.org/10.1007/978-981-33-4846-2 © Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Foreword

There are indeed many myths about family firms: that concentrated ownership favors unchecked control, that leads to nepotism and unsuccessful succession processes; that these second and third-generation managers fail to expand or even preserve the business they inherited; that excessive reliance on family members hampers meritocracy and limits quality governance; that messy relationships between family and corporate finances trigger obstacles for external financing whether in equity or debt. However, reality nevertheless seems to contradict these myths. Were they true, the Darwinian phenomenon of the survival of the fittest would predict that public corporations last longer, turn in better performance levels, attract more competent managers, and grow faster due to easier access to finance. Anecdotal evidence suggests that such predictions are far from universal truths. Some family firms have survived many centuries. Kongo Gumi, of Japan, is the oldest firm in the world, building temples and castles since 578 and run by the same family for over 40 generations. Chateau de Goulaine, a French wine producer, was launched in the year 1000, while Barovier, a glass manufacturer on Murano Island, near Venice, has been in business since 1295 and is now into the 20th generation of the founding family. As with longevity, size and scale are also not good predictors of the firm ownership model. By far the world’s largest employer, Walmart, with over 2.3 million employees is a listed corporation even while the Walton family still holds a controlling stake of over 50% of the company’s equity. Nor is the existence of large family-owned but listed companies exclusive to the United States—the world’s second-largest company by turnover, the German carmaker Volkswagen, employs a very impressive total of over 640,000 workers at factories located on virtually every continent. Focusing on the performance of US stock market listed firms, Anderson and Reeb’s 2003 article in the Journal of Finance reports the unexpected finding that family-owned firms

v

vi

FOREWORD

return higher levels of performance than firms with more dispersed ownership structures. Moreover, several very large family firms have preferred to remain privately owned, with the founding firm retaining 100% ownership. For example, Schwarz Gruppe owns the Lidl retail chain, employing over 410,000 workers. Emerging economies are also hosting powerful family firms, such as the Tata conglomerate from India or the constructor Odebrecht from Brazil. However, smaller family firms, worldwide, provide the backbone of production, employment, and trade with ever smaller and younger firms launching their presence in international markets that reach beyond traditional exports. Even the largest economies depend heavily on the ingenuity and competitiveness of their many small or medium-size family firms, such as those populating the German Mittelstand. However, these smaller family businesses, whether firms with long operational track records, now into their second or more generations of family management or the younger foundational firms, remain broadly ignored, attracting far less scholarly research than public corporations. This fact stems as much from the lower visibility profile of family-owned SMEs as to the lack of available data. This book provides a significant step toward filling this gap. Focusing on Portuguese SMEs, the study sheds light on smaller family-owned firms that operate in a small, open economy, characterized by a context of relatively weak capital markets and predominantly bank-based financing: a situation by no means atypical of continental Europe or many other parts of the world. Therefore, the solid research study carried out, based on a survey of 169 firms spanning from different industries and geographic regions, enabled the testing of two core theories for understanding family businesses: agency and stewardship. The impact of key variables such as the power dimension, experience, and culture on performance establishes the setting for the analysis of the determinants of performance as well as an inspiration for further research in different contexts. Given the importance of family firms, this amounts to an invaluable contribution whether to scholars aiming to understand their stubborn resilience, managers seeking out strategic and operational guidance, or to regulators, at the regional, national, and supranational levels, seeking the theoretical foundations for appropriate industrial and innovation policies. José Paulo Esperança Finance Professor at ISCTE-IUL Vice-President of FCT, the Foundation for Science and Technology Lisbon, Portugal

Contents

1

1

Introduction

2

Theoretical Background 2.1 The Evolution of the Family Business Academic Field 2.2 The Definition of Family Firm 2.3 The Relevance of Family Businesses

5 5 9 13

3

Family Influence and Performance 3.1 Family Influence: F-PEC Dimensions 3.1.1 The Influence of the Family Through the Power Dimension 3.1.2 The Influence of the Family Through the Experience Dimension 3.1.3 The Influence of the Family Through the Culture Dimension 3.2 Family Firm Performance 3.2.1 The Relationship Between Ownership and Family Management: The Perspectives of Agency Theory and Stewardship Theory 3.2.2 Different Family Business Performance Dimensions

21 21

4

Research Hypotheses 4.1 Research Hypotheses Development 4.2 Theoretical Framework

49 49 57

5

Research Methodology 5.1 Sample 5.2 Data Collection 5.3 Variables 5.3.1 Dependent Variables: Economic and Noneconomic Performance

59 59 60 61

22 24 25 26

26 30

61

vii

viii

CONTENTS

5.4 6

7

5.3.2 Independent Variables: Family Influence 5.3.3 Mediating Variables: Stewardship Variables 5.3.4 Control Variables Methods

Analyses and Discussion of Results 6.1 Characterization of the Sample 6.1.1 Location and Activity Sector 6.1.2 Firm Size 6.1.3 Ownership and Management Structure 6.1.4 Continuity and Leadership (Succession) 6.1.5 Profile of Respondents (Administrator/Manager) 6.2 Variable Measurement 6.2.1 Performance 6.2.2 Family Influence 6.2.3 Stewardship Behavior 6.3 Results of Multiple Linear Regression Models 6.3.1 Variables of the Regression Models 6.3.2 Validation of the Assumptions of Linear Regression Models 6.3.3 Requirements for Mediation Analysis 6.3.4 Results of the Effects of Family Influence on Economic Performance 6.3.5 Results of the Effects of Family Influence on Medium- and Long-Term Goals 6.3.6 Results of the Effects of Family Influence on Family Wealth 6.4 Discussion of Results Conclusions, Contributions, and Recommendations 7.1 General Conclusions of the Investigation 7.2 Research Contributions 7.3 Limitations and Directions for Future Research

62 67 68 69 71 71 72 73 75 78 81 82 82 85 88 90 90 90 92 93 97 98 99 103 103 106 107

Appendices

109

References

113

Abbreviations and Acronyms

AACSB BD CEO CFA EFA EFB EU EUR FBN FBR FBs FFI FFO FIM FIO F-PEC GDP GNP IAPMEI IFERA KMO MLRM MSA NGO NUTS PFBA RBV ROA ROE SFI SMEs TSK USD VIF

International Association for the Advancement of Colleges and Schools of Business Board of Directors Chief Executive Officer Confirmatory Factorial Analysis Exploratory Factorial Analysis European Family Businesses European Union Euro Family Business Network Family Business Review Family Business Family Firm Institute Family Firms Outcomes Family in Management Family in Ownership Family (F) influence on Power (P), Experience (E), and Culture (C) Gross Domestic Product Gross National Product Instituto de Apoio às Pequenas e Médias Empresas International Family Enterprise Research Academy Kaiser-Meyer-Olkin Multiple Linear Regression Models Measurement of the Sample Appropriateness Non-Governmental Organizations Nomenclature of Territorial Units for Statistics Portuguese Family Businesses Association Resource-Based View Operating Return Assets Return on Operating Equity Substantial Family Influence Small And Medium-Sized Companies Toronto Stock Exchange United States Dollar Variance Inflation Factor ix

List of Figures

Fig. 2.1

Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. Fig. Fig. Fig. Fig.

3.4 4.1 6.1 6.2 6.3

Representativeness of family business across Europe (Notes Data taken from overview of family business relevant issues’ Kmu Forschung Austria Report [January 2009], Statistical pilot project on family businesses from the EC [2016] and individual statistical offices from different member state. Source European Family Businesses [n.d.]) F-PEC: power subscale (Source Astrachan et al., 2002: 47) F-PEC: experience subscale (Source Astrachan et al., 2002: 50) Experience of succession curve (Source Astrachan et al., 2002: 49) F-PEC: culture subscale (Source Astrachan et al., 2002: 51) Research framework Generation involved in ownership Family generation with management functions Mediation steps (Source Baron and Kenny [1986], adapted)

19 22 24 25 26 57 77 78 92

xi

List of Tables

Table 2.1 Table 2.2 Table Table Table Table Table

2.3 2.4 3.1 3.2 3.3

Table 3.4 Table 3.5a Table 3.5b Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9

Research topics on family business (1936–1996) Distribution of the articles sampled by year of publication and source The different definitions of family firms The relevance of family businesses around the world Family business performance Factors affecting family business performance The main studies about the relation of the type of family involvement and the performance measure used around the world Family firm(s) outcomes model Financial outcomes in family business literature: Block Ia of Table 3.3 Family outcome measures according to Blocks IIa–IIc of the Table 3.3 Summary of sampling select steps Measures of economic performance (ECPERF) Measures of noneconomic performance (NECPERF) Power subscale Power construct using Substantial Family Influence (SFI) Experience subscale Culture subscale Scale of stewardship behavior (STWD) Distribution of companies, by regions NUTS level 2 Distribution of the firms by sector of activity Main indicators of family firms, by size Number of micro, small, medium-sized family businesses Distribution of SMEs family firms, by foreign turnover Proportion of share ownership held by family Presence of family members in management Management team composition Board composition

9 10 14 18 31 33

35 41 43 46 60 62 63 64 65 66 67 68 72 73 74 74 75 75 76 76 76 xiii

xiv

LIST OF TABLES

Table 6.10 Table 6.11 Table 6.12 Table 6.13 Table 6.14 Table 6.15 Table 6.16 Table 6.17 Table 6.18 Table 6.19 Table 6.20 Table 6.21 Table 6.22 Table 6.23 Table A.1 Table A.2 Table A.3

Future ownership and leadership of company Family businesses in leadership transition phase (in the next 5 years) Senior and junior generation perspective on continuity Respondents profile Number of factors, KMO and sphericity test and variance explained (Performance) EFA results for economic and noneconomic performance Number of factors, KMO and sphericity test and variance explained (Family Influence) EFA results for family influence Number of factors, KMO and sphericity test and variance explained (stewardship behavior) EFA results for stewardship behavior Pearson correlation matrix Multiple regression analysis: dependent variable—economic performance Multiple regression analysis: dependent variable: noneconomic performance—medium- and long-term goals Multiple regression analysis: dependent variable: noneconomic performance—family wealth Mean, standard deviation and correlation matrix of performance variables Mean, standard deviation and correlation matrix of F-PEC variables Mean, standard deviation and correlation matrix of Stewardship behavior variables

79 80 80 81 83 84 86 87 89 89 91 94 95 96 110 111 112

CHAPTER 1

Introduction

Family firms are the predominant form of business organizations estimated to range from 60 to 98% of all firms in different regions of the world (e.g., Miller and Le Breton-Miller, 2005). In Portugal, the Portuguese Family Businesses Association (PFBA, n.d.) estimates that over 60% of Gross Domestic Product (GDP) and 50% of employment is generated by family businesses, “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” (PFBA, n.d.). The majority of small and medium-sized companies (SMEs) are family-owned with their presence extending across diverse sectors of activity (PFBA, n.d.). Family firms have been the subject of a great deal of research in recent years. A theory of the family firm must be able to differentiate family firms from nonfamily firms as well as explain variations among family businesses (Chrisman et al., 2012) but the research does not present a monolithic picture. Many of the performance studies are carefully crafted and are inevitably used in large sample research. While private and non-economic performance is important in family businesses, they remain largely unexplored (Chrisman et al., 2010). For example, the classical theory of the firm focuses on profit or value maximization, but behavioral theorists have long suggested that family firms have a variety of noneconomic as well as economic goals (Jaskiewicz and Luchak, 2013; Poutziouris et al., 2015). Moreover, understanding the non-economic goals of family firms is critical because they could affect firm behaviors and performance, and understand how the pursuit of noneconomic goals might lead to distinctive or constrictive family firm resources (Habbershon et al., 2003). © Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_1

1

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A. P. M. GAMA AND C. A. ALVES

Building on previous work, Astrachan et al. (2002) and Klein et al. (2005) presented a measure of family influence on a firm in a multidimensional and continuous scale. That is, there are almost certainly degrees of family involvement and it is likely not helpful to categorize a firm as “family” or “not family.” Like many constructs, this one is more complex than a binary measure. This dimensional measure was named the Family (F) influence on Power (P), Experience (E), and Culture (C)—so-called F-PEC scale. Thus, this study focuses on SME firms because they constitute the vast majority of businesses in general economies. Moreover, the relationship between family involvement and firm performance (economic and noneconomic) is likely to be more pronounced and more important in influencing behaviors in small businesses than in large businesses, where nonfamily managers, greater ownership dispersion, and independent boards of directors may attenuate the relationships of interest. Hence this research examines how family influences the business performance (economic and noneconomic) of Portuguese SMEs and how such a relationship is mediated by stewardship behavior. We hypothesize that differences in performance (i.e., economic and noneconomic) are not driven only by family involvement or lack thereof, but by the prevalence of stewardship relationships within the firm, whatever the degree of family involvement. This general objective has been broken down into several specific objectives. The first objective concerns the theoretical framework and the identification of different approaches to the concept of family business. The first objective leads us to the second specific objective, that is, how to measure the family influence. Thus, we use the F-PEC scale developed by Astrachan et al. (2002) and validate by Klein et al. (2005) and Holt et al. (2010) and revisited by Rau et al. (2018) to measure family influence. The F-PEC scale has the advantage to establish some “order” in the definition of family business, by considering the family business as a “continuum” from less familiar to more familiar. The third objective aims to use a broader concept of performance; thus, we examine not only how family influences economic performance as well as and noneconomic goals (e.g., Holt et al., 2017). These objectives allow us to define several research hypotheses to test a system of relations between the influence of the family on firm performance (economic and non-economic) and how such relationships are mediate by stewardship behavior (stewardship motivation and stewardship culture), as shown in our research framework (see Fig. 4.1). Our results confirm a mediating effect of stewardship behavior, that is, family firms achieve better performance when they take advantage of and encourage stewardship attitudes among their owners and managers and, the most significant dimension of F-PEC that enhances firm performance through stewardship behavior is the culture. This research offers important contributions with supportive empirical findings based on a sample of 169 SME family firms in Portugal. This study fills the existing gap in the literature in relation to the family influence on

1

INTRODUCTION

3

family firms’ performance (economic and noneconomic) and shows that stewardship behavior (stewardship motivation and stewardship culture) mediates the relation. This behavior is consistent with the stewardship perspective of the firm that the family aims for the longevity and continuity of the business, considering the noneconomic (family-centered and firm-centered goals) besides the economic performance goals as important (Le Breton-Miller and Miller, 2009). Also, due to the heterogeneity of family firms, the use of FPEC dimensions shows that family involvement in different dimensions is a significant differentiator across these types of organizations. Family Influence on Performance of Family Small and Medium Enterprises is organized in seven chapters. Chapter 1 “Introduction” comprises the background of the study and presents research objectives. Chapter 2 “Theoretical Background” includes a review of the literature on family businesses, emphasizing the theoretical framework of the study. The first section presents the evolution of the field of study of family businesses, highlighting the contributions made by pioneering research in the area. In the second point, the definition of a family business is presented, highlighting the various theoretical approaches, analyzing those with the greatest implications in the field of the family business, particularly in the emergence of the concept of family influence. The third point contributes to some figures of the presence of family businesses as an indicator of their worldwide economic weight. Chapter 3 “Family Influence and Performance” presents the theoretical framework, divided into two sections. The first section presents the family influence measurement scale (F-PEC) describing each of its three dimensions. While the second section refers to family business performance, both the relationship of family influence and financial and nonfinancial performance. Chapter 4 “Research Hypotheses” concludes the theoretical framework with the research hypotheses of the study. Chapter 5 “Research Methodology” includes the research methodology, starting in the first section by describing the sample selection procedures and in section two explaining the data collection method (survey). Section three presents the definition and operationalization of variables and the last section describes the methods employed. The analysis and discussion of the results are reported in Chapter 6. The first section begins by characterizing the family businesses in the sample and then, in the following sections, we analyze the results obtained, that is, univariate and multivariate analysis, assessing whether or not the research hypotheses determined in Chapter 4 are supported. Finally, Chapter 7 “Conclusions, Contributions, and Recommendations” provides the research findings, highlighting the study’s contribution to the family business performance debate and also presents the research limitations and recommendations.

CHAPTER 2

Theoretical Background

2.1

The Evolution of the Family Business Academic Field

Family businesses have been the backbone of old economies and civilizations (Bird et al., 2002). In Greek civilization, economic activities were mainly controlled by members of a family. These circumstances did not undergo significant changes during the Roman Empire period and subsequently, in the Middle Ages and the age of the discoveries (Bertrand and Schoar, 2006). In pre-industrial society, the family and the work were two interconnected elements. According to Hall (1988), it was the family-owned businesses that drove the process of economic development that originated the “Industrial Era”. By performing a brief background on the family business, the author highlights the success achieved by the pioneering initiatives of the Vanderbilt family, Rockefeller, Astor, and Ford in the United States. While in Europe the Rothschild, Zegna, and Heineken families are distinguished, and in Asia arise the Formosa Group, Salim, and Li Ka-shing. For the most part, these individual initiatives (from the family) were driven by identifying emerging opportunities where the family acted as a clan (Bertrand and Schoar, 2006). The industrial revolution was marked by the process of rationalization of economic activity that led to the separation of productive life from family life. This separation was caused by the replacement of craftwork by forms of mechanized work, the growth of enterprises, and by enhancing the urban environment (Kanter, 1983). In the United States, in the first half of the twentieth century (1920–1950), families’ businesses became large companies, where ownership and management were widely separated. © Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_2

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A. P. M. GAMA AND C. A. ALVES

For the family business to fit into an area of study in the social sciences, a set of criteria was required. According to Veciana (1999), in the social and human sciences, the emergence of a new area of scientific research happens when the following contexts are verified: i. the investigation of a new field of study, ii. the need to share the information and discuss the results, and iii. the edition of a specialized journal that publishes the results and research proposals presented at congresses. Then the evolution of the field of study and research on the family business is supported in compiling the references and theoretical frameworks found in the work of several authors (e.g., Allouche and Amann, 2000; Bird et al., 2002; Chrisman et al., 2005; Sharma et al., 2007). Between the 1950s and 1960s, there was a negative connotation about family business in the business and university community, such as the lack of professionalism, nepotism, and conflicts between family members. In fact, at the beginning of the second half of the twentieth century, the topic of family firms lacks some criteria to be able to affirm as an area of study of social and human sciences, such as: i. the confirmation of a discipline with an independent domain, ii. the existence of business and professional associations, and iii. the evidence of a theoretical framework. Sharma et al. (2007) sustain that it was the earliest work from the Business Schools, such as Indiana University and Harvard in the 1950s and 1960s in the United States that brought an initial impetus to the study of the topic of the family business. At this time, we highlight some authors entitled “pioneers”, for example, Trow (1961) and Donnelley (1964), which published articles about the family business refuting the original negative trend that prevailed at the time about this type of organization. While Trow (1961) looked at the factors that influence the succession process. Donnelley (1964) wrote one of the first articles in academic literature on the family business entitled—The Family Business —published by the Harvard Business Review, which highlighted the characteristics, advantages, and disadvantages of family businesses. Further, in 1968 Danco’s contribution to the dissemination of family business was an interdisciplinary seminar on family business (see Sharma et al., 2007 for an extensive literature review). In the 70s, the big boost comes from the successful sales of Leon Danco’s book, “Beyond Survival: A Business Owner’s Guide for Success ” published by Reston Publishing in 1975. At the same time, the professional community (e.g., family business consultants) organizes training programs for companies where there is a latent demand by the business community for the need to study, train and develop

2

THEORETICAL BACKGROUND

7

private aspects of the family-owned organizations. This progressive recognition triggers more academic research to generate knowledge on the subject of organizations controlled by family members, in order to include the subject in teaching. In the following years, the term “Family Business ” became more widely used and studied by professionals (consultants, lawyers, and owners) to quickly become a central theme of two prestigious universities in the United States—Indiana University and Harvard University. Since 1980 the research on family businesses has multiplied with essentially Anglo-Saxon origin studies. In the 1980s, the predominant research methodology was case study, interview, direct observation, and use of convenience samples (Sharma et al., 2007). From a methodological point of view, Handler (1989) and Wortman (1994) indicate some criticisms of the research carried out at this time, namely in the selection of small samples and the lack of statistical analysis. Family business centers proliferated in the last two decades of the twentieth century. Evidence of growth was documented in a 1988 issue of Nation’s Business magazine, which identified twenty family business programs in the United States. In the first decade of the twenty-first century, the Family Firm Institute’s list of “Centers and Related Organizations” extends to over 110, and the International Association for the Advancement of Colleges and Schools of Business (AACSB) reports over 50 accredited schools with family business programs. The most peculiar trend of this period is the proliferation of training programs on family businesses in universities. In 1982, the University of Pennsylvania is the first university in the United States to provide a program titled “Wharton Family Business Program.” According to the magazine Nation Business, in the United States, in 1988, there were about 20 universities offering programs about family businesses in business schools or in partnership with business associations (Sharma et al., 2007). In this growing process of recognition and the need to understand and support family businesses, the Family Firm Institute (FFI) was created in 1986, consisting of members from various fields—consultants, lawyers, and academics. In 1988, the FFI launched the first scientific journal with a family business referee, the Family Business Review (FBR), which allows researchers to publish the results of their investigations. FBR was founded with a vision that family business advisors and educators would co-create and share knowledge to better understand the paradoxes faced by the owners and managers of family enterprises (Zahra and Sharma, 2004). Since the 1990s, academic, economic, social, and political interest in family businesses has grown in many countries. At the academic level, investigations were being carried out with greater scientific rigor, and the initiation of Ph.D. programs in family companies in Europe and the United States. At the economic, social, and political level, national studies on family enterprises are published, such as the Mass Mutual Study and the National Family Business Survey. In Europe, the numerical dimension of family businesses leads to the creation of two international organizations: Family Business Network (FBN)

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A. P. M. GAMA AND C. A. ALVES

and the European Family Businesses (EFB). The FBN was founded in 1989, located in Lausanne—Switzerland with the aim to develop, stimulate, and disseminate knowledge about the management and topics of interest of family businesses. The FBN is an international network that brings together over 3,600 business-owning families—16,000 individual members including 6,400 next-generation members—in 33 chapters covering 65 countries (Family Business Network, n.d.). The FBN’s mission is “FBN, together with Member Associations, connects, supports and serves families in business for generations to come.” (Family Business Network, n.d.). The EFB was created in 1997, a European Union (EU) federation of national associations representing family-owned enterprises, including small, medium-sized and larger companies. EFB’s mission is to “press for policies that recognise the fundamental contribution of family businesses in Europe’s economy and create a level playing field when compared to other types of companies” (European Family Businesses, n.d.). The EFB definition of a family business is: “A firm, of any size, is a family business, if: i. The majority of ownership are in the possession of the person(s) who established the firm, or in the possession of the person(s) who has/have acquired the ownership of the firm, or in the possession of their spouses, parents, child or children’s direct heirs; ii. The family holds the majority of decision-making rights direct or indirect; iii. At least one representative of the family or kin is formally involved in the governance of the firm; iv. Listed companies meet the definition of family enterprise if the person who established or acquired the firm (ownership) or their families or descendants possess 25% of the decision-making rights mandated by their ownership (European Family Businesses, n.d.)”. From the analysis of 431 references published in international academic journals, between 1936 and 1996, Allouche and Amann (2000) present a detailed list of the main themes that contributed to the constitution and evolution of this academic field. Of the various areas identified by the authors, four trends are highlighted (Table 2.1). In their study, Allouche and Amann (2000) also show that research on the economic role of the family business has declined (−12%) during this period while investigations of the concept and definition of the family business have increased (+10%). This trend reveals the youthfulness of the field of study that still seeks to define its object of investigation. Bird et al. (2002) call “Recent Era” to articles published since 1997 because they contain more rigorous research methodology, namely, the use of more complex statistical analyses. In 2001, the International Family Enterprise Research Academy (IFERA) was founded and encompasses an

2

THEORETICAL BACKGROUND

9

Table 2.1 Research topics on family business (1936–1996)

• • • • • • • • • • • • • • • •

Themes

Distribution

Concepts and definitions Change management Family/company relationship Financing/funding Company history Economic role Global vision Ownership structure Succession Culture and values Corporate governance Company/society interaction—Sustainability and survival Internal conflicts Woman’s role Internationalization Educational programs

11–12%

6–9%

3–5%

0.3–2%

Source Adapted Allouche and Amann (2000: 38)

international network of academics, researchers, and other family business keystakeholders, dedicated to the advancement of family business research. IFERA was created with the aim to organize international family business conferences for researchers and scholars, representing all phases of the academic ladder (International Family Enterprise Research Academy, n.d.). In summary, the presence of the academic field of the family business dates from the beginning of the decade of 70s, followed by a more remarkable development from 1980. In the last decade, the research has sought to consolidate the concept of family business and understand the factors that condition the company’s performance (e.g., Allouche et al., 2000). Table 2.2 shows the distribution of the articles sampled by year of publication and source. Thus, considering that the definition of the object of study is a fundamental condition for the evolution of any area of study, then a review of the literature on the concept of family business reflecting on its content, purpose, and form is carried out in the following section.

2.2

The Definition of Family Firm

The family business can not be defined either through specific legal forms or through its size. From the plot of values of the family versus the company some questions that deserve to be explained to clarify the notion of a family business are: family boundaries, company control, and generation transition. What is meant by family? The family can be defined as “… a group of people who share common ancestors or a basic social unit comprised of

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A. P. M. GAMA AND C. A. ALVES

Table 2.2 Distribution of the articles sampled by year of publication and source Journal

2001–2005

2006–2010

Total

Entrepreneurship Theory & Practice European Financial Management Family Business Review Journal of Banking & Finance Journal of Business Venturing Journal of Corporate Finance Journal of European Economic Association Journal of Family Business Strategy Journal of Finance and Quantitative Analysis Journal of Financial Economics Journal of Management Studies Journal of Small Business Management Small Business Economics The Journal of Finance Total

1

1 1 5 1

2 1 5 1 1 4 1 2 1 1 1 1 1 1 23

1 4 1 2 1 1 1 1 1 1 5

18

Source Mazzi (2011: 169)

parents and their children”. Some assert that biological kinship is the defining element of family, while opponents assert that families can be a blended collection of individuals related by marriage, adoption, partnership, or friendship (Encyclopedia, 2018). At what stage can the company be designated as a family business? The literature offers two perspectives that differ according to the generation that is in the possession of the firms. Thus, for Birley (1986) and Ward (1987) a company can be designated as a family firm from the first generation (the founders) or only after the passage of “testimony” that is, in the second generation. These issues presented and discussed in the investigation of the family field justify the existence of numerous definitions of family business forming a heterogeneous set of approaches to the concept showing that this question is still open. Thus, many years have gone by since the scientific community recognized defining the family firm as the first and most obvious challenge facing family business researchers (Handler, 1989). According to Allouche and Amann (2000), from the point of view of the control criterion, it does not matter whether the family shareholders hold a majority of the capital or not. What matters is that no other group of shareholders has a higher percentage of ownership than the family. For these authors, the issue of family-controlled companies that have hired a manager outside the family is not as important, what matters is that his appointment depends exclusively on the choice of family shareholders. Tagiuri and Davis (1996: 203) include in their definition, clearly, the three pillars of the family business (direction/management, family,

2

THEORETICAL BACKGROUND

11

and ownership—the three-circle model) “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.” Cumulatively with the criteria of control and involvement of the family in the management of the company, some authors introduce the criterion of the legacy, that is, the transmission to the next generation. Considering that a family business is one that behaves as such, Chua et al. (1999) define the family business as one that is directed or managed on a generation-to-generation basis to achieve a formal or implicit vision of the company, being owned by a single family or a small number of families. Gallo and Ribeiro (1996) consider a family business when there is an important link between the company and the family, represented by the culture that is permanently and voluntarily shared. However, Gallo and Ribeiro (1996) recognize that studying the reciprocal influence of the family in the company are difficult subjects to operationalize. Any attempt to define the family business concept must take into account a variety of settings, as well as factors that distinguish it from other organizations. The degree of involvement of family members in the business may range from a simple company holding shares to full participation in management or being in an intermediate position. These factors contribute to the complexity of defining the term “family business” (Neubauer and Lank, 1998). The difficulty in establishing a widely accepted definition is mostly due to the lack of legitimacy surrounding the family business domain (Sharma, 2004). Researchers in the field are driven by the economic importance of family firms, however is now widely acknowledged that family involvement can not be ignored and critical factors that are family-related should be considered (Chrisman et al., 2003). Diaz-Moriana et al. (2019) identify and classify 82 empirical studies that contain separate definitions of the family business, from 1960 to 2011, and they identified five main family business definition approaches. First, the circle models of family firms approach represent a family firm as having two or three overlapping circles despite the main characteristics and features of a family business. At first, the family and the business were two highly interdependent systems—the two-circle model (Barnes and Hershon, 1976; Danco, 1975; and Donnelley, 1964). In the two-circle model, the family system is viewed as being emotion-based in the sense of ensuring the equilibrium of the family intact, in contrast, the business system is orientated toward results and performance. Later, the tree-circle model represents a family firm as having three simultaneously interactive systems: the business, the family, and the owners (Gersick et al., 1999; and Tagiuri and Davis, 1996). The second approach results of research undertaken by Chua et al. (1999) who claim that the family business is defined by its specific behavior and the family involvement is the main source of difference between family businesses and other businesses. Chua et al. (1999) believe that the uniqueness of the family business is found in the family itself, which in turn shapes and influences the business differently from family members or executives of nonfamily business.

12

A. P. M. GAMA AND C. A. ALVES

For Chua et al. (1999), “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.” That is, the uniqueness of the family business is in the family’s involvement and the way it exerts its influence. A third family business definition approach includes the family involvement in ownership, governance, management, and succession to create a range of three definitions (broad, middle, and narrow definitions) where the level of inclusiveness depends on the perceived degree of family involvement in the business (Astrachan and Shanker, 2003). Based on the heterogeneity of definitions and the lack of comparability between studies on family businesses, Astrachan et al. (2003) propose a radial (circular) approach that they call “family universe bull’s eye” where family businesses are classified according to the degree of presence and involvement of family members in company decisions. The broad definition uses as a criterion to include firms whose families maintain effective control in the strategic orientation and want the company to remain in the family. This definition includes firms in which a family member is not present every day in the company but influences the decision-making, perhaps belonging to the board of directors or hold a significant part of the capital. The middle definition includes all broad perspective criteria but requires a family member to be directly involved in the company’s daily operations. Finally, the “narrow definition”, the most demanding, characterized as a family business firm in which it is established involvement and direct control of the family, with more than one family member with significant responsibility of management and the existence of multiple active generations in business (Astrachan and Shanker, 2003). Diaz-Moriana et al. (2019) found that the four approaches to clarify the family business definition is the familiness construct (Habbershon and Williams, 1999), supported by the resource-based view (RBV) theory. Using systems theory, the systemic influences generated by the interaction of the subsystems (family, business entity, and individual family members) generate a distinctive pool of resources and capabilities that define characteristics that Habbershon et al. (2003) refer to as the “family factor.” Finally, the five approaches relate to the family’s influence (Astrachan et al., 2002) using the F-PEC scale, to assess on a continuum the degree of family influence. The relevant issue is not whether a business is family or nonfamily, but the extent and manner of family involvement in and influence on the enterprise (Astrachan et al., 2002). The F-PEC scale comprises three important dimensions of family influence: P—Power, E—Experience, and C—Culture. Power refers to dominance exercised through the ownership of the business held by the family and through leading and/or controlling the business through management and/or governance participation by the family. Experience refers to the accumulated experience that the family brings into the business through generation in charge of management and ownership. Culture refers to values and commitment. The family commitment is seen as the

2

THEORETICAL BACKGROUND

13

overlap of business and family values (Astrachan et al., 2002; Klein et al., 2005). See also Sect. 3.1. Despite the absence of an agreed definition, the family business researchers shared an understanding and a common vision of what forms the family business field (Diaz-Moriana et al., 2019). Table 2.3 presents the different definitions of family firms founded in the literature.

2.3

The Relevance of Family Businesses

While assuming a different weight from economy to economy, the business sector of most countries is marked by the presence of family businesses. One measure of their importance is the proportion of companies that are family-owned businesses, the second is their economic strength. Therefore, family-owned businesses represent a form of transversal business organization in today’s market economy. In Portugal, the Portuguese Family Businesses Association (PFBA) estimates that about 70% of Portuguese companies and probably more than 60% of GDP and 50% of employment are generated by companies, “wholly or partially owned by in the hands of one or more families, and the family has control over the management of the company” (PFBA, n.d.). Their importance lies not only in their role as economic agents (Table 2.4 and Fig. 2.1), but also in the values they convey such as long-term stability, commitment, and responsibility to perpetuate the values on which they are based. Despite being one of the essential pillars for the stability of the business sector, these companies are also a reality of great complexity. For Neubauer and Lank (1998) (quoted in Bird et al., 2002)… “family enterprises were among the most effective locomotives of economies in which they were located: they created jobs; they were among the few enterprises that were successful enough to pay taxes; and they displayed the agility and flexibility necessary to successfully manage in the troubled economic waters of their economies.” According to EFB (n.d.), in Europe, family businesses are a unique category that plays a vital role in the economy. For example: i. family businesses account for an important part of European private employment, that is, on average 40–50% of all jobs; ii. family businesses reinvest profits responsibly preferring equity as opposed to debt financing; iii. act as responsible owners because of their long-term strategy toward stakeholder interests, including employees, customers, shareholders, and local communities; iv. transmission of family values with a high sense of social responsibility; v. special concern for the local or regional base; vi. natural incubators of entrepreneurial culture as they foster the next generation of European entrepreneurs and

Type B: family members hold management positions or are on the board of directors and are among the main shareholders; Type C: family members do not hold top-ranking management positions but are among the main shareholders; Type D: family members hold top management positions or are on the board of directors but are not among the main shareholders The family owns (any) share of risk capital and/or some of its members are on the board of directors (1) The founder and/or family members hold more than 25% of the voting shares; (2) if the founding family owns less than 25% of the voting rights the family members have to be represented on either the executive or the supervisory board Family firm if the main shareholder is a person or a family with a minimum of 20% of firm equity and there is a family relationship between this shareholder and the directors based on the coincidence of their surnames The largest shareholder at the 10% cut-off level is a family and the family controls more than 51% of direct voting rights, or controls more than double of the direct voting rights of the second-largest shareholder A firm that is owned and managed by family members and seeks to ensure transgenerational involvement through family succession A firm that has more than 5% family shareholdings and has at least one family member on the board of directors

Allouche et al. (2008)

Chu (2009)

Chrisman et al. (2004)

Barontini and Caprio (2006)

Arosa et al. (2010)

Anderson and Reeb (2003) Andres (2008)

Family business definition

Author/s

Table 2.3 The different definitions of family firms

341

1141

675

Taiwan Stock Exchange-Taiwan

Small Business Development Center

WordScope database

SABI database

Frankfurt Stock Exchange-Hoppenstedt yearbooks

275

586

S&P 500

Wordscope database—Kurashina’s identification of family business

1271

403

Data sources

Sample size

Taiwan

USA

11 Western-EU

Spain

Germany

USA

Japan

Countries

2002–2006

1998

1999–2001

2006

1998–2004

1992–1999

1998 and 2003

Period

14 A. P. M. GAMA AND C. A. ALVES

McConaughy et al. (2001)

Maury (2006)

Lindow et al. (2010) Martinez et al. (2007)

Lee (2006)

Cucculelli and Micucci (2008) King and Santor (2008)

Family business if founding family members or descendants hold shares or if they are present on the board of directors Family influence on the business at different degrees (F-PEC measurement) (1) A firm whose ownership is clearly controlled by a family, where family members are on the board of directors or top management; (2) A firm whose ownership is clearly controlled by a group of two to four families, where family members are on the board; (3) A firm included in a family business group; (4) A firm included in a business group associated with an entrepreneur that has designated his family successor If the largest controlling shareholder has at least 10% of the voting rights is a family, an individual, or an unlisted firm A public corporation whose CEOs are either the founder or a member of the founder’s family 219

1672

175

171

403

A firm with at least 25% of the voting rights held by the 309 founder, the family, or a consolidated group of subjects not necessarily belonging to the same family A firm characterized by a transgenerational involvement 3548 in the family succession A firm where a family owns more than 20% of the 613 voting rights

Cronqvist and Nilsson (2003)

Sample size

Family business definition

Author/s

The Business Week CEO 1000–Compustat

Faccio & Lang database (2002)—WordScope

German Family Business Association Bolsa de Comercio de Santiago database

Survey dataset- Cerved database Statistics Canada InterCorporate Ownership database (SEDAR)— Financial Post Top 500 S&P 500

Stockholm Stock Exchange

Data sources

USA

13 Western-EU countries

Chile

Germany

(continued)

1986–1988

1996–1999

1995–2004

2009

1999–2002

1998–2005

Canada

USA

1996–2000

1991–1997

Period

Italy

Sweden

Countries

2 THEORETICAL BACKGROUND

15

Sraer and Thesmar (2007)

Rutherford et al. (2008) Schulze et al. (2003) Sciascia and Mazzola (2008)

Family involvement in ownership (FIO): percentage of the firm’s equity held by the owning family—Family involvement in management (FIM): percentage of managers who are also family members When the founder or a member of the founder’s family is a blockholder of the company and this block represents more than 20% of the voting rights

Family business when there is more than one family member involved in the business A business where at least two of the business’ officers or 831 directors have the same last name Family-owned and family-managed 883

Miller et al. (2008)

Data sources

Countries

Period

420

620

896 100 676

SDC platinum-Euronext

DAFSA—websites—social security records-

American Family Business survey A. Andersen Center for Family Business survey Project by BocconiCattolica, Chamber of Commerce

Fortune 1000 Compustat database Canadian database

France

1994–2000

2000

1995

USA Italy

2002

1996–2000 2000 2007 USA

Western Canada

USA USA

The authors replicate studies by Anderson and Reeb (2003) and Villalonga and Amit (2006)

Family firm: a firm in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time; Lone-founder firm: a firm in which an individual is one of the company’s founders with no other family members involved, and is also an insider (officer or director) or a large owner (5% or more of the firm’s equity)

Miller et al. (2007)

Sample size

Family business definition

Author/s

Table 2.3 (continued)

16 A. P. M. GAMA AND C. A. ALVES

Family business definition

Sample size

Source Mazzi (2011: 170)

Villalonga and Amit (1) One or more family members are officers, directors, 508 (2006) or blockholders; (2) There is at least one family officer and one family director; (3) The family is the largest voteholder; (4) The family is the largest shareholder; (5) One or more family members from the second or later generation are officers, directors, or blockholders; (6) The family is the largest voteholder and has at least one family officer and one family director; (7) The family is the largest shareholder and has at least 20% of the votes; (8) One or more family members are directors or blockholders, but there are no family officers; (9) The family is the largest voteholder, has at least 20% of the votes, one family officer and one family director, and is in second or later generation Westhead and Family firm if more than 50% of ordinary voting shares 240 Howorth (2006) is owned by members of the largest single-family group related by blood or marriage and the company is perceived by the CEO managing director/chairman to be a family business

Author/s USA

United Kingdom

Dun and Bradstreet list

Countries

Fortune 500

Data sources

1995

1994–2000

Period

2 THEORETICAL BACKGROUND

17

18

A. P. M. GAMA AND C. A. ALVES

Table 2.4 The relevance of family businesses around the world Total family businesses European Union (EU)1 Between 50 and 65%(a) Europe Finland: 91%(c) or 80%(d) (g) Spain: 85%(c) (g) or 75%(d) France: 75%(g) or 83%(d) Germany: 75%(g) or 79%(d) Sweden: 55%(g) or 79%(c) Portugal: 70 or 75%(b) (g) Italy: 73%(c) or 75%(g) United Kingdom: 65%(g) Netherlands: 61%(g) United States 89% (f) or 95%(a) Latin America (b) Argentina: 65% Brazil: 90% Chile: 75% Middle East Over 90%(b) Asia n/d

Gross domestic product

Employment

Between 35 and 65% of GNP(a)

n/d

Between 40 and 45% of GNP(d) 65% of GNP(d) >60% of GNP(d) 55% of GNP(d) n/d 60% of GNP(e) n/d 31% of GNP(d) 54% of GNP(d)

59%(c) 58%(c) 51%(c) 56%(c) 39%(c) 50%(c) 48%(c) 69%(c) 69%(c)

between 40 and 45% of GNP(a)

About 60%(b)

n/d 65% between 50 and 70%

n/d n/d n/d

n/d

n/d

between 65 and 82%(a)

n/d

Source (a) PricewaterhouseCoopers (2007); (b) Neubauer and Lank (1998); (c)Family Business Network (n.d.) (d) Cappuyns et al. (2003); (e) PFBA (n.d.); (f) Astrachan and Shanker (2003); (g) European Family Businesses (n.d.); 1 The Price Waterhouse Coopers study considers 25 EU member states (before enlargement in 2007)

vii. stewards of social and economic capital from one generation to the next. Thus, considering the various definitions of a family business, it appears that the common characteristic of these businesses is that the family dimension and business dimension are interlaced. The heterogeneity of the family business concept is not a problem in itself as long as there is methodological rigor in the theoretical conceptualization of the family business definition that supports the identification of observable and measurable characteristics of this business reality (Bird et al., 2002; Chua et al., 1999). In summary, in the last 30 years, there has been a consolidation of research on the family business. The importance of empirical research, the promotion of

2

THEORETICAL BACKGROUND

19

Fig. 2.1 Representativeness of family business across Europe (Notes Data taken from overview of family business relevant issues’ Kmu Forschung Austria Report [January 2009], Statistical pilot project on family businesses from the EC [2016] and individual statistical offices from different member state. Source European Family Businesses [n.d.])

the theme through the creation of associations, and the publication of scientific journals have boosted the recognition of family business as an area of knowledge. Its dominance in the business world, the contribution either in wealth creation and employment generation wants to promote economic and technological progress, urges the need to investigate them.

CHAPTER 3

Family Influence and Performance

3.1

Family Influence: F-PEC Dimensions

According to Astrachan et al. (2002) every family business corresponds to different family engagement levels which gives it distinct characteristics of the other companies. The main objective of Astrachan et al. (2002), through the F-PEC scale (i.e., P—Power, E—Experience, and C—Culture) is not to characterize the companies in family or nonfamily firms but to identify the degree of involvement and influence of the family in the company. The F-PEC has the characteristic to measure the family involvement on a continuous scale from 0 to 100%. Thus, the F-PEC makes it possible to differentiate levels of actual and potential family involvement and can provide a framework that integrates different theoretical and methodological approaches to the study of the family business (Klein et al., 2005). Since family businesses are often highly complex organizations, measuring the extent to which a family is able to influence the business can the key to understanding how they differentiate from nonfamily firms (Astrachan et al., 2002; Klein et al., 2005). By measuring family influence, we can understand the family businesses more precisely. In fact, the measurement of family influence on family businesses has attracted considerable researches, and researches seem to shift the view of family business toward recognition of the importance of family influence due to the heterogeneity among family businesses (Chrisman et al., 2012; Rau et al., 2019). The F-PEC scale has three dimensions: P—power; E—experience, and C— culture. As observed by Klein et al. (2005) these three areas combined can lead to functional resources, including knowledge and skills that are unique to © Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_3

21

22

A. P. M. GAMA AND C. A. ALVES

family firms. In proposing these three subscales, the F-PEC offers an opportunity for any business to be evaluated in terms of potential family influence without any need to be concerned with a threshold of family influence that must be crossed for a business to be considered a family firm (Rau et al., 2018). Power refers to dominance exercised through ownership and leading and/or controlling the business through management and/or governance participation by the family. Experience refers to the sum of the experience that the family brings into the business and is operationalized by the generations in the firm´s management and ownership. According to Klein et al. (2005), the more generations involved in the firm, the more opportunities for relevant family memory were developed. Culture refers to values and commitments. The underlying assumption is that commitment is rooted in and shaped by the value of family (Klein et al., 2005). A discussion of the three subscales of the F-PEC follows. 3.1.1

The Influence of the Family Through the Power Dimension

In the power dimension, the family exerts its influence through involvement in the ownership, governance (supervision), and management of the family business. While the influence of the family through ownership concerns the percentage of shares owned by the family, the influence through governance and management is assessed through the proportion of family representativeness in the management and governance board. According to Astrachan et al. (2002) family members have different degrees of involvement arising from either the number of shares they hold or the positions they occupy on the management board (see Fig. 3.1). According to Fig. 3.1, to measure the degree of power and control that a family exercises in a company, Astrachan et al. (2002) consider the following items: • In ownership, direct influence is represented by the percentage of shares held directly by the family. Instead, indirect influence occurs when the family business is owning by a family-owned holding company. In this situation, the influence of the family through ownership must take into account both the percentage of shares the holding company owns by

Fig. 3.1 F-PEC: power subscale (Source Astrachan et al., 2002: 47)

F-PEC Power Subscale Ownership (direct and indirect)

Governance (Supervision) [family and non-family (external) board members]

Management [family and nonfamily (external) board members]

3

FAMILY INFLUENCE AND PERFORMANCE

23

the family as well as the percentage of shares that the holding company owns in the company. For example, a family owning 50% of the holding company, which in turn owns 50% of the shares of a company, has 25% influence through ownership. • Family influence through governance and management can be measured as the proportion of family representatives who are members of the governance or management boards. Again, the F-PEC power scale measures the indirect influence of the family on these boards (governance and management) by weighting the number of external members named by family members. As already mentioned, family businesses have unique characteristics that set them apart from other organizations. Such characteristics may, in turn, positively or negatively influence the behavior of companies and represent a source of competitive advantages or disadvantages. This situation originates from the intersection between management and ownership and their multiple manifestations in the family. Carney (2005) considers that, from this intersection (management and ownership), three characteristics distinguish family businesses: temperance (parsimonie), personalism (personnalisme) and particularism (particularisme). According to Carney (2005), temperance refers to the preservation of resources and the prudent application of outcomes related to family commitment; personalism describes the personalization of power within the family that can project its own vision for the company; particularism means which specific decision criteria will influence family business decisionmaking. For example, altruism or an intergenerational perspective combined with “patient capital” can affect strategic decision-making (Carney, 2005). Habbershon and Williams (1999) argue that family businesses will only benefit from the “patient capital” advantage if they have a unified shareholder group. Regarding Power, agency theory and stewardship theory can help us understand the influence (positive or negative) that the family has on the company, particularly in performance (see Sect. 3.2.1). According to agency theory, in the family business the same actor plays both the shareholder role and the manager role. Thus, family businesses reduce agency costs as a result of the overlapping relationship between owner/principal and manager/agent (McConaughy et al., 1998). Consequently, agency conflicts are almost absent as owners, as well as managers, maximize the value of the company, an objective that coincides with their personal interests. For Schulze et al. (2001), this coincidence of “roles” leads to a natural alignment of managers ‘and owners’ interests with respect to growth opportunities and risk aversion. However, in family business, because ownership is more concentrated, the heterogeneity of owners and distinct interests among shareholders can also lead to agency conflicts, which may lead to inefficiency of the business (Villalonga and Amit, 2006).

24

A. P. M. GAMA AND C. A. ALVES

3.1.2

The Influence of the Family Through the Experience Dimension

Beyond formal control mechanisms (ownership, governance, and management), family influence is exerted through experience and knowledge that is incorporated across generations (Klein et al., 2005), and the crucial variables of the experience dimension are the generation involved in the company, the succession and how many family members contribute in the company (see Fig. 3.2). According to Astrachan et al. (2002), the succession process yields gains for the family business experience. Despite the discussion of when a company can be defined as a family business, the authors of F-PEC argue that the definition should be analyzed continuously since companies incorporating different generations have different levels of experience. However, it is agreed that there is a problem of long-term survival (Ward, 1997). Some of the most referenced statistical data come from a study conducted in the United States in the 1980s over a period of sixty years. The results showed that only 15% of the sampled firms retained the family business configuration and two-thirds of surviving firms stagnated for decades (Ward, 1987). In the 1990s, similar results were found in Europe in a study by the Horwath Group—London (cited in Ward, 1997). In this context, it is claimed that the family business has a higher mortality rate from the third generation (Ward, 1997). In terms of the overall family business system, one of the most intriguing research questions is: “Why do so many family firms not survive beyond the third generation?” (Rau et al., 2018). In family-owned businesses, the transition between generations causes changes in the ownership structure of the business and the emergence of new values that can have a negative impact on both family members’ relationships and company performance (Ward, 1987). Such a change can challenge existing business culture and have negative effects on long-term performance. Of course, family businesses face the same challenges as any other organization: business lifecycle maturity, increased competition, limited access to finance, and resistance to change (Ward, 1997), but these effects are more sensitive in family businesses, as they show more resistance to change in ownership and management (Astrachan, 1988).

Fig. 3.2 F-PEC: experience subscale (Source Astrachan et al., 2002: 50)

3

FAMILY INFLUENCE AND PERFORMANCE

25

Fig. 3.3 Experience of succession curve (Source Astrachan et al., 2002: 49)

Under the F-PEC scale, experience concerns the succession and number of generations involved in the company (Klein et al., 2005). The authors consider that, in each succession, there is a considerable and important addition of experience for the family and the company. Figure 3.3 shows that the experience of succession curve shows greater growth (gain) in the transition from the first to the second generation, with a proportionally smaller contribution to the transition of the following generations. During the first generation of ownership, many new rituals are installed. Thus, second and subsequent generations of ownership contribute proportionally less value to this process (Astrakhan et al., 2002). Transferred experience, as tacit knowledge, helps augment the family’s influence on the business. Under the F-PEC scale, experience concerns the succession and number of generations involved in the company (Klein et al., 2005). The authors consider that, in each succession, there is a significant addition of experience for the family and the company and the family business experience of succession is regarded as involving as an exponential continuum. 3.1.3

The Influence of the Family Through the Culture Dimension

Several previous works argue that the really distinctive element of a family business comes from the predominance of its own culture (Gallo, 1995). In the cultural dimension, the F-PEC scale aims to assess how much the family and company values overlap, as well as the family’s degree of commitment to the company. According to Gersick et al. (1997), a company’s culture can extend over a long period of time with little change, as long as there are reliable ways to transmit it, such as the family business, whose family represents one of the most reliable social structures for the transmission of values and cultural practices between generations. Figure 3.4 represents the elements of the cultural dimension.

26

A. P. M. GAMA AND C. A. ALVES

Fig. 3.4 F-PEC: culture subscale (Source Astrachan et al., 2002: 51)

An effective strategic management of the family business is achieved by institutionalizing the company (Melin and Nordqvist, 2007), that is, providing the organization with a set of values, so that its members, when using them as criteria in their decisions and actions, seek to achieve goals for the whole (Gallo and Ribeiro, 1996). Defining the organization’s goals must go beyond the individual interest that each member can get. The need to institutionalize the company reinforces the idea, defended by Ward (1988) of the existence of a commitment by the family in its future. In other words, family influence is higher when the family and business cultures are in accord from the outset. Thus, the overlap stems from the cultural dimension, resulting in higher, or at least a different type of power. Carlock and Ward (2001) identify that the family’s commitment to the business involves three factors: a belief and support for the company’s goals and vision, willingness to contribute to the organization, and the desire to belong to the organization. Also, Ward (1988) indicates the commitment and harmonization of the relationship between members of the family business is essential to the success and continuity of the company as a family business. In light of this view, families that are highly committed to the business are highly likely to have a substantial impact on the business. The F-PEC culture subscale includes several items that comprise the Family Business Commitment Questionnaire developed by Carlock and Ward (2001) (see Chapter 5: Table 5.7).

3.2 3.2.1

Family Firm Performance

The Relationship Between Ownership and Family Management: The Perspectives of Agency Theory and Stewardship Theory

In family businesses, as in any other business, corporate governance seeks to understand the roles and issues associated with each actor. Related to the ownership structure, the shareholders are the holders of the company (listed or private limited). Managers play a crucial role in corporate governance, as they are responsible for managing and conducting the business of the company in order to maximize the value of the company. In listed companies, management is delegated to the Chief Executive Officer (CEO) by authority conferred

3

FAMILY INFLUENCE AND PERFORMANCE

27

by the board of directors. In the case of private companies, the applicable management model is represented by a single body called management. The relationship between owners and managers is influenced by behavioral assumptions. The complex and competitive environments where organizations operate exert influence on the manager behavior, which can be explained by two perspectives: i. one based on the economic approach and, ii. the other on the sociological and psychological approach. The economic approach describes man, via agency theory, as provided with economic rationality, with opportunistic behavior motivated by his own interests (Jensen and Meckling, 1976; Davis et al., 1997). For sociological and psychological approach, the man model presents a collective behavior, with an involvement-oriented management philosophy as a reliable individual—stewardship theory (Davis et al., 1997). 3.2.1.1 The Agency Theory The agency relationship was defined by Jensen and Meckling (1976) as a contract between the principal (shareholders) and the agent (managers), whereby one of the parties (agent) acts on behalf of another (the principal). Agency theory is based on the separation between ownership (principal) and the management of the company (agent) which implies that shareholders have limited control over the actions and decisions taken by managers while the latter has a priori divergent interests (Charreaux, 1998: Jensen and Meckling, 1976). The divergence of interests and risk preferences of each party generates a relationship with potential conflicts of interest between the parties. In response, shareholders protect their investments by setting up various monitoring and control mechanisms that result in agency costs. According to agency theory, managers have more detailed and timely information about the organization, giving them the power to influence decision-making. As maximizing their utility function, managers tend to behave opportunistically, a situation that worsens as the concentration of ownership decreases (Esperança et al., 2011). The costs resulting from the monitoring instruments represent the expenses that the principal incurs to avoid the possibility of the agent acting for his own benefit, neglecting the interests of the owner. Thus, the reduction of agency costs can be achieved through an integrated approach that includes a clear definition of the objectives to be achieved by the manager, an informed follow-up on their pursuit, and the creation of incentives that bring the interests of the agent and the employee together—e.g. implementation of an adequate system of compensation (Jensen and Murphy, 1990: 226).

28

A. P. M. GAMA AND C. A. ALVES

However, Jensen and Meckling (1976) argue that the cost of minimizing this agency problem is minor when companies are privately owned (i.e., ownership is concentrated in the hands of one or a few shareholders) and are managed by the owner who has part of his wealth invested in the company. These authors explain that the decrease in agency costs is essentially due to three aspects inherent to family businesses. First, the high concentration of ownership in a narrow range of individuals provides an incentive to act vigilantly, carefully examining the choices and decisions of risk-related agents to ensure that shareholders will not be expropriated through fringe benefits and poor resource allocation (Denis et al., 1999). Second, the concentration of ownership in the company’s owner-managers, the more aligned are their financial incentives with other shareholders. Finally, the opportunistic and self-serving threat from agents is less because owner-managers are more likely to be present in the business and thus delegate less as opposed to absent owners. Thus, family businesses have little need to protect against the threat of agency costs, since the effects of the concentration of ownership and the owner’s managers can help to mitigate agency problems stemming from the separation of ownership and management (Schulze et al., 2001). From this perspective, family businesses differ from other businesses in that owners and managers are often the same people or family members who generally have converging goals and interests. Hence for Daily and Dollinger (1992) the low agency problems inherent in family businesses may explain the source of their competitive advantage and superior financial results compared to nonfamily businesses. However, several researchers contest that family businesses face low agency costs. For example, Schulze et al. (2001) and Bughin and Colot (2008) state that agency problems occur due to the inefficiency of the control mechanisms that characterize family businesses. Schulze et al. (2001) argument that family businesses can effectively dispense internal control mechanisms due to special relationships between agents and principals, and in doing so, the company incurs the aggravation of the agency problem concerning altruism. For Bughin and Colot (2008), the agency theory has some limitations in its application to family businesses. Some studies show that family members are sometimes motivated by their own interests and not by family interests (Morck and Yeung, 2003), which generates nepotism and opportunism behavior. Thus, family members prefer to maximize their personal utility to the detriment of minority shareholders (i.e., expropriation of minority shareholders) which in turn affects negatively their performance. The empirical evidence that the concentration of family ownership structure increases firm value, initially but decreases from a certain level of concentration (approximately 30%) is provided by Anderson and Reeb (2003). Thus, while altruism can be extremely positive in family firms, because it strengthens ties between family members, its effects can be also detrimental to company performance (Schulze et al., 2001). From this perspective, family business is

3

FAMILY INFLUENCE AND PERFORMANCE

29

confronted with a problem of altruism, which can be defined as a utility function in which the well-being of the individual is positively correlated with that of others, leading to adverse consequences for the business (Schulze et al., 2003). Thus, the cost generated by altruism can be considered as a variant of the agency cost in the family business acting as a performance inhibitor. 3.2.1.2 The Stewardship Theory According to the stewardship theory, the individual (agent) is far from acting opportunistically showing up as a being that has higher order needs, selfesteem, self-fulfillment and growth, and a commitment to contribute to the organization’s benefit (Donaldson and Davis, 1991). Thus, according the stewardship theory the agent (manager) adopts a behavior more oriented to the interests of the organization than to the personal interests, following a pro-organizational orientation, based on mutual trust. Thus, in a different logic from agency theory, stewardship theory highlights the possibility of goal congruence between owners and managers, where managers have interests that extend beyond merely individualistic and economic goals (Davis et al., 1997). Over the past decade, researchers have paid greater attention to the stewardship theory perspective and its application in family businesses (e.g., Arrégle et al., 2007; Corbetta and Salvato, 2004; Gomez-Mejia et al., 2007; Miller and Le Breton-Miller, 2006b) because conceptually shareholders and family managers represent the dominant group in family businesses which facilitates the decision-making process. Arrégle et al. (2007) state that family business owners and managers are emotionally committed to the long-term survival and reputation of the business because their fortunes, careers, and personal honor, and that of their children and ancestors are tied to the family business. Hence, as in a perspective for organizational behavior, Corbetta and Salvato (2004) state that stewardship theory may be potentially appropriate to address family business dynamics. In family businesses, the stewardship theory suggests that the coincidence of family and business values and goals, at least in the early generations, motivates individuals to pursue collaborative and altruistic behaviors to achieve business goals (Davis et al., 1997). Thus, in family businesses, agents tend to strive for the same goals as the (principal) owners or, when the agent/principal roles are in the same person, thus the business goals are above the individual ones. Hence, stewardship behavior (also known as stewardship culture—e.g., Zahra et al. (2008) manifests itself in various forms in family businesses. Miller et al. (2008) highlight the importance of longevity, workforce skill, and the existing connections between the company and external stakeholders. Also, Zahra et al. (2008) consider the long-term orientation, alignment of values between the family and the company, and the family identification with the business. Eddleston and Kellermanns (2007) include reciprocal altruism, participatory decision-making, and shared control in corporate governance. Thus, all these factors are in accordance with the description of Davis et al. (1997)

30

A. P. M. GAMA AND C. A. ALVES

in which the stewardship theory emphasizes decision-making, governmentoriented participation, long-term orientation, skill and training of employees, and strong identity and commitment to the organization. As stewards representing the owning-family, family firm leaders are seen as likely to pursue both, economics and noneconomic goals for the benefit of family members and the firm (e.g., Mazzi 2011; Miller and Le Breton-Miller, 2006a). 3.2.2

Different Family Business Performance Dimensions

In the field of performance, the key issue that researchers have sought to address is whether family businesses (with effective family control) outperform nonfamily companies (e.g., Daily and Dollinger, 1992). In this area of research, economic and financial performance is measured by various criteria that vary from study to study and may have led to conflicting results. Family business performance is generally characterized either by long-term results rather than immediate results and debt aversion (Allouche and Amann, 1997) as well as dividend reinvestment (Gallo, 1995). The superiority of the performance of family-owned companies compared to nonfamily-owned companies can be seen either on stock market performance [Tobin’s Q—(Anderson and Reeb, 2003; Villalonga and Amit, 2006)] and economic and financial performance [operating return assets (ROA) and return on operating equity (ROE)—Allouche and Amann, 1997; Lee, 2006]. These results are often interpreted because of more effective management stemming from the family nature of companies. The reasons for this superiority are multiple and, according to Allouche et al. (2007) are essentially articulate in four axes that intersect, namely: i. reducing managers’ monitoring (control) costs and increase incentive costs; ii. long-term intergenerational orientation; iii. the homogeneous value system and; iv. the two mutually nourishing social systems—family and business. As regards the axis concerning the reduction of managerial monitoring, consequently monitoring costs, results in the fact that family business managed by the owner leads to the disappearance of agency costs (Jensen and Meckling, 1976). The value system can also be understood as the personal relationships within the management team as well as between these and the family shareholders. In this sense, this feature helps in reducing agency costs not only in the narrow sense of economic rationality but in strengthening confidence (Allouche and Amann, 2000) and altruism (Berghe and Carchon, 2003; Labaki, 2007) within family businesses members.

3

FAMILY INFLUENCE AND PERFORMANCE

31

Finally, the organizational efficiency of family businesses can be explained due to the overlap of the family and business goals. According to Sharma (2004) this overlap of family and business values results in two dimensions: the family and the business. The overlap of these two dimensions results in a matrix 2 × 2. If family business performance refers to the high-performance level in terms of family and business at any stage of its life cycle, the family business will be successful in one or both dimensions. Thus, a positive performance in the family dimension points to companies with a high emotional capital, and a high company performance suggesting a high financial capital (see Table 3.1). According to Table 3.1, firms in quadrant I enjoy sustainable business and healthy harmony among family members. For Sharma (2004) this combination, which results from high accumulated emotional and financial capital, can help the business and family overcome turbulent economic and financial periods. In quadrant II are the firms that, despite having sustainable growth and good corporate profitability, their family relationships are marked by differences and conflicts. Sharma (2004) believes that the continuity of companies in this quadrant over the long term depends on the development of family relations mediation mechanisms to improve relations between members and, thus, to move to quadrant I. Quadrant III represents companies with negative business performance in contrast to the strong union between family members. These companies, endowed with high emotional capital, can survive for a while but the company’s lack of resources will deteriorate family relationships in the future. Thus, the medium-term survival depends on the recovery of the company’s economic sustainability. Quadrant IV represents companies that fail in both dimensions, the company and the family. While failure in the business dimension can serve as a learning and allow family members to pursue a new venture, failure in the family dimension can cause damage to the family structure that may take longer to solve. The model presented by Table 3.1 Family business performance Business dimension

Positive

Negative

Source Sharma (2004: 7)

Family dimension Positive

Negative

I Warm Hearts Deep Pockets High emotional and financial capital III Warm Hearts Empty Pockets High emotional capital but Low financial capital

II Pained Hearts Deep Pockets High financial capital but Low emotional capital IV Pained Hearts Empty Pockets Low financial and emotional capital

32

A. P. M. GAMA AND C. A. ALVES

Sharma (2004) shows how family business performance is sensitive to family group involvement in the company and vice versa. Thus, the organizational efficiency induced by the overlap of family and business values and goals is also referred to as one of the factors that lead to superior performance of family businesses. This perspective is based on the resources and capabilities approach that originated the term “Familiness” (Habbershon and Williams, 1999). The RBV approach aims to explore how the network of the interactions between family members and the family business can generate their own strategic resources that, in turn, are a source of competitive advantage of family firms (Arrégle et al., 2004; Chua et al., 2003; Habbershon and Williams, 1999; Habbershon et al., 2003). Thus, family business control generates irreplaceable and inimitable resources, skills, and capabilities that can not be imitated by nonfamily businesses (Arrégle et al., 2004; Habbershon and Williams, 1999). Carlock and Ward (2001) report that the commitment of family members to the company’s value system affects the performance of the family business from a long-term perspective. In this sense, Habbershon and Williams (1999) consider that commitment can represent a competitive advantage, while (Gallo and Cappuyns, 2004) highlight the unity between family members and commitment as one of the key success factors of family businesses. From the studies analyzed, it is possible to identify potential family factors that affect positively and negatively the family business performance (see Table 3.2). Research on family business performance gives rise to the two distinct levels of impact: the first confirms the supremacy of family business performance and the second recognizes the existence of agency problems such as altruism and nepotism which can mitigate such superior performance. For Ussman (2004) there are no advantages or disadvantages of family business but characteristics that in some companies are used at their best (as positive factors) while in others they work as negative factors. Therefore, for several authors, research on family business performance should not be limited to studying strictly economic and financial performance because in family firms the family has different family and business goals/objectives that are naturally different from nonfamily business (Sharma et al., 1997; Chua et al., 2018). Regarding nonfinancial objectives (Harris et al., 1994) admit that family businesses tend to choose strategies to achieve family goals, such as ownership control and low debt. For Tagiuri and Davis (1996) the objectives of the family business should result from an interaction of the family and the business. Çalıyurt and Tur˘gay (2017) have stated that the value of shares of public family companies has increased more in the long term compared to other public companies. Although family companies attract more investors’ attention with their traditional production and management systems, there is an important risk called “family bond risk” which is reflected in management decisions. In order to measure and/or eliminate this, situation research centers are established in developed countries to examine the management structures and practices of family companies from different perspectives. For example,

3

FAMILY INFLUENCE AND PERFORMANCE

33

Table 3.2 Factors affecting family business performance Authors names

Positive factors

Astrachan (1988) Dyer (2006) Allouche and Amann (2000) Allouche and Amann (2000) Danco (1975) Harris et al. (1994) Anderson and Reeb (2003) Daily and Dollinger (1992) Zellweger et al. (2006) Allouche et al. (2007) Daily and Dollinger (1992) Davis et al. (1997) Dyer (2006)

Better management of the capital structure and resource allocation Greater financial independence. Patient capital, investments with a long-term profitability perspective; long-term commitment Higher economic performance

Increased use of informal control, lower control and monitoring costs; lower agency costs due to high levels of trust and shared values

Authors names

Negative factors

Anderson and Reeb (2003) Schulze et al. (2001) Schulze et al. (2001)

Concern for the inheritance or preservation of the company over its performance The remuneration of family members is not always related to their competence Use of company resources on family benefit Resistance to going public and external control limiting growth prospects

Dyer (2006) Westhead et al. (2001)

Source Authors

“Clarkson The Board Effectiveness Center, University of Toronto” is one of them. According to the report prepared by this center in 2013, an investment of 100 USD in the capital markets from 1998 to 2012 was examined. Those who invested 100 USD in shares issued by family companies have earned 304 USD in Toronto Stock Exchange (TSX) those who invest in stocks of companies that are not classified as family companies in the Stock Exchange (TSX) earned $ 243. The value of the shares of family companies increased by 25% compared to the others. This situation is an indication that it is important to monitor corporate family companies separately. The investor should know how effective internal audit and corporate governance are applied in the company for prevention fraud. Before investment decision taken, “Rating” will be good guide for intermediary institution’s advisor while evaluating family companies’ performance in terms of internal audit and corporate governance. In this context, in terms of corporate governance and internal audit activities will be classified in too two separate groups Group A—The mandatory articles arising from the law and, Group B—Practices recommended by Non-governmental organizations. As a result, three-level ratings are recommended.

34

A. P. M. GAMA AND C. A. ALVES

i. 1st degree harmonized publicly held family company: These family businesses comply with both written legislation (Group A) and also recommended practices (Group B). ii. 2nd degree harmonized publicly held family company: These family businesses comply only with mandatory written legislation. iii. 3rd degree harmonized publicly held family company: These family businesses only advisory practices. Çalıyurt and Tur˘gay (2017) recommends potential investors and intermediary institutions to invest in 1st degree harmonized publicly held family company. According to Chua et al. (2003) “a business to be sustainable as a family firm in the highly competitive global market of the twenty-first century, there must be a synergistic and symbiotic relationship between the family and the business (2003: 331) … the paradigm for family firms would have to expand its goal to include benefits unrelated to financial and competitive performance (2003: 333)”. Therefore, performance is a complex concept, which encompasses several dimensions, thus performance measurement should include more than economic-financial criteria, since the company’s nonfinancial results are more important in family firms (Zellweger et al., 2006) than in nonfamily firms. Table 3.3 summarizes the main studies about the relation of the type of family involvement and the performance measure used around the world. In considering the family business as part of the family identity, Ussman (2004) states that in addition to the purely economic perspective, relationships are established that favor respect for tradition, family support, and, in some cases, employees, independence and continuity of the family in front of the company. Hence, in the view of Sharma (2004) the family firm’s overall performance depends on the firm’s (economic and financial) and family performance (family goals and family–company relationship). Recently, Holt et al. (2017) state that family firms are distinguished theoretically from nonfamily firms due to the fact that they pursuit unique, family-related aspirations and goals. Recent developments in the literature recognize that family firms are heterogeneous in terms of behavior and performance (Chua et al., 2012). The role of goals for overall performance has been less well understood owing greatly to the explicit assumption that all businesses share the primacy of financial performance goals but is not always the case, and family businesses have a wide variety of goals and goal structures that may not often include financial performance as a higher order goal (Williams et al., 2019). Family values and experiences are unique to each family and resulting in family businesses having mixes of goals (Zellweger et al., 2013) given the typical absence of outside shareholders which enhanced goal idiosyncrasy in these firms. In this context, Holt et al. (2017) propose a family firm outcomes (FFO) model which includes a wide range of measures from which the researcher can select in relation to the research questions and theory under

9

8

7

6

5

4

3

1 2

Abor Allouche, Amann, Jaussaud and Kurashina Allouche, Amann, and Garaudel Anderson and Reeb Astrachan and Kolenko Barontini and Caprio Bennedsen, Nielsen, PérezGonzález and Wolfenzon Bertrand, Johnson, Samphantharak and Schoar Blanco-Mazagatos, Quevedo- Puente and Castrillo

Author name(s)

2007

2008

2007

2006

1994

2003

2007

2008 2008

Year

Yes

Yes

No

Yes

Yes

Yes

No

Yes Yes

Published

Multiple criteria

Ownership

Succession

Ownership

Multiple criteria

Ownership

Ownership

Ownership Multiple criteria

Categorization of family involvement

Spain

Thailand

Denmark

Multiple

U.S.

U.S.

France

Ghana Japan

Country of sample

ROA

ROA

ROA

Small

Large

Mixed

Large

Small

Revenuesa ROA

Large

Large

Small Large

Size of firms

ROA

Financial/market performance

Profitability ROA

Performance indicator

Private

Mixed

Mixed

Mostly private Public

Public

Public

Private Public

Public vs. private

(continued)

654

337

5334

610

614

403

248

120 86

Sample size

Table 3.3 The main studies about the relation of the type of family involvement and the performance measure used around the world

3 FAMILY INFLUENCE AND PERFORMANCE

35

23

22

21

20

19

18

17

15 16

13 14

10 11 12

Block and Thams Block Bocatto, Gispertv and Rialp Braun and Sharma Castro, Desender and Escamilla Chang Chrisman, Chua and Litz Coleman and Carsky Cruz, Justo and De Castro Ding, Zhang and Zhang Eddleston and Kellermanns Ehrhardt, Nowak and Weber Fernández and Nieto Filatotchev, Lien and Piesse

Author name(s)

Table 3.3 (continued)

2005

2005

2006

2007

2008

2008

1999

2003 2004

2007 2007

2008 2010 2010

Year

Yes

Yes

No

Yes

Yes

No

Yes

No Yes

Yes No

No No No

Published

Multiple criteria

Multiple criteria

Ownership

Multiple criteria

Ownership

Management

Ownership

Ownership Multiple criteria

Multiple criteria Multiple criteria

Multiple criteria Multiple criteria Multiple criteria

Categorization of family involvement

Taiwan

Spain

German

U.S.

Dominican Republic China

U.S.

Korea U.S.

U.S. Spain

U.S. U.S. Spain

Country of sample

ROA

Exports

ROA

Performance scale

ROA

Large

Small

Large

Small

Large

Small

Small

ROAa ROA

Large Small

Large Large

Large Large Large

Size of firms

Profitability Sales growtha

Sales growth ROA

Sales Value added ROA

Performance indicator

Public

Private

Both

Private

Public

Private

Private

Public Private

Public Public

Public Public Public

Public vs. private

228

2000

124

60

671

537

2808

419 1141

84 206

166 153 86

Sample size

36 A. P. M. GAMA AND C. A. ALVES

34 35

33

32

30 31

29

28

27

25 26

24

Gallo and Cappuyns Galve and Salas Gomez-Mejia, Larraza-Kintana and Makri Gomez-Mejia, Makri, and Larraza-Kintana Hamelin and Trojman Hillier and McColgan Hossain Jacquemin and de Ghellinck Jaggi, Leung and Gul Kellermanns, Eddleson, Barnett and Pearson Khaemasunun Khan, Hadani and Das

Author name(s)

2004 2008

2008

2008

2007 1980

2005

2007

2010

1996 2003

2004

Year

No Yes

Yes

Yes

No Yes

Yes

No

No

Yes No

Yes

Published

Ownership Ownership

Multiple criteria

Ownership

Multiple criteria Multiple criteria

Management

Ownership

Ownership

Ownership Management

Self-report

Categorization of family involvement

Thailand U.S.

U.S.

Hong Kong

Sweden France

UK

France

U.S.

Spain U.S.

Spain

Country of sample

ROA ROA

Employment growtha

ROA

Sales Profitability

ROA

Sales growth

ROA

ROE ROA

ROE

Performance indicator

Public Public

Private

Small

Large Large

Public

Public Public

Public

Private

Public

Public Public

Private

Public vs. private

Large

Large Large

Large

Small

Mixed

Large Large

Small

Size of firms

(continued)

315 420

50

269

717 103

545

37,178

360

81 253

305

Sample size

3 FAMILY INFLUENCE AND PERFORMANCE

37

49

48

47

46

45

43 44

40 41 42

36 37 38 39

King and Santor Kotey Lee Lopez-Gracia and Sanchez-Andujar Luo and Chung Markin Martinez, Stöhr and Quiroga Maury McConaughy, Walker, Henderson and Mishra Miller, Le Breton-Miller, Scholnick Mishra and McConaughy Mishra, Randøy and Jenssen Mukherjee and Padgett Mustakallio, Autio and Zahra

Author name(s)

Table 3.3 (continued)

2002

2005

2001

1999

2008

2006 1998

2005 2004 2007

2008 2005 2006 2007

Year

Yes

No

Yes

Yes

Yes

Yes Yes

Yes No Yes

Yes Yes Yes Yes

Published

Ownership

Multiple criteria

Multiple criteria

Management

Multiple criteria

Multiple criteria Management

Management Ownership Multiple criteria

Ownership Self-report Succession Ownership

Categorization of family involvement

Finland

UK

Norway

U.S.

Canada

Multiple U.S.

Taiwan U.S. Chile

Canada Australia U.S. Spain

Country of sample

Large Small

Return on salesa

Large Growth

Sales growth

Large

Small

Growtha

Profitability

Large Large

Large Large Large

Large Small Large Small

Size of firms

ROA Sales

ROA ROA ROA

ROA Multiplea Revenue ROA

Performance indicator

Private

Public

Public

Public

Private

Public Public

Public Public Public

Public Private Public Private

Public vs. private

192

199

120

210

676

1672 237

168 251 175

613 428 403 858

Sample size

38 A. P. M. GAMA AND C. A. ALVES

65

62 63 64

60 61

59

58

56 57

54 55

51 52 53

50

Oswald, Muse and Rutherford Peng and Jiang Pérez-González Perrini, Rossi and Rovetta Randøy and Goel Randøy, Jenssen and Goel Rice Rutherford, Kuratko and Holt Schulze, Lubatkin, Dino and Bucholtz Schulze, Lubatkin, and Dino Silva and Majluf Sirmon, Arregle, Hitt and Webb Smith Sraer and Thesmar Stavrou, Kassinis and Filotheou Teal, Upton and Seaman

Author name(s)

2003

2008 2006 2007

2008 2007

2003

2001

1996 2008

2003 2003

2006 2006 2008

2009

Year

Yes

Yes No Yes

Yes No

Yes

Yes

No Yes

Yes No

No Yes Yes

Yes

Published

Multiple criteria

Multiple criteria Ownership Ownership

Ownership Multiple criteria

Multiple criteria

Multiple criteria

Self-report Multiple criteria

Succession Succession

Ownership Succession Ownership

Multiple criteria

Categorization of family involvement

U.S.

Australia France U.S.

Chile France

U.S.

U.S.

Norway Norway and Sweden Australia U.S.

Multiple U.S. Italy

U.S.

Country of sample

Small

Small

Sales growtha

Sales growtha

Small Large Large Small

ROA ROA ROA ROAa

Large Small

Small Small

ROAa Revenuea

ROA Value added

Small Large

ROA ROA

Large Mixed Large

Small

Revenuea Stock return ROA ROE

Size of firms

Performance indicator

Private

Private Public Public

Public Both

Private

Private

Private Private

Public Public

Public Public Public

Private

Public vs. private

(continued)

786

2190 420 180

180 2531

883

1376

8090 831

68 141

744 335 297

2631

Sample size

3 FAMILY INFLUENCE AND PERFORMANCE

39

Tsai, Hung, Kuo and Kuo Uhlaner and Meijaard Uhlaner, Floren and Geerlings Veliyath and Ramaswamy Villalonga and Amit Villalonga and Amit Westhead and Cowling Westhead and Howorth Zahra, Hayton and Salvato Zahra Zahra Zellweger

2003 2005 2006

2004

2006

1997

2008

2006

2000

2007

2004

2006

Year

Yes Yes No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

Published

Ownership Self-report Multiple criteria

Multiple criteria

Ownership

Ownership

Multiple

Multiple criteria

Ownership

Ownership

Multiple criteria

Succession

Categorization of family involvement

U.S. U.S. Switzerland

U.S.

UK

UK

U.S.

U.S.

India

Netherlands

Netherlands

Taiwan

Country of sample

Small Small Small Small Large Large

Revenuea ROAa Salesa ROA ROEa

Large

Large

Private Public Public

Private

Private

Private

Public

Public

Public

Private

Small Large

Private

Public

Public vs. private

Small

Large

Size of firms

Revenue

ROA

ROA

Financial performancea ROA

Sales growth

Sales growth

Performance indicator

Notes ROA—return on assets; ROE—return on equity. a Denotes performance measure was self-reported Source O´Boyle et al. (2012: 10–11)—adapted

75 76 77

74

73

72

71

70

69

68

67

66

Author name(s)

Table 3.3 (continued)

409 209 142

536

240

146

450

508

250

233

916

304

Sample size

40 A. P. M. GAMA AND C. A. ALVES

3

FAMILY INFLUENCE AND PERFORMANCE

41

study (see Table 3.4). Holt et al. (2017) believe that with a clear conceptualization and operationalization of noneconomic outcomes, we can begin to understand how nonfinancial wealth is accumulated and how its accumulation can vary as different outcomes are sought. Table 3.4 systematize the family firms’ outcomes in: (i) financial, (ii) nonfinancial internal and (iii) nonfinancial Table 3.4 Family firm(s) outcomes model Family firm systems Outcomes

Family outcomes

Firm(s) outcomes

Financial

Outcomes that reflect the fulfilment of financial goals

Block Ia: Firm-specific financial outcomes Financial outcomes associated with key firm outcomes that include financial outcomes and product market outcomes. Examples include: • Profitability • Growth • Liquidity

Nonfinancial internal

Nonfinancial outcomes that reflect the fulfilment of goals that are associated and linked to those within the boundaries of the family or firm

Block Ib: Firm-specific nonfinancial internal outcomes Nonfinancial outcomes associated with effective and efficient internal operations, falling within the boundaries of the firm Examples include: • Objective measures such as product quality and process efficiency • Subjective measures such as job satisfaction, organizational commitment, and stewardship climate

Block IIa: Family-specific financial outcomes Financial outcomes important to the family regardless of involvement with the firm’s ownership or operations. Examples include: • Family Control • Family income and portfolio value • Family market returns • Firm patient and survivability capital determined by family • Family wealth • Family credit • Family assets (e.g., real estate, stock in firms other than the family firm) • Philanthropic value (i.e., tax deductions) Block IIb: Family-specific non financial internal outcomes Nonfinancial outcomes associated with effective and efficient family processes. Examples include: • General family well-being • Emotional well-being • Family happiness • Family cohesion (emotional and cognitive) • Psychological meaning and identity • Autonomy • Belonging • Transgenerational sustainability intentions • Satisfaction with fulfilment of familial obligations

(continued)

42

A. P. M. GAMA AND C. A. ALVES

Table 3.4 (continued) Family firm systems

Nonfinancial external

Outcomes

Family outcomes

Firm(s) outcomes

Nonfinancial outcomes that reflect the fulfilment of goals that are associated and linked to thoughts and perceptions of those beyond the boundaries of the family or firm

Block Ic: Firm-specific non financial external outcomes Nonfinancial outcomes associated with the perceptions of those beyond the boundaries of the firm(s) regardless of family’s involvement with firm(s). Examples include: • Customer loyalty • Customer satisfaction • Firm reputation • Firm image • Social responsibility Several firm-centric goals and few family-centric goals

Block IIc: Family-specific non financial external outcomes Nonfinancial outcomes associated with the perceptions of those beyond the boundaries of the family regardless of the family’s involvement with firm(s) Examples include: • Community embeddedness • Family image and prestige • Family legacy Few firm-centric goals and several family-centric goals

Notes Shaded areas represent outcomes that are exclusively related to the family’s involvement in the firm(s). While certain outcomes may be relevant in nonfamily firms (e.g., shareholder returns), these outcomes may trigger different strategic choices in firms with family involvement. The unshaded areas represent outcomes found in both family and nonfamily firms and are common in organizational research. Source Holt et al. (2017: 187)

external taking into account the family firm systems, that is, the firm and the family outcomes. Table 3.5a shows the different proxies of financial performance used in the literature to measure financial performance according the firm outcomes— block I from Table 3.4.1 Table 3.5b reports different proxies that can be used to measure each variable presented in each quadrant in line the three dimensions: financial, nonfinancial internal, and nonfinancial external according to Block IIa–IIb.

1 The

strategic management literature was consulted to compile the benefits, limitations, and research considerations of the financial outcomes. Consult the following studies Combs et al. (2005), Murphy et al. (1996), and Richard et al. (2009) for more detailed discussions.

Financial measures used in family business researcha

Asset turnover ratio; business net worth; cash flow from operations; debt ratios; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; sales per employee; employment growth; family net worth; interest coverage ratio; net operating profits; net worth; profit margin; return on assets; return on capital employed; return on equity; return on invested capital; return on investment; return on sales; sales; sales growth; variance in accounting; profitability; subjective assessments of performance.b

Measure

Accounting Measures

1. Readily available for private and public family firms; 2. Directly relates to family firm Profitability; 3. Empirically linked to financial rates of return.

Benefits

1. Takes a historical perspective, emphasizing past decisions and behaviors; 2. Less valid for turbulent environments and emerging economies; 3. Varies based on differing mandates and interpretations of policies (e.g., choices on depreciation schedules and inventory valuation), making comparisons difficult; 4. Susceptible to human error, bias, and deception.

Limitations

Table 3.5a Financial outcomes in family business literature: Block Ia of Table 3.4

(continued)

1. Consider the study’s focal stakeholders, understanding accounting measures are most relevant to family managers not necessarily family owners; 2. Account for differences in accounting policies when possible; 3. When collecting data from primary data sources, (a) Purposefully select key informants based on position and knowledge; (b) Mitigate the risk of bias by collecting data from multiple informants.

Methodological and research considerations

3 FAMILY INFLUENCE AND PERFORMANCE

43

Financial measures used in family business researcha

Abnormal returns, earnings per share, ownership, price-to earnings ratio, shareholder returns, stock price, total shareholder returns.

Debt-to-equity ratio, dividend payout ratio, market-to-book value, Tobin’s q, subjective assessments of performance.

Measure

Financial market measures

Mixed accounting and financial market measures

Table 3.5a (continued)

1. Incorporates both risk (often overlooked in accounting measures) and operational effectiveness (often overlooked in market measures); 2. Empirically linked to financial rates of return.

1. Takes a forward-looking perspective, representing discounted present value of future cash flows; 2. Incorporates the value of intangible assets, making it particularly relevant when taking a resource-based view.

Benefits

1. Takes a historical perspective on asset value, limiting its ability to account for intangible assets; 2. Varies based on decisions and behaviors that may be inconsistent with the logic of sound performance (i.e., measures can improve due to underinvestment or discipline in managing costs).

1. Not readily available for privately held family firms; 2. Varies considerably based on market volatility, momentum, and herd mentalities (i.e., markets are not completely efficient); 3. Evaluates the firm as a whole, limiting its use when evaluating business units.

Limitations

1. Consider the study’s focal stakeholders, understanding market measures are most relevant to family and nonfamily owners not necessarily family managers; 2. Consider measures that capture the extent to which rents generated flow directly to owners (e.g., total shareholder returns); 3. Consider industry-relative measures when analyzing multi-industry samples; 4. Consider the extent to which financial market measures are valued in the study’s cultural context. 1. When collecting data from primary data sources, scrutinize the measure to avoid accounting and financial measures that are unrelated empirically; 2. Consider the availability of data as some outcomes require significant data (e.g., Tobin’s q).

Methodological and research considerations

44 A. P. M. GAMA AND C. A. ALVES

Survival has been identified as a unique financial outcome. It has been operationalized in various ways to include hazard rates (which allow tests of survival against base rates of survival) and dichotomous variables that identify firms that have survived over a specified period.

Neither accounting and financial market measures

1. Data are available through historical records and secondary sources.

Benefits

1. Categorical classifications treat all exits (as well as survivals) as equivalent events (i.e., mergers, acquisitions, and bankruptcies likely differ); 2. Limited variation… (a) Creates problems with range restriction (b) Makes it difficult to differentiate between firms.

Limitations

1. Consider the reason for exit, differentiating positive exits for the family from those that negatively influence the family managers and owners.

Methodological and research considerations

Notes a The strategic management literature was consulted to compile the benefits, limitations, and research considerations of the financial outcomes. See the following for more detailed discussions: Combs et al. (2005), Murphy et al. (1996), and Richard et al. (2009) b The financial outcomes emerged from a systematic review of 464 manuscripts that reported empirical findings with performance as a dependent variable (Holt et al., 2012). The manuscripts were identified through broad searches of databases and manual searches of key journals (e.g., Entrepreneurship Theory and Practice, Family Business Review) c Subjective assessments of performance have been made by asking a key informant, “How would you rate your firm’s current performance as compared to your competitors (past 3 years)?” With items evaluating accounting dimensions of performance such as: growth in sales, return on assets, return on equity, and employment growth. Researchers often use similar measures without justifying how these indicators relate with one another or family firms (e.g., Craig and Dibrell, 2006) Source Holt et al. (2017: 189)

Financial measures used in family business researcha

Measure

3 FAMILY INFLUENCE AND PERFORMANCE

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A. P. M. GAMA AND C. A. ALVES

Table 3.5b Family outcome measures according to Blocks IIa–IIc of the Table 3.4 Measure

Example item

Financial family outcomes (Block IIa, Table 3.4) Family net worth Family assets minus liabilities (1 item) Family control Percentage ownership (3 items; α = .91) Family portfolio value Number of firms currently controlled by the family (1 item) Stock market performance Total return for the family and its members (3 items, α = .94) Total shareholder return Computed for the family stakeholders Nonfinancial internal outcomes (Block IIb, Table 3.4) Family happiness Is the family happier than other families? (number of items not specified, α = .83) Emotional well-being (i.e., loving We do not show love for each family) other (5 items, α = .83) Family harmony My family seems to get along with each other better than most families do (4 items, α = .87) Family cohesion Our family spends time together (5 items, α = .89) Emotional cohesion In this family, we usually feel happy with each other (9 items, α = .89). Cognitive cohesion In this family, we have similar views on things (9 items, α = .89) Meaning If we lost [blank], we would feel like we had lost a bit of ourselves (9 items, α = .93) Emotional significance Our [blank] reminds us of important things we have done or places we have been (3 items, α = .76) Emotional meaning We feel as if we belong to the family business (8 items, α = .85) Emotional commitment We are proud to tell others that we are part of [blank] (9 items, α = .90)

Source

Danes et al. (2009) Klein et al. (2005) Zellweger et al. (2013)

Hamann et al. (2013) Dalton and Aguinis (2013) Pless and Satterwhite (1973) Epstein et al. (1983) Beehr et al. (1997)

Smyrnios et al. (2003); Olson (1986, 2000) Bjornberg and Nicholson (2007) Bjornberg and Nicholson (2007) Ball and Tasaki (1992)

Ball and Tasaki (1992)

Bjornberg and Nicholson (2012) Mowday et al. (1979)

(continued)

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Table 3.5b (continued) Measure Decision autonomy

Example item

It is basically our family’s responsibility to decide how we get things done in the family firm (7 items, α = .84) Belonging We feel a sense of belonging to the family firm (3 items, α = .95) Transgenerational sustainability Family members involved in the intentions business are deeply committed to the company continuing as a family business (5 items, α = .73) Satisfaction with fulfillment of No measure available (proxies familial obligations might include number of family members employed by the firm) Nonfinancial external outcomes (Block IIc, Table 3.4) Community embeddedness Leaving this community would be hard (8 items, α = .77) Family firm image and prestige People in our community think highly of our family firm (8 items, α = .77) Family firm legacy No measure available (proxies might include perceptions of community members regarding the family firm’s history of community involvement)

Source Hornsby et al. (2013)

Bollen and Hoyle (1990) Sharma et al. (2003)

–

Mitchell et al. (2001) Mael and Ashforth (1992) –

Note In some cases, items were modified to put them in a family firm context with terms like “I” being replaced with collective terms. Citations from the family sciences literature are marked with an asterisk “*” Source Holt et al. (2017: 191)

CHAPTER 4

Research Hypotheses

This chapter presents the research hypotheses and the theoretical framework of the research.

4.1

Research Hypotheses Development

The research question that guides this investigation is the following: “Power, experience and culture determine the family’s influence in the company (i.e. F -PEC), through its involvement, which, in turn, is reflected in business performance (economic and noneconomic).”

The question is grounded in the literature review (Jaskiewicz and Klein, 2005; Rutherford et al., 2008; Stoica and Pistrui, 2006; Westhead and Howorth, 2006; Zahra, 2003; Zellweger et al., 2006). Thus, the influence of the family group in the family firm is sustained in the three dimensions of the F-PEC scale: Power (P), Experience (E), and Culture (C). Several researchers replicated this instrument in several countries [e.g., Mexico—Alcaraz, 2004 in Spain et al., 2005; Klein et al., 2005 in Germany; United States—Holt et al., 2010)]. Other authors suggest to apply this scale in other cultures (e.g., Cliff and Jennings, 2005). Thus, to our knowledge this is the first study conduct in Portugal, a country characterized by the Bank-Based System (Esperança et al., 2011). There is a growing consensus that family firms cannot be seen as a homogeneous entity (Chrisman et al., 2005; Westhead and Howorth, 2007; Sharma et al., 1997; Chua et al., 2012; Diaz-Moriana et al., 2019). Ownership, participation in management, family, and business goals are often used to © Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_4

49

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differentiate family firms (Corbetta, 1995; Sharma et al., 1997; Westhead and Howorth, 2007). The agency theory perspective addresses the issues of ownership and management at the company level. Thus, ownership and management of the family group are considered as the dimensions of a performance-based system, where economic (rational) objectives such as profit maximization are prioritized. However, the dynamics of the “family” system in privately held companies can increase the complexity of family ownership and management, especially, if there is congruence in the “family agenda” for behavior where noneconomic goals prevail. Thus, stewardship theory suggests that closed-end family firms, which exhibit little external representation or influence, have a culture that is at the service of the organization and put a greater emphasis on noneconomic objectives. Taking into account the heterogeneous reality of family firms, Chua et al. (2004, 2012) suggest that there are different levels of influence and involvement in family firms. The use of F-PEC scale as an index of family influence in the company, allows establishing a continuum (from less to more) in each dimension. Cliff and Jennings (2005) argue that, in fact, family influence is a three-dimensional construct, but they argue that having a high family influence on the company does not mean that it has high scores in all three dimensions. In this sense, the influence of the family can be greater in one of the dimensions to the detriment of the others. Astrachan and Zellweger (2008) recommend exploring dimensions individually as possible causes of differences in company performance, noting that this approach allows a more differentiated picture of how the family involvement affects performance across different levels of influence. Hence, the discussion of ownership and control in family-owned enterprises reveals several points of view. If, on the one hand, the simultaneity of ownership and control in family-owned enterprises should reduce agency costs, since “principals” and “agents” share a common interest in the “greater good” of the family (Chrisman et al., 2003; Zellweger and Kammerlander, 2015). On the other hand, this concentration (ownership control) associated with family altruism leads the family firm to perform poorly due to the lack of control mechanisms (e.g., market monitoring), risk aversion, biased judgment, and reduced monitoring (Memili et al., 2013; Oswald et al., 2009). Empirical studies on the performance of family firms are fundamental in the scientific literature that seeks to understand the success of family dynasties1 . Chrisman, Chua, and Sharma (2003) and Chua et al. (1999) show the positive effects of the family group—familiness—to justify the process of creating value and wealth of the company. But when speaking about performance it is fundamental to understand that it is a multidimensional concept and its measurement is very important to develop a theory and produce useful advice for practitioners.

1 See

Table 3.4 from Chapter 3.

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51

It is generally recognized that both economic and noneconomic goals can be considered for measuring business performance, particularly in the context of family-owned enterprises where noneconomic objectives are prominent. The noneconomic performance of the family firm is considered important by several authors (e.g., Chua et al., 1999; Gomez-Mejia et al., 2001; Holt et al., 2017—see also Table 3.5a; Westhead and Howorth, 2006; Zahra, 2003; Zellweger et al., 2006) suggesting that the inclusion of noneconomic variables in performance offers a better image of the business reality of family firms. In fact, in family companies there is a concern, not only with the financial aspects, but also with the affective needs of the family. In this way, it is a tradition that family takes decisions to protect the socio-emotional wealth, i.e., family identity, reputation, perpetuation of values, and conservation of social capital, among others, even if this sometimes sacrifices financial performance (Berrone et al., 2012; Gómez-Meijía et al., 2011; Gomez-Mejia et al., 2007; Zellweger et al., 2013). Most research has focused on the performance of family listed companies, highlighting the comparative studies between family and nonfamily companies. Further, they use a homogeneous set of variables, exclusively economic and financial (e.g., Tobin’s Q, ROA, ROE). At the same time, another line of research highlights non-listed (i.e., smaller and closed firms) family businesses, examining both objectives, economic and noneconomic. In the debate about the contradictory results regarding the performance of family firms, several researchers consider that the explanation can be found in the three dimensions of F-PEC (e.g., Astrachan and Zellweger, 2008; Cliff and Jennings, 2005; Holt, 2010; Rau et al., 2018). According to Cliff and Jennings (2005: 343) “… we believe that the degree of family influence construct could help explain the apparent contradictory results within the field of empirical research, such as those based on comparisons between” family “and “nonfamily” firms along performance….” Thus, this research aims to examine whether family involvement is associated with business performance (economic and noneconomic objectives) in a sample of Portuguese family-owned enterprises, using the F-PEC scale to measure the family influence on the firm. We argue that the individual approach of F-PEC dimensions (i.e., power, experience, and culture) can contribute to a better understanding of how the family group affects performance at its various levels. • Power (ownership, management, and supervision) The shareholders of a family company belong to a family group which allows them to share a long-term perspective on the company and gives them several benefits: owners with a long-term investment horizon suffer less from business myopia (Miller et al., 2008; Sciascia and Mazzola, 2008), investments are more efficient and better monitor managers’ activities (Fama and Jensen, 1983). The long-term perspective of family-owned enterprises stems mainly

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from the intention to transfer ownership to subsequent generations (Chrisman et al., 2012; Miller and Le Breton-Miller, 2006b—family governance; Yoo et al., 2014). On the other hand, the family can provide the company with substantial financial and physical assets, noting that these assets are especially useful in times of economic recession and the start of new business (Dyer, 2006). The advantages and disadvantages of the Family in Ownership (FIO) and the Family in Management (FIM) have led to several investigations that seek to establish some relationships between family involvement and company performance (e.g., Carney et al., 2015; Kowalewski et al., 2009; Mazzi, 2011; O’Boyle Jr. et al., 2012; Sciascia and Mazzola, 2008). The universe of family businesses studied has essentially been listed companies, mainly due to the facility to access data. In listed companies, the literature shows that the relationship between family ownership and economic and financial performance is characterized by a U-inverted curvilinear relationship (e.g., Anderson and Reeb, 2003; Kowalewski et al., 2009). In addition, other studies show the absence of a linear and/or nonlinear relationship between family ownership and performance in unlisted companies (Castillo and Wakefield, 2007; Sciascia and Mazzola, 2008; Westhead and Howorth, 2006). The arguments that the participation of family members in the company’s ownership negatively influences their performance are also present in the literature review (e.g., Rutherford et al., 2008). Furthermore, several authors argue that the family business is a fertile ground for misunderstandings and conflicts among shareholders, when they differ in the goals to be achieved (Gersick et al., 1997). Economic objectives may be incompatible with non-economic objectives, as well as the goals of the family group may be contrary to the objectives of the company. This counterproductive side of institutional overlap between business and family can jeopardize the company’s performance at various levels. For example, altruism may be favorable within the family because it reinforces the bonds between family members, but it can also be considered a variant of the cost of agency when the increase of altruism leads to make decisions for the benefit of the family without expectation of compensation external members. In this case, the effects of altruism on the company are detrimental to performance (Schulze, 2003; Schulze et al., 2001). Also the participation of the family in the management of the company (FIM) is a complex question. The positive effects of family management are explained by stewardship behavior of managers who act in the interests of owners (Corbetta and Salvato, 2004; Miller and Le Breton-Miller, 2006a). Similarly, Dyer (2006) points out that the positive relationship between family management and economic performance is related to the family’s commitment to the company. Family involvement in management is likely to reduce agency problems as family managers act as agents which improve performance (Chrisman et al., 2007). When family listed companies are compared with nonfamily firms the active involvement of the family in the management is only

4

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53

positively associated with a better financial performance when the founder is still involved in the management of the company (e.g., Anderson and Reeb, 2003; Maury, 2006; Villalonga and Amit, 2006). When comparing economic performance between family and nonfamily firms, Sciascia and Mazzola (2008) obtain a negative quadratic relation between family participation in management and performance, that is, performance decreases as that participation of the family management increases. Zellweger et al. (2006) by using the Substantial Family Influence (SFI) scale which represents the F-Power of the F-PEC scale conclude that family influence is beneficial at 2.5 (based on the definition of SFI scale) but beyond this level performance decreases. Given these results, the authors conclude that the positive effects generated by the FIM on performance are related to its governance structure (family participation in management and supervision), since family ownership is also part of the SFI. In relation to the pursuit of noneconomic objectives, the literature is more coherent that family management is conducive to achieving the motivations and goals of family members in relation to the company and the family itself (Zahra, 2003, Westhead and Howorth, 2006: Holt et al., 2017). Thus, taking into account the influence of the family members through ownership, management, and supervision on the family firms performance (economic and noneconomic) and the ambiguity of the results obtained in the literature, the first research hypothesis is defined as: H1a

H1b

: The influence of the family through the Power (i.e., ownership, management, and supervision) is negatively associated with economic and noneconomic performance. : The influence of the family through the Power (i.e., ownership, management, and supervision) is positively associated with economic and noneconomic performance.

• Experience In addition to the control mechanisms (ownership, management, and supervision), family members influence the company through the experience and knowledge acquired over the generations due to the process of succession (Astrachan et al., 2002; Klein, et al., 2005). This experience incorporates information, judgment, and intuition that are transferred through successive generations. The work of Gersick et al. (1997) on the life cycle of the family business is a reference research in this category. According to these authors, the family business follows a relatively linear development, moving from the founder to a partnership between siblings, and later to a consortium among cousins. However, more recent research shows that the family business life cycle theory does not always apply. In particular, the discussion of experience

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has led one to argue that the level of experience gained in the succession process is greatest during the transition from the first to the second generation. While in the first generation many of the new “rituals” are established, the second and subsequent generations have contributed proportionately to lose this process (Astrachan et al., 2002; Klein et al., 2005). Thus, the representation between the evolution of the family business life cycle and the intensity of family relations follows a curve, called the succession curve, in which there is strong growth between the first and second generations, however, this growth slows down in the third and subsequent generations (see Fig. 3.3 in Chapter 3). Therefore, research reveals that there are significant differences in the performance of the family business depending on the ownership generation and the generation involved in the management. The influence of the family over generations raises several methodological concerns; on the one hand, concerns about self-selection or, on the contrary, concerns about survival. In this sense, surviving family businesses are those that have achieved long-term profitability, while the less successful companies left the market. Thus, firms with a greater generational dispersion (higher experience index) may have lower performance levels as a result of reduced risk propensity in an attempt to minimize the risk of failure. Similar conclusions were found by Zellweger (2006) and Astrachan and Zellweger (2008), when they verified that the family companies had lower performance in the third generation. On the other hand, as a new generation assumes an active role in the family business, family members are further away from the founding generation. This distance from the founder weakens both family ties and commitment to the founder’s vision. Thus, a greater dispersion of generations can generate rivalry among family members, which divides the family group and obstructs the company’s performance (Kellermanns et al., 2010). As the family company grows and becomes a multigenerational company, despite the gain of knowledge, a more formal structure is needed to guarantee the sustainability of the family business, reduce the risk of loss of family cohesion, avoid the divergence of values, and to guarantee the commitment with the family (Aronoff et al., 2002; Wiklund et al., 2013). In light of the above arguments, we formulate the following hypothesis: H2

: The greatest generational dispersion (experience) is negatively related to economic and noneconomic performance.

• Culture If we consider that the family business is defined by the existence of a link that establishes an important and permanent union between the firm and the family, the company culture is partially and voluntarily shared, over a long period of time, as the culture of a family (Gallo and Ribeiro, 1996; Segaro

4

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55

et al., 2014). Thus, it is a strong culture, since it is deeply related to the ownership, power, and values of the family, grounding the management and the direction of the company. The family culture (traditions and goals) transferred to the company helps, among other factors, to eliminate the immediate interests of the owners (e.g., focus on profit of short term), by emphasizing objectives of the long term (e.g., assure the survival of the firm, guarantee the independence of the firm). The financial supremacy of family firms evidenced in the literature is not necessarily the result of a better adaptation to the economic environment but by the existence of a predetermined set of cultural norms. Thus, there are values that can produce great efficiency in the company, especially when these values privilege the noneconomic objectives. Hence, the family commitment culture results in the overlap of the family and the organizational values (Chua et al., 1999; Chrisman et al., 2012; Segaro et al., 2014). When a family rigorously identifies their interests and combines them with the company’s goals, the firm will benefit greatly from the fact that owners and other family members have common interests and goals (Donnelley, 2006; Bertrand and Schoar, 2006). Thus, comparing family and nonfamily firms, Denison et al. (2004) conclude that culture generates better performance, with family involvement as a distinctive variable. The culture of the family business is not, however, a static reality, given that, over time, the company is confronted with new external and internal realities to which it has to adapt. With the development of the company, the initial values can be progressively shaken or even radically altered, not only due to the new realities of the market and the external context in general, which require new answers and solutions by the company, but also by virtue of the integration of new family and nonfamily members whose perspectives are not necessarily consonant with those of the founder or the current generation. In family businesses there is a very strong emotional load that can override the rationality that the organization requires (Aronoff et al., 2002). The management of this conflict of interest can be observed from two perspectives: the first perspective mentions that the family commitment is company-centered (company interests are priorities) and the second perspective insists that family commitment is family-centered that is, the interests of the family group are the priorities. When firms perform better (e.g., sales growth), Stoica and Pistrui (2006) find that the family also has a greater commitment to the company. Thus, a culture centered on the interests of the company, the family tends to consider the organization as an extension of itself, valuing more the aspects of self-recognition, professional fulfillment, responsibility, altruism, and intrinsic motivation for satisfaction in the accomplishment of its tasks. This perspective focuses on the interests of the organization in the medium and long term that allows family firms to perform better (Zahra et al., 2008). Accordingly, in family firms, cohesion in company–family values contributes to the institutionalization sharing of values that serve as criteria for decision-making and the pursuit of common goals (Gallo and Ribeiro, 1996). In this sense, the culture

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and values of the family and the company reveals the identity of the company that reinforces the culture and commitment of the perpetuity of the company (Ward, 1987; Gallo and Ribeiro, 1996; Astrachan et al., 2002; Craig, et al., 2014; Ward, 2004). The previous discussion allow us to formulate the following research hypothesis: H3

: A stronger culture is positively associated with economic and noneconomic performance.

• Stewardship Behavior The stewardship theory perspective highlights the goal congruence between owners and managers, in which managers have interests that extend beyond purely individualistic and economic goals—stewardship Motivation (Davis et al., 1997; Zhara et al., 2008). Thus, stewardship theory, when applied to family firms, also supports the potential importance of noneconomic objectives (Corbetta and Salvato, 2004). Since, in family businesses, family members are emotionally committed to the long-term survival and reputation of their company, stewardship behavior manifests itself through a culture of commitment and sharing of values—stewardship culture (Zhara et al., 2008). In this case, the long-term orientation, the alignment of values between the family and the company, and the identification of the family with the business lead to a stewardship behavior that impacts economic and noneconomic performance of the family business (Davis et al., 1997, Eddleston and Kellermanns, 2007; Zhara et al., 2008). Such behaviors are driven by reciprocal altruism, participatory decision-making, and a sharing of control in corporate governance over ownership and management. Likewise, the compromise culture suggests that the interests and values of family and company are aligned with a dominant view that can shape certain behaviors of the company. Such a commitment develops a coalition of family members and creates a need and desire to ensure the achievement of the economic and noneconomic objectives of family stakeholders (Astrachan and Jaskiewicz, 2008; Basco, 2017; Holt et al., 2017; Madison, et al., 2016). Thus, it is expected that the influence of the family should positively affect stewardship behavior and that, in turn, favors a better economic and noneconomic performance of the family business. Hence, we formulate: H4 H4a

: Stewardship behavior is positively associated with economic and noneconomic performance. : Stewardship behavior through stewardship motivation and culture mediates the relationship between the influence of family (F -PEC) and economic performance.

4

H4b

RESEARCH HYPOTHESES

57

: Stewardship behavior through stewardship motivation and culture mediates the relationship between the influence of family (F -PEC) and noneconomic performance.

4.2

Theoretical Framework

Based on previous defined research hypotheses, the conceptual framework is presented in Fig. 4.1.

Fig. 4.1 Research framework

CHAPTER 5

Research Methodology

Based on the framework theoretical framework defined (see Fig. 4.1), this chapter identifies and operationalizes the variables to measure each of the constructs of the model: (i) family influence—F-PEC scale, (ii) economic and noneconomic performance variables, (iii) mediation variables—stewardship variables, and (iv) control variables. This chapter also presents the data, concluding with the empirical design.

5.1

Sample

The population to be studied comprises the Portuguese small and mediumsized enterprises (SMEs). In the particular case of Portugal, the difficulty in obtaining individual information on unlisted companies is notorious, revealing this even greater difficulty when the information sought falls within the scope of a family business (e.g., Mazzi, 2011). In order to satisfy the selection criteria defined for the population, i.e., to be an SME and a family business, we choose the non-probabilistic sampling method for convenience. Thus, we use the information available provided by Instituto de Apoio às Pequenas e Médias Empresas—IAPMEI (Support Institute for Small and Medium Enterprises) using the listing of companies in 2012 classified as SME.1 To define SME, we follow the EU recommendation 2003/361 (i.e., the total of balance sheet is less or equal to e43 million or a turnover less or equal to e50 million and the number of employees is less than 250). This list of firms has the following characteristics: (i) they have 1 Information

available at: www.iapmei.pt.

© Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_5

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Table 5.1 Summary of sampling select steps Criteria

Criteria and sources of information

1st

Social denomination List of SME from Portuguese Family Businesses Association Business and industry associations and the website of companies. Sample

2nd 3rd

N 370 42 392 804

their headquarters in the national territory; (ii) ensure the condition of SMEs; (iii) operate in different sectors of activity; and (iv) have at least information related with three balance sheets and profit and loss account. Given that the list of firms provided by IAPMEI only covers SMEs, it was necessary to develop a selection criterion to select a sample of SMEs family businesses. The initial list covers 6,740 SMEs (list in 2012) which was reduced to 6,263 companies: (i) by excluding single-person limited company because a single shareholder owns the entire ownership, and (ii) firms located in the islands Azores and Madeira. To identify family businesses, we define three criteria. First criteria, identify company names with the mention of “…and son(s)”; “…and brother(s)”; “…and Heir(s).” This criterion is related to the organizational identity in which it is common to find in the company’s social denomination the family name or the reference to family kinship (e.g., Zellweger et al., 2010). The second criteria identifies some companies that were also members of the Portuguese Family Businesses Association (PFBA) using the database of the Association’s effective members.2 Finally, the third criteria attempts to obtain a larger number of family businesses, thus, the following sources of information were consulted: (i) the website of IAPMEI, (ii) industry business associations,3 and (iii) the website of the firms. The analysis of the content of the website of each firm aims at searching in the history and/or the organizational structure of the company evidences of being a family company. Thus, the population of the identified SME family firms was 804 companies (Table 5.1).

5.2

Data Collection

The study is based on a quantitative method using a survey to better fit the research objectives, namely to find relationships between variables. Thus, 2 Information 3 Business

Available at http://www.empresasfamiliares.pt/associados/.

and industry associations: APCOR—Associação Portuguesa da Cortiça; CEFAMOL—Associação Nacional da Indústria de Moldes; ANIL-Associação Nacional dos Industriais de Lanifícios; NERLEI—Associação Empresarial da Região de Leiria; NERCAB—Associação Empresarial da Região de Castelo Branco; AEP—Associação Empresarial de Portugal and Câmara de Comércio e Indústria.

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to describe relationships between variables (descriptive-correlational study) or explaining them (correlational study), the survey is the method chosen. The survey has the advantage to get data from a group of any size. Moreover, due to the impersonal nature and uniformity of the survey, the consistency of answers from one questionnaire to another guarantees the comparisons among respondents (Fortin, 2009). However, the main drawbacks of surveys are: (i) low response rates, (ii) high rates of missing data, and (iii) when sent by mail (or internet), it is impossible to ensure that they were correctly fulfilled. Due to the purpose of the study and the target population (SMEs family businesses), the respondent should be the manager, or the president, or the administrator of the company. To validate if the survey was well understood, we first conduct a pretest with four SMEs family firms from the target population (Fortin, 2009; Sampieri et al., 2006). After this procedure, 804 questionnaires were sent by postal mail directly to the companies. The mailed questionnaires were accompanied by a cover letter and an envelope for free return of the completed questionnaire. The cover letter explains the purpose of the investigation, and the average response time, ending with a thank you for collaboration. The questionnaire consists of four pages. The first page included the objective of the research and a formal statement of the confidentiality of the replies and the anonymous nature of the survey. The survey comprises three groups with two types of questions: (i) closed questions and (ii) Likert type scale. Group I includes questions for collecting information related to all the research variables: The F-PEC dimensions, performance (economic and noneconomic variables), and stewardship variables. Group II is related to company characteristics (e.g., legal form, sector of activity, turnover, total balance sheet assets, number of persons employed, and turnover in foreign markets). The third group collects information related to the respondent’s data (e.g., job position, seniority in the company, age, and gender). The number of surveys received was 169, representing a response rate of 21.02%. This turned out to be a quite satisfactory rate, taking into account that the average response rate in similar studies has been approximately 5% (Mitter et al., 2014).

5.3 5.3.1

Variables

Dependent Variables: Economic and Noneconomic Performance

Economic performance For Audretsch et al. (2010) there is no generally accepted definition, nor a single adequate measure for performance. While objective measures of economic and financial performance may seem more reliable, they are also likely to bring about evaluation problems. First, because the samples are usually drawn from a heterogeneous population some measures are difficult to compare. Second, because some respondents may not be willing to

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Table 5.2 Measures of economic performance (ECPERF)

Code

Questions (item)

ECPERF1 ECPERF2 ECPERF3 ECPERF4 ECPERF5 ECPERF6

The sales growth was The growth of the market share was The level of employment was The operational profit margin was Return on operating assets was Return of equity was

respond openly and effectively to absolute values, hence responses are manipulated (Westhead and Howorth, 2006). These difficulties explain the need to work with subjective measures of perception reinforced by comparison with competitors. Thus, supported by Birley and Westhead (1990) and Westhead and Howorth (2006), we use subjective measures related to competitors to measure economic variables. The economic performance was measured (for the last three years) in relation to the competitors. We apply a 5-point Likert scale ranging from 1 (very less than the main competitors) to 5 (much larger than the main competitors) to define six items: sales growth, market share growth, level of employment, operating profit margin, net profitability of the assets, and return on equity (e.g., Allouche et al., 2007; Castillo and Wakefield, 2007; Craig and Dibrell, 2006; González-Cruz and Cruz-Ros, 2016; Sciascia and Mazzola, 2008). See Table 5.2. Noneconomic goals The noneconomic variables are related with the interests of the family and the company comprising ten items (e.g., Chua et al., 1999; Westhead and Howorth, 2007; Zellweger et al., 2006). Given the diversity of scales used in the original studies, we chose to homogenize the scale applying a 5-point Likert scale varying from 1 (not at all important) to 5 (highly important). Table 5.3 presents the 10 items.

5.3.2

Independent Variables: Family Influence

As independent variable we use the F-PEC scale. Astrachan et al. (2002) proposed to measure the family influence in the company through the F-PEC scale, which represents a scale that integrates three dimensions: P—power, E—experience, and C—culture. These three dimensions are derived fundamentally from the investigations of Birley (1986), Ward (1987), Klein (2000), and Carlock and Ward (2001).4 For each of the three dimensions, Astrachan et al. (2002) developed a set of variables and questions that form a measurement instrument (original model). Subsequently, this instrument was 4 Carlock

and Ward (2001) developed the Family Business Commitment Questionnaire.

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Table 5.3 Measures of noneconomic performance (NECPERF) Authors references For members of the family group, it is considered … NECPERF1

Stay independent

NECPERF2 NECPERF3

Reduce debt Assure long-term survival of the business Balancing family concerns and business interest Preparing and training one (or more) Chua et al. (1999) family member successor Increase private or family wealth Westhead e Howorth (2007); Zellweger et al. (2006) Increase the market value of the Chua et al. (1999); Westhead e business Howorth (2007); Zellweger et al. (2006) Maintaining a role for the founder in Chua et al. (1999) the business after retirement Promoting business growth Zellweger et al. (2006) Chua et al. (1999); Westhead e Reduce ownership dispersion Howorth (2007) ensuring its concentration in the family group

NECPERF4 NECPERF5 NECPERF6 NECPERF7

NECPERF8 NECPERF9 NECPERF10

Chua et al. (1999); Westhead e Howorth (2007); Zellweger et al. (2006) Zellweger et al. (2006) Westhead e Howorth (2007); Zellweger et al. (2006) Chua et al. (1999)

replicated, tested, and validated by Klein et al. (2005) and Holt et al. (2010), through the use of statistical techniques, such as Exploratory Factorial Analysis (EFA), Confirmatory Factorial Analysis (CFA), and Cronbach’s alphas. Summarily, in accordance with the literature review developed earlier, each dimension represents the following: i. F-power: power and control exercised by a family in the company through ownership, management, and supervision; ii. F-experience: generation that has the ownership of the company; generation that is in management of the company and present on the board of directors; iii. F-culture: degree of overlap between the family and the company culture and values and the degree of commitment of the family to the company. 5.3.2.1 Power Subscale The use of the original scale to measure power presents several difficulties in the implementation of the corporate governance model of Portuguese companies. With regard to the structure of the Board of Directors (BD) it is important to notice that it changes around the world. The measurement

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scale of the power proposed by Astrachan et al. (2002) assumes the dualistic (or two-tier) system that results from the adoption of the German governance model. In this model, the supervisory (nonexecutive) and executive functions are separated into two different structures. Thus, the original scale of Astrachan et al. (2002) considers the separation of the functions of supervision (governance board) and management (management board). However, in Portugal, monist structures (one-tier) are predominant (Esperança et al., 2011). The corporate governance model, which is based on the one-tier system, comprises a single Board of Directors that combines the functions of management (executive directors) and supervisory (nonexecutive directors). Thus, taking into account the Portuguese reality, in this study it was decided to adapt the issues of scale to the monist system in which the functions of management and supervision come together in a single administrative body. Therefore, the Governance Board is replaced by the Board of Directors, adding a question to quantify the number of executive directors who are members of the family group. After introducing the appropriate changes taking into account the Portuguese business reality, namely, the model of corporate governance and the legal form (public limited company or private limited company), the items that comprise Power subscale are presented in Table 5.4. The various items in Table 5.4 are used to calculate the weight of each of the family influence variables on Power as continuous scale using the measurement instrument Substantial Family Influence (SFI). It measures the strength of the family influence based on the family’s share of equity in the firm (ownership) as well as its influence through governance boards (control) and management and it was originally developed by Klein (2000) before its Table 5.4 Power subscale Code

Questions (item)

PW1.1 Percentage of shares owned by the family group If public limited company: PW2.1 Number of directors that make up the Board PW2.2 Number of board members who are executive directors PW2.3 Number of board members who are members of the family group PW2.4 Number of executive directors who are members of the family group If private limited company: PW3.1 Number of managers that make up the Board PW3.2 Number of members of the Board who are members of the family group and assume management functions Source Astrachan et al. (2002); Klein et al. (2005)—adapted

Power area Ownership Supervision Management Management Management

Management Management

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adaptation to F-power dimension of the F-PEC scale (Eq. 5.1).       O f am SU P f am M AN f am ∼ I f O f am > 0 : S F I = + + ≥1 Ototal SU P total M AN total (5.1) Where: O = ownership (equity); SFI = Substantial Family Influence; Fam = Family; SUP = members with supervisory functions; MAN = members with management functions. An enterprise is a family business when the proportion of the family’s share of equity, supervision, and management is equal to or greater than 1. In the limit, a family group can control the three elements (i.e., ownership, management, and supervision) by obtaining the maximum score (SFI = 3) (Klein, 2000). After the calculation of SFI, the following procedure is necessary: i. Convert the percentage of family participation in equity (ownership) into a value between 0 and 100; ii. Determine, from items PW2.1, PW2.2, PW2.3, and PW2.4 (see Table 5.4), the family participation in supervision on a value between 0 and 100; iii. Determine the family participation in the management of the company through the items PW2.4 and PW2.2 (for public limited company); for the remaining companies, the calculation takes into account the division between items PW3.2 and PW3.1 (see Table 5.4). Both questions are converted to a value that ranges from 0 to 100. Table 5.5 summarizes the conversion procedure that transforms the three items, ownership, supervision, and management, in a value that ranges between 0 and 100. Table 5.5 Power construct using Substantial Family Influence (SFI) Construct of power (PW1.1) × 100 

item PW2.3−item PW2.4 item PW2.1−item PW2.2

Power subscale 

× 100 (i f public limited company)     item PW2.4 item PW3.2 item PW2.2 × 100 (i f public limited company) or item PW3.1 × 100

Note Item PW is from the survey Source Klein (2000)—adapted

Ownership Supervision Management

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Table 5.6 Experience subscale Code

Questions (item)

Area

EXP1

Generation (or generations), which currently owns the company (1st, 2nd, 3rd, etc.) The generation (or generations) that, at the moment, manage(s) the company The generation (or generations), at the moment, with active supervisory functions

Ownership

EXP2 EXP3

Management Supervision

Source Astrachan et al. (2002); Klein et al. (2005)—adapted

5.3.2.2 Experience Subscale Regarding the construct of Experience, four measurement items are used, which include (1) the generation that owns the company’s equity, (2) the generation that manages the company, (3) the generation with supervisory functions, and (4) the percentage of family members involved in the company. The generation in the family business (experience) is measured by the items EXP1, EXP2, and EXP3 (Table 5.6) through multiple answers that measure, in absolute value, the generations. Table 5.6 presents the experience items: As suggested by Astrachan et al. (2002) and Klein et al. (2005), for statistical treatment, the absolute values of the experience items should be recorded on a scale of 0–100 in order to represent the succession experience curve. Thus, following the suggestions of Astrachan et al. (2002) and Klein et al. (2005), we assigned to the items EXP1, EXP2, and EXP3 different weights according to the number of generations involved. Thus, the greatest gain in family succession experience is acquired between the first and second generation and the benefits of experience decrease with each successive generation. Consistent with the guidance provided by the authors of the F-PEC, the first generation is recoded as 0 (i.e., no benefit of the generation experience), the second generation is recoded with 50, the third generation 75, fourth generation 87.5, and so on. 5.3.2.3 Culture Subscale The culture dimension of Astrachan et al. (2002) and Klein et al. (2005) is represented by two subscales. The first subscale is composed by three items that measure how much family and company culture overlap (CUL1, CUL2, CUL3). We use a 5-point Likert scale, ranging from 1 (never) to 5 (always) to measure these three items. The second subscale refers to the degree of family commitment to the firm, evaluated by 9 items (CUL4 to CUL12) which we measure also by using a 5-point Likert scale, ranging from 1 (totally disagree) to 5 (strongly agree). Thus, the Culture comprises twelve items presented in Table 5.7. Although the Culture subscale has already been used in other studies, this measuring instrument reveals some problems. The psychometric problems

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Table 5.7 Culture subscale Code

Questions (item)

CUL1 CUL2 CUL3 CUL4

Your family has influence on your business Your family members share similar values Your family and business share similar values Family members support the family business in discussions with friends, employees, and other family members Family members feel loyalty to the family business Family members are proud to tell others that we are part of the family business There is so much to be gained by participating with the family business on a long-term basis Family members agree with the family business goals, plans, and policies Family members really care about the fate of the family business Deciding to be involved with the family business has a positive influence on my life I support my family’s decisions regarding the future of the family business Family members are willing to put in a great deal of effort beyond that normally expected to help the family business be successful

CUL5 CUL6 CUL7 CUL8 CUL9 CUL10 CUL11 CUL12

Source Astrachan et al. (2002); Klein et al. (2005)

found by Holt et al. (2010), in the F-Culture scale, when conducting the Exploratory Factorial Analysis (EFA), led the authors to eliminate a total of five items: all variables of the first subscale (3 items) of Table 5.7 and two variables of the second subscale (CUL7 and CUL9). In this investigation we decide to use the original scale F-culture with the 12 items and verify how it behaves in the Portuguese reality. Similarly, to the two previous dimensions, the 12 culture items, originally measured on a 5-point Likert scale, are transformed into a weighting to obtain a scale ranging from 0 to 100 as shown in Eq. 5.2.   items average − 1 × 100 (5.2) 4

5.3.3

Mediating Variables: Stewardship Variables

The attitudes and values of family members, in particular the commitment to the family business, can significantly influence the company’s results (Eddleston et al., 2008). According to Zahra et al. (2008), family businesses that enjoy a culture that values the involvement of family members in the decision-making process and who adopt a steward perspective in the management obtain better results. To measure both the degree of stewardship culture in the family business and motivation stewardship that reflects the motivations and needs of executives, we employ the nine-item scale used by Zahra et al. (2008), measured by a

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Table 5.8 Scale of stewardship behavior (STWD) Code

Questions (item)

STWD1 STWD2 STWD3 STWD4 STWD5 STWD6

To what extent To what extent To what extent To what extent To what extent To what extent potential To what extent workplace To what extent To what extent individualistic

STWD7 STWD8 STWD9

does does does does does does

your your your your your your

business business business business business business

satisfy your need for achievement satisfy your personal needs satisfy your opportunities for growth contribute to your self-image make you feel self-actualized allow employees to reach their full

does your business foster a professionally orientated does your business inspire employees’ care and loyalty does your business encourage a collectivist rather than an

Source Zhara et al. (2008)

5-point Likert scale ranging from 1 (nothing) to 5 (extremely). Stewardship behavior on a total of nine questions, are presented in Table 5.8. 5.3.4

Control Variables

Control variables were selected based on the possible influence they have on the dependent variables that is, on economic and noneconomic performance. The control variables used are related to the characteristics of the company and the sector of activity to minimize the concern with heterogeneity and endogeneity. Thus, we use as control variables the following variables: legal form, size, internationalization, and the founder’s presence in the management. Legal form—The legal form of the company suits certain corporate governance configurations, both in terms of dimensional class and in terms of regulations and legal norms (Klein, 2010). It is common in smaller family businesses that the board of directors operates with a “virtual” body (when it exists). However, as the company grows, the choice of legal form is decisive for establishing rules and regulations in decision-making (Fahed-Sreih, 2009). The legal form is classified into two categories as a dummy variable breaks down into two categories (1 = public limited company, 0 = private limited company). Size—In any organization, the development and growth of the company produces a greater complexity in operations. In a family business, these developments affect both dimensions, family relationships, and business (Chrisman et al., 2003). The size of the company is classified into two categories: (1) micro and small company or medium-sized company. The categorization follows the European Commission Recommendation of 6 May 2003 [COM 2003/361/EC] for the classification of SMEs. The variables that define the

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categories of SME companies are the number of employees (staff numbers) and the turnover and balance sheet total. Multiple-choice questions are used with an interval scale. At an early stage, family businesses are classified by category: micro, small, and medium-sized. In the statistical analysis the company size is defined as a dummy variable (1 = medium-sized company, 0 = other cases). Internationalization—SMEs family firms face an increasingly demanding and competitive environment in relation to the internationalization of the market (Corbetta and Montemerlo, 1999; Merino et al., 2015) which can generate a positive effect on performance (Kellermanns et al., 2010; Sciascia and Mazzola, 2008). This variable is measured by a multiple-choice question concerning the percentage of turnover on the external market using four interval scales. In the multivariate analysis this variable is introduced as a dummy variable taking on the value of 1—exporting company and 0—other cases. Founder’s presence in the management —The founder views the company as an extension of its wealth that guarantees not only a source of income but also an inheritance that it intends to convey to future generations. When the family founder still assumes the role of manager, even if shared with the successor generation, this tends to lead the company in search of better performance (Anderson and Reeb, 2003; Maury, 2006; Villalonga and Amit, 2006). The founder’s involvement in company management is represented by a dummy variable.

5.4

Methods

The methods employed in the research comprise several methods: (i) a univariate statistical technique, and (ii) the multivariate analysis used the Exploratory Factorial Analysis (EFA), the Cronbach’s alpha coefficients, the Multiple Linear Regression Models (MLRM), and the Pearson correlation. The EFA is used: (i) to analyze the main patterns of factors underlying each concept of economic and noneconomic performance, family influence (i.e., F-PEC), and stewardship behavior, followed by an analysis of Cronbach’s alpha coefficients; (ii) to include the EFA factors into the regression analysis; and (iii) to overcome any problems with multicollinearity in MLRM. Thus, in order to find a set of items that reflect an underlying concept (or factor), a factor analysis was performed, making it possible to work with a smaller number of variables, but without significant loss of the information contained in the set (Hair et al., 2010). EFA stems from already established procedures for the verification of the appropriateness of the data: observation of the matrix of correlations and the Measurement of the Sample Appropriateness (MSA), interpretation by the Bartlett Sphericity test and the Kaiser-MeyerOlkin (KMO) statistic. The criteria for retaining the factors adopted were simultaneous, (1) the eigenvalues greater than the unit, (2) percentage of explained variance greater than 60%, and (3) observation of the scree plot. The

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allocation of a variable to a given factor resulted from rotating the solutions according to the Varimax method. To test the hypotheses several regression models are estimated after examining the Pearson correlation coefficient and also the values of the Variance Inflation Factor (VIF) to evaluate the existence of potential multicollinearity problems. The next chapter presents and discusses the results.

CHAPTER 6

Analyses and Discussion of Results

In this chapter, we characterize the sample and analyze and discuss the empirical results obtained from: (i) the Exploratory Factor Analysis and (ii) the Multiple Linear Regression Models.

6.1

Characterization of the Sample

Before proceeding with the characterization of the sample it is necessary to validate if all firms in the sample could be classified as family businesses (FBs). Thus, we applied the following definition for FBs: “the company is classified as family-owned business when it obtains a degree of involvement in various dimensions of the company (e.g., ownership, management, experience and culture) of at least 50 percentage points of the F-PEC scale.” This definition aims to integrate different components of the family influence (Astrachan et al., 2002; Klein et al., 2005) enabling the company to obtain a different ranking across each one of the dimensions. For this purpose, the F-PEC index conversion procedures were performed on a scale from 0 to 100 as explained in Chapter five. The results obtained allow validating 169 surveys where the values obtained for the F-PEC scale is between the minimum of 53.65 points and the maximum of 95.31 points. Thus, the final sample comprises 169 Portuguese family businesses SMEs.

© Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_6

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6.1.1

Location and Activity Sector

Portugal is divided into 7 different NUTS II (Nomenclature of Territorial Units for Statistics) corresponding to its “regions”: North; Centre; Lisbon Metropolitan Area; Alentejo; Algarve; Autonomous Region of the Azores; Autonomous Region of Madeira. Our study does not include the Autonomous Regions of Madeira and Azores. Alongside NUTS, continental Portugal is divided into 18 Districts (Aveiro, Beja, Braga, Bragança, Castelo Branco, Coimbra, Evora, Faro, Guarda, Leiria, Lisboa, Portalegre, Porto, Santarém, Setúbal, Viana do Castelo, Vila Real, and Viseu). Table 6.1 shows the distribution, by regions NUTS level 2, of the company’s headquarters. Table 6.1 shows that the majority of the firms are located in the north and central regions, representing 85% of the companies of the continental territory. Table 6.2 shows the distribution of FBs by the sector of activity. We adopt the classification by alphabetical division according to NACE Rev.2. Section C—manufacturing and section G (Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles) represent the majority of the firms, that is, 45.56 and 24.26%. Section F—construction represents 10% of the firms. The distribution of the economic activity of the sample (Table 6.2) is similar to those observed at the national level by the Gabinete de Estratégia e Planeamento (Strategy and Planning Office)—Ministério do Trabalho, Solidariedade Table 6.1 Distribution of companies, by regions NUTS level 2 Regions NUTS level 2

Districts (entirely or partially included)

Number of firms

Percentage

North

Braga, Bragança, Porto, Viana do Castelo, Vila Real, Aveiro (partially), Guarda (partially), Viseu (partially) Castelo Branco, Coimbra, Leiria, Aveiro (majority), Guarda (majority), Viseu (majority), Lisbon (partially), Santarém (partially) Lisbon (majority), Setúbal (partially) Beja, Evora, Portalegre, Lisbon (partially), Santarém (partially), Setúbal (partially) Faro Total

67

39.64

77

45.56

13

7.69

7

4.14

5 169

2.96 100.00

Centre

Lisbon Metropolitan Region Alentejo

Algarve

6

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Table 6.2 Distribution of the firms by sector of activity Principal activity

Number of firms

Section A—Agriculture, Forestry and Fishing Section B—Mining and Quarrying Section C—Manufacturing Section F—Construction Section G—Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles Section H—Transport and Storage Section I—Accommodation and Food Service Activities Section K—Real Estate Activities Others activities Sections (G + F; G + C) Total

Accumulated percentage

Percentage

3

1.78

1.78

3

1.78

3.55

77 17 41

45.56 10.06 24.26

49.11 59.17 83.43

8

4.73

88.17

5

2.96

91.12

3

1.78

92.9

5 7 169

2.96 4.14 100.00

95.86 100.00

e Segurança Social (Ministry of Labor, Solidarity and Social Security) (GEPMSSS, 2017),1 which show that sections C, G, and F are the most important number of enterprises by economic activity. Table 6.2 shows that 4.14% of the companies (7 firms) answer that the main activity falls into two sections: section G (wholesale and retail) and section F (construction) or, in alternative, with section C (manufacturing). Although the data collected do not allow the weight of each section to be dimensioned, it may be assumed that section G is common to both, that this is an activity complementary to the main activity. 6.1.2

Firm Size

The criteria of “number of employees” and “annual turnover” or “annual balance sheet total” (see Table 6.3) were used to classify the firms by size, that is, micro, small, and medium-sized enterprises, according to the Recommendation n.o. 2003/361/EC of the European Commission of 6 May. Thus, the category of micro, small, and medium-sized enterprises consists of companies employing less than 250 employees and whose annual turnover does not exceed EUR 50 million or whose closing balance does not exceed EUR 43 million. The number of employees is the criteria most used to characterize companies in terms of size. As shown in Table 6.3, 63.31% of companies’ employ between 1 http://www.gep.mtsss.gov.pt/documents/10182/10928/qp2017pub.pdf.

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Table 6.3 Main indicators of family firms, by size Number of employees < 10 persons 10−49 persons 50–249 persons Annual turnover < e500,000 e500,001–e1,500,000 e1,500,001–e2,000,000 e2,000,001–e10,000,000 e10,000,001–e50,000,000 > e50,000,000 Annual balance sheet < e2 million Between e2 and e10 million Between e10 and 43 million

Table 6.4 Number of micro, small, medium-sized family businesses

Number of firms 6 107 56 Number of firms 3 34 16 86 26 4 Number of firms 53 90 26

Category of SME

Micro Small Medium-sized Total

Percentage 3.55 63.31 33.14 Percentage 1.78 20.12 9.47 50.89 15.38 2.37 Percentage 31.36 53.25 15.38

Accumulated percentage 3.55 66.86 100.00 Accumulated Percentage 1.78 21.89 31.36 82.25 97.63 100.00 Accumulated percentage 31.36 84.62 100.00

Number of firms

Percentage

Accumulated percentage

5 103 61 169

2.96 60.95 36.09 100.00

2.96 63.91 100.00

10 and 49 employees. For annual turnover, more than 50% generates an amount between EUR 2 and 10 million (50.89%). It can be seen that there are four companies whose annual turnover exceeds EUR 50 million but the balance sheet total is less than EUR 43 million. The values of the total balance sheet are grouped into three classes, and 31.36% of the companies surveyed have a value of less than 2 million euros, 53.25% have a balance sheet value between EUR 2 and 10 million and 15.4% of the companies have a balance sheet value between EUR 10 and 43 million. By comparing the SME definition criteria, there is clear evidence of the prevalence of small companies in the sample (60.95%), as reported in Table 6.4. Regarding the activity of SMEs in the external market, Table 6.5 shows that 27.22% of the companies operate exclusively in the domestic market, with a greater emphasis on micro and small enterprises. Further, Table 6.5 shows that it is small and medium-sized companies that predominate in terms of activity in the foreign market, especially in foreign market turnover levels above 25%.

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Table 6.5 Distribution of SMEs family firms, by foreign turnover Activity in foreign markets

Micro

Small

Medium

Total

Without activity

Between 25 and 50% of turnover

3 −60.00% 2 −40.00% 0

More than 50% of turnover

0

Total

5

33 −32.04% 38 −36.59% 14 −13.59% 18 −17.48% 103

10 −16.39% 15 −24.59% 18 −29.51% 18 −29.51% 61

46 −27.22% 55 −32.54% 32 −18.93% 36 −21.30% 169

Less than 25% of turnover

6.1.3

Ownership and Management Structure

Table 6.6 reports the percentage of ownership (equity) held by the members of the family group. The original data allow us to determine that the average percentage of ownership owned by the family group is 96.58% and that 151 family companies (89.35%) have an exclusively family-owned structure with 100% of the ownership. Thus, results from Table 6.6 show a high concentration of ownership in the Portuguese FBs. Like the ownership structure, the participation of family members in the management of the company constitutes a link between the family and the company. Table 6.7 reports the findings. Table 6.7 shows a high participation of the family members in management of the company; 78.04% of the companies’ family members controlled more than 75% of management positions in the firm. Hence, these results also show a high concentration of family members in management. Table 6.8 shows the composition of the management team, which comprises the number of directors (commercial, financial, production Table 6.6 Proportion of share ownership held by family

% of ownership (equity) 0.8), indicating that elimination of any variable is not necessary, and that the application of AFE is adequate. Thus, the factorial analysis was carried out using the principal components method with the nine variables and the variables are grouped into 2 factors, all of which have an eigenvalue value greater than the unit.

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89

Table 6.18 Number of factors, KMO and sphericity test and variance explained (stewardship behavior)

Stewardship behavior

Number of elements

KMO

Test of sphericity

Sig.

Variance explained

2

0.880

1029.635

0.000

69.055

Note KMO—Kaiser-Meyer-Olkin Measure of Sampling Adequacy

Table 6.19 EFA results for stewardship behavior Stewardship variables

Business satisfy your personal needs Business contribute to your self-image Business satisfy your need for achievement Business satisfy your opportunities for growth Business make you feel self-actualized Business inspire employees’ care, and loyalty Business encourage a collectivist rather than an individualistic Business foster a professionally orientated workplace Business allow employees to reach their full potential Eigenvalue Cronbach’s alpha

Factor loadinga 1

2

0.876 0.856 0.844 0.825 0.754 0.215 0.081 0.383 0.404 5.217 0.912

0.180 0.234 0.264 0.300 0.207 0.872 0.860 0.757 0.702 1.461 0.865

Note a Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 3 iterations

After factors retention, the components were rotated for their best interpretation, using orthogonal Varimax rotation. The loadings after rotation as well as the Cronbach’s alpha coefficients are shown in Table 6.19. The results of the factorial analysis presented in Table 6.19 suggest that the variances of each variable are well explained by two factors; none of the variables have high factor loadings in more than one factor, which facilitates the interpretation of the factorial structure. The internal consistency of the nine variables show a result of 0.906 and that the factors present a Cronbach Alpha coefficient of 0.912 and 0.865, respectively, which shows acceptable levels of internal consistency. These results are identical to those obtained by Davis et al. (1997) and Zahra et al. (2008). Factor 1 and factor 2 assume the previously used names, namely, stewardship motivation and stewardship culture, respectively. The factors were then interpreted considering the loadings of the variables associated with the factor and the literature review. Factor 1—Stewardship Motivation (Self-Motivation) This factor explains 57.97% of the total variance and groups the variables focused on the needs

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and motivations of the executives. Starting from the reality of family companies, where the ownership and management of the company are shared by family members, in this sense, individual needs serve the interests of the organization and owners (shareholders/partners). Family-owned companies that have a high value in this factor have executives (administrator or chief executive officer) who have a high identification with the company and develop long-term-oriented social and organizational behaviors. Factor 2—Stewardship Culture This factor explains 16.23% of the total variance. The variables included in this factor correspond to the values of loyalty and trust of the human resources and to the collective benefit of the company. Human resources, family and nonfamily members, are encouraged to show respect for each other and to sustain loyalty and commitment to family business. This factor measures the ability of the company to create a culture conducive to stewardship behavior. In summary, the factorial analysis allowed to extract: (i) three dependent variables, (ii) five independent variables, and (iii) two mediating variables to be used in the Multiple Linear Regression Model.

6.3

Results of Multiple Linear Regression Models 6.3.1

Variables of the Regression Models

To estimate the MLRM we use the three dependent variables:( i) economic performance, (ii) medium- and long-term goals (perpetuity), and (iii) family wealth. The independent variables of the family influence also result from the EFA and correspond to the five factors obtained: (i) power; (ii) experience (generational change), (iii) culture of commitment, (iv) culture of values, as well as the mediating variables stewardship motivation and stewardship culture. As control variables, were considered: legal form, internationalization, size, and founder’s presence in management. 6.3.2

Validation of the Assumptions of Linear Regression Models

To apply the MLRM, we first analyze the correlation matrix in order to detect any multicollinearity problems. Table 6.20 presents the Pearson correlation coefficients for all variables included in the models. The values reported by Pearson correlation suggest that the multicollinearity is not a problem. Because not all the independent variables result from the factorial analysis, the tolerance test and the variance inflation factor (VIF) test were also calculated. The value for the tolerance observed is above 0.10 and all VIF values are less than 10, thus we confirm that the multicollinearity is not a problem. (e.g., Hair et al., 2010). To examine the autocorrelation, we use the residues to apply the Durbin–Watson test. If the observed values are in the range of [1.5 and 2.5], we can conclude that

1 0.030 0.044 −0.107 −0.060 0.088 0.095 0.316** 0.150 0.230** 0.070

1

0.000 0.031 0.074 0.060 0.102 −0.065 −0.131 0.206**

0.213** 0.231**

0.217**

0.000 0.039 0.077 0.230** −0.145 −0.105 0.014 0.089

0.039 0.205**

0.072

3

0.000

1

2

0.081

0.059 0.020

1 0.413** 0.204** −0.077 −0.279** 0.222** 0.037

4

0.191*

0.027 −0.025

1 0.183* 0.008 −0.204** 0.086 −0.066

5

0.049

−0.051 0.138

1 0.137 −0.097 −0.022 0.036

6

−0.219**

−0.022 0.079

1 0.021 −0.693** 0.129

7

−0.058

0.000 0.070

1 0.000 0.000

8

Notes **Correlation is significant at 0.01 level (2-tailed); *Correlation is significant at 0.05 level (2-tailed)

1. Economic performance 2. Medium- and long-term goals 3. Family wealth 4. Legal form 5. Size 6. Internationalization 7. CEO founder 8. Power 9. Experience 10. Culture of commitment 11. Culture of values 12. Stewardship motivation 13. Stewardship culture

1

Table 6.20 Pearson correlation matrix

0.255**

0.000 0.005

1 0.000

9

0.255**

0.000 0.306**

1

10

0.164*

1 0.155*

11

0.000

1

12

1

13

6 ANALYSES AND DISCUSSION OF RESULTS

91

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the autocorrelation is not a problem (Durbin and Watson, 1951). The value obtained for each model was as follows: economic performance (d = 1.971), medium- and long-term goals (d = 1.971), and family wealth (d = 2.120), thus the residuals are not correlated with each other. Finally, with reference to the normality assumption, we calculate the Kolmogorov–Smirnov and the values reported allow us to conclude that the normality assumption is not violated. 6.3.3

Requirements for Mediation Analysis

The way an effect occurs is related to the psychological or cognitive process that causes the effect of X (independent variable) on Y (dependent variable), characteristic of mediations (Hayes et al., 2009). The requirements for mediation set out by Baron and Kenny (1986) stipulate that four sets of relationships are needed to confirm Hypothesis 4a and 4b. Figure 6.3 represents the different steps. This procedure implies four conditions/steps: i. The first condition verifies the existence of a statistically significant relation between the family influence (independent variables—X ) on the economic and noneconomic performance (dependent variable—Y ), to verify if there is a total or partial effect of the family influence variables on dependent variables (parameter c); ii. The second condition analyzes the association between family influence variables (X ) and the mediator variables (M : stewardship behavior variables—parameter a); iii. The third condition verifies if the mediator variables (M : stewardship behavior variables parameter b) have a significant effect on the dependent variables (Y ); iv. Finally, it is estimated if there is a relationship between family influence variables (independent variables—parameter c’ ) and stewardship behavior variables (mediator variables—M ) on the performance. This step allows to validate whether mediation is total (i.e., the relationship between power, experience, culture of commitment, and culture of values on performance—economic and noneconomic—is not significant in the presence of mediator variables [i.e., stewardship variables]) c / c'

Fig. 6.3 Mediation steps (Source Baron and Kenny [1986], adapted) X

M a

Y b

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93

or partial (i.e., the relationship between power, experience, culture of commitment and value on performance—economic and noneconomic reduces but remains significant in the presence of stewardship behavior [i.e., the mediator variable]). Therefore, we estimated several regression models to verify these relationships. Since we measured two forms of stewardship behavior, Models II and III were used to test the association between stewardship motivation and stewardship culture, respectively. The results obtained in the model estimation are presented in Tables 6.21, 6.22, and 6.23, which represent the assumptions of the Baron and Kenny (1986) model for each of the dependent variables: economic performance, medium- and long-term goals (perpetuity), and noneconomic objectives centered on family wealth which we will discuss in the next sections. 6.3.4

Results of the Effects of Family Influence on Economic Performance

The results of the regression analysis are shown in Table 6.21. Models I, IV, and V show the results of the hierarchical regression analyses testing the family influence on the economic performance. Model I includes the control variables and family influence variables. This model is statistically significant (p < .01) and the adjusted R 2 is 0.088. The results show that variable internationalization (β = 0.586; p < .01) is positively related to economic performance but the variable CEO founder presence is negatively related (β = −0.696; p < .01) to economic performance. The variable Experience (β = −0.217; p < .05) is negatively related with economic performance but the culture of commitment (β = 0.130; p < 10) is only marginally associated with economic performance. Model II relates to the stewardship motivation dependent variable. Thus, this model comprises the control variables and the independent variables. The model is statistically significant (p < .01) with an adjusted R 2 of 0.102. Related to the family influence variables, culture of commitment (β = 0.291; p < .001), and culture of values (β = 0.165; p < .05) are both significantly related with stewardship motivation but Power and Experience was not. In Model III the dependent variable is the stewardship culture. The model is also statistically significant (p < .001) with a higher adjusted R 2 of 0.174. Regarding the variables of the model, culture of commitment (β = 0.293; p < .001) and culture of values (β = 0.163; p < .05) are both statistically significant to stewardship culture. The variables Power and Experience show a similar result, that is, they are not statistically significant. Taken together, these results support the second necessary condition for stewardship behavior to mediate the relationship between family influence and economic performance (e.g., Baron and Kenny, 1986). In Models II and III the value of parameter “a” is obtained, continuing the mediation test with only one independent variable, culture of commitment once the culture of values is not statistically significant in Model I.

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Table 6.21 Multiple regression analysis: dependent variable—economic performance Economic performance Model I

STWDMOT Model II

STWDCUL Model III

Economic performance Model IV

Economic performance Model V

−0.085 (−0.501)

−0.270 (−1.605)

0.004 (0.025)

−0.182 (−1.134)

−0.035 (−0.205)

−0.095 (−0.542) 0.130 (0.761) 0.586** (3.399) −0.696** (−3.289)

−0.012 (−0.067) −0.048 (−0.282) 0.3161 (1.848) 0.123 (0.588)

−0.188 (−1.126) 0.454** (2.790) 0.111 (0.677) −0.3441 (−1.708)

−0.107 (−0.641) 0.127 (0.740) 0.512** (2.962) −0.386* (−2.514)

−0.092 (−0.529) 0.137 (0.792) 0.526** (3.049) −0.717** (−3.396)

Independent variables Power −00.072 (−0.932) Experience −0.217* (−2.031) Culture of 0.1301 commitment (1.728)

0.077 (0.995) 0.054 (0.512) 0.291*** (3.902)

−0.030 (−0.409) 0.138 (1.362) 0.293*** (4.091)

−0.086 (−1.123) −0.227* (−2.139) 0.075 (0.905)

0.165* (2.240)

0.163* (2.307)

0.014 (0.189)

(constant) Control variables Legal form Size Internationalization CEO founder

Culture of values

0.046 (0.616)

Mediators variable Stewardship motivation Stewardship culture R2 Adjusted R 2 R 2 F

0.131 0.088

0.145 0.102

0.213 0.174

3.024**

3.395**

5.413***

0.192* (2.573)

0.186* (2.346)

0.011 (0.138) 0.123 0.091 0.036 3.800**

0.004 (0.049) 0.161 0.108 0.030 3.029**

Notes Non-standardized coefficients. STWDMOT—Stewardship motivation; STWDCUL— Stewardship culture 1 p < .10; *p < .05; **p < .01; ***p < .001

Model IV allows to assess whether the stewardship behavior variables alone were significantly associated with economic performance (third condition of the mediation analysis). The model is statistically significant (p < .01) with an adjusted R 2 of 0.091. The change in R 2 in comparison to Model I is statistically significant (p < .01). However, only stewardship motivation is significantly associated with economic performance (f 3 = 0.192; p < .05). Considering this result, the parameter “b” was obtained, and the mediation analysis continued with only stewardship motivation variable.

6

ANALYSES AND DISCUSSION OF RESULTS

Table 6.22 Multiple regression analysis: performance—medium- and long-term goals

(constant) Control variables Legal form Size Internationalization CEO founder Independent variables Power Experience Culture of commitment Culture of values

dependent

noneconomic

MLT goalsa Model I

STWDMOT Model II

STWDCUL Model III

MLT goals Model IV

MLT goals Model V

−0.089 (−0.524)

−0.270 (−1.605)

0.004 (0.025)

−0.154 (−0.961)

−0.041 (−0.245)

−0.028 (−0.160) 0.176 (1.019) 0.108 (0.625) −0.082 (0.699)

−0.012 (−0.067) −0.048 (−0.282) 0.3161 (1.848) 0.123 (0.588)

−0.188 (−1.126) 0.454** (2.790) 0.111 (0.677) −0.3441 (−1.708)

0.014 (0.084) 0.064 (0.372) −0.019 (−0.108) 0.2771 (1.801)

0.012 (0.067) 0.093 (0.541) 0.029 (0.168) −0.036 (−0.171)

−0.046 (−0.583) −0.163 (−1.517) 0.216** (2.847) 0.214** (2.864)

0.077 (0.995) 0.054 (0.512) 0.291*** (3.902) 0.165* (2.240)

−0.030 (−0.409) 0.138 (1.362) 0.293*** (4.091) 0.163* (2.307)

Mediators variable Stewardship motivation Stewardship culture R2 Adjusted R 2 R 2 F

variable:

95

0.119 0.075

0.145 0.102

0.213 0.174

2.700**

3.395**

5.413***

−0.053 (−0.698) −0.201 (−1.899) 0.104 (1.271) 0.151* (2.004) 0.222** (2.976) 0.242** (3.134) 0.120 0.088 0.103 3.690**

Notes Non-standardized coefficients. a MLT goals—medium- and STWDMOT—Stewardship motivation; STWDCUL—Stewardship culture 1 p < .10; *p < .05; **p < .01; ***p < .001

0.182** (2.302) 0.201** (2.440) 0.172 0.119 0.053 3.272**

long-term

goals.

Finally, Model V adds the stewardship behavior variables to the control and family influence variables to complete the fourth condition of the mediation test. The model is statistically significant (p < .01). with an adjusted R 2 of 0.108, which increased 0.020 compared to Model I and the change in R2 is also statistically significant (p < .01). In Model V, it is also observed that the stewardship motivation (coefficient b) is statistically significant (f 3 = 0.186; p < .05) and that culture of commitment (coefficient c’ ) is not statistically significant (f 3 = 0.075; p > .10).

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Table 6.23 Multiple regression performance—family wealth

(constant) Control variables Legal form Size Internationalization CEO founder Independent variables Power Experience Culture of commitment Culture of values

analysis:

dependent

noneconomic

Family wealth Model I

STWDMOT Model II

STWDCUL Model III

Family wealth Model IV

Family wealth Model V

0.162 (0.971)

−0.270 (−1.605)

0.004 (0.025)

0.233 (1.424)

0.198 (1.186)

0.012 (0.069) 0.202 (1.201) −0.251 (−1.480) −0.113 (−0.545)

−0.012 (−0.067) −0.048 (−0.282) 0.3161 (1.848) 0.123 (0.588)

−0.188 (−1.126) 00.454** (2.790) 0.111 (0.677) −0.3441 (−1.708)

0.049 (0.289) 0.121 (0.687) −0.3451 (−1.949) −0.091 (−0.583)

0.000 (0.000) 0.241 (1.406) −0.2851 (−1.671) −0.154 (−739)

0.100 (1.310) 0.044 (0.416) 0.334*** (4.502) 0.1401 (1.927)

0.077 (0.995) 0.054 (0.512) 0.291*** (3.902) 0.165* (2.240)

−0.030 (−0.409) 0.138 (1.362) 0.293*** (4.091) 0.163* (2.307)

Mediators variable Stewardship motivation Stewardship culture R2 Adjusted R 2 R 2 F

variable:

0.159 0.117

0.145 0.102

0.213 0.174

3.787***

3.395**

5.413***

0.088 (1.152) 0.046 (0.440) 0.316*** (3.869) 0.1301 (1.733) 0.255** (3.355) 0.055 (0.696) 0.085 0.051 0.067 5.413***

0.1331 (1.697) −0.071 (−0.868) 0.180 0.128 0.021 3.474***

The results of the individual analysis of regression coefficients are not reported in Table 6.22 but available upon request from the authors Notes Non-standardized coefficients. STWDMOT—Stewardship motivation; STWDCUL— Stewardship culture 1 p < .10; *p < .05; **p < .01; ***p < .001

This result indicates that the introduction of the stewardship motivation variable into the equation absorbs (neutralizes) the full effect of culture of commitment on economic performance. In this case, the results show a total mediation, i.e., the stewardship motivation variable is the total mediator of the relationship between the culture of commitment and economic performance.

6

6.3.5

ANALYSES AND DISCUSSION OF RESULTS

97

Results of the Effects of Family Influence on Mediumand Long-Term Goals

Table 6.22 shows the findings for the model of family influence on mediumand long-term goals. The first column reports Model I with control and independent variables, Model II and III the model with the mediator variables, i.e., stewardship motivation and stewardship culture, Model IV the model with only the control and mediator variables and Model V presents results with the full model. Model I is statistically significant (p < .01) and the adjusted R 2 was 0.075. The results show that variables culture of commitment (f 3 = 0.216; p < .01) and culture of values (f 3 = 0.214; p < .01) are positively related to mediumand long-term goals. The results of Models II and III are the same as previously reported in Table 6.21, namely stand that both models are statistically significant and the family influence variables, culture of commitment and culture of values, are both significantly related with stewardship motivation and stewardship culture. Considering these results, the parameter “a” was obtained, and the mediation test continued with these two variables. Model IV verifies if the mediator variables (m: stewardship behavior variables parameter b) have a significant effect on medium- and long-term goals. The results of Table 6.22 show the model is statistically significant (p < .01) with an adjusted R 2 of 0.088 and both stewardship behavior variables, stewardship motivation (f 3 = 0.222; p < 0.01) and stewardship culture (f 3 = 0.242; p < .01), are statistically significantly associated with medium- and long-term goals. Given the results, the parameter “b” was obtained, and the mediation test continued with these two variables. Finally, Model V estimated the relationship between family influence variables (parameter c’ ) and stewardship behavior variables (mediator variables— M ). The model is statistically significant (p < .01). with an adjusted R 2 of 0.119, which increased 0.044 compared to Model I and the change in R 2 is also statistically significant (p < .01). The results indicate that, in presence of the full model, stewardship motivation (f 3 = 0.182; p < .01) and stewardship culture (f 3 = 0.201; p < .01) remain positive and statistically significant with medium- and long-term goals. By analyzing individually the coefficient c’ of the culture of commitment and the culture of values, the results show that the culture of values (coefficient c’ ) is positive and statistically significant (f 3 = 0.151; p < .05) which reveals a partial mediation, with a value of the parameter “c’ ” lower than the value of “c” (c’ = 0.151 < c = 0.214), and the culture of commitment (coefficient c’ ) is not statistically significant (β = 0.104; p > .10) which indicates a total mediation once it is observed a reduction in the value of “c’ ” for the relationship between the culture of commitment and the medium- and long-term goals, from c = 0.216 to c’ = 0.104, after the introduction of the mediator variables.

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Despite the observed results of partial mediation, the combination of two mediator variables with two independent variables can cover different results. Thus, the regression coefficients were estimated individually, with the entrance, first, of the culture of commitment variable and then of the culture of values variable with the respective mediator variables. When the variables are analyzed individually, the results confirm the existence of partial mediation in all combinations. These results allow us to conclude that there is a partial mediation effect of stewardship behavior variables (stewardship motivation and stewardship culture) on the relationship between the culture of values and medium- and long-term goals (perpetuity). Also, there is a total mediation effect of the stewardship behavior variables on the relationship between commitment culture and medium- and long-term (perpetuity) objectives. 6.3.6

Results of the Effects of Family Influence on Family Wealth

Related to family influence on family wealth the results are reported in Table 6.23. As per previous estimations, Column I reports the model with control and independent variables, Column II and III the models with the stewardship behavior variables, i.e., stewardship motivation and stewardship culture, Column IV shows the results of the control and mediator variables, and finally Column V the full model. Model I is statically significant (p < .001) with an adjusted R 2 of 0.117. The results show that only the culture of commitment (f 3 = 0.334; p < .001) and the culture of values (f 3 = 0.140; p < 0.10) are positive and statistically related with the noneconomic performance variable—family wealth. Models II and III have been previously analyzed in Table 6.22 and the mediation test proceeds with both independent variables, culture of commitment and the culture of values. Model IV is statistically significant (p < .05) however, the adjusted R 2 is rather low (0.051) compared to Model I. The results show that internationalization (f 3 = −0.345; p < 0.10) is negative and marginally related with family wealth and the stewardship motivation (f 3 = 0.255; p < 0.01) is positive and statistically associated with the noneconomic performance—family wealth. Analyzing Models, I, II, and III, and given the results of parameter “b” obtained in Model IV, the mediation test proceeds only with the stewardship motivation variable. In Model V (full model) only the control variable internationalization is marginally significant (f 3 = −0.285; p < 0.10). The stewardship motivation (mediator variable) is also marginally significant (f 3 = 0.133; p < 0.10) such as the independent variables, culture of commitment (f 3 = 0.316; p < 0.001) and culture of values (f 3 = 0.130; p < 0.10) are statistically significant. This results indicates that there is a partial mediation with a parameter value “c’” lower than the value of “c”, for culture of commitment (c’ = 0.316 < c = 0.334) and culture of values (c’ = 0.130 < c = 0.140). To validate the observed partial mediations, new regressions coefficients were performed, introducing in the full model,

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99

the control variables, the stewardship motivation (mediator variable) and individually each of the independent variables (culture of commitment and culture of values), and the family wealth (dependent variable). When the variables are analyzed individually, the results suggest that although the culture of commitment is associated with the family wealth, the relationship is partially mediated by stewardship motivation. Instead, the results with the other independent variable show that whether the culture of values or stewardship motivation, both are not significant, which leads us to exclude the existence of mediation.

6.4

Discussion of Results

Taken together, the results provided in Model I (Tables 6.21, 6.22, and 6.23) partially support hypothesis 2 and hypothesis 3 but does not support hypothesis 1a and hypothesis 1b. Considering hypothesis 2, these results confirm that the greatest generational dispersion (experience) is negatively related to economic performance but not with the noneconomic performance. In the case of noneconomic performance, no significant relationship was found. These results could be interpreted to family businesses, like any other organization, face the challenges of business life cycle maturity. Experience increases as new generations are integrated into the ownership and management of the company. On the one hand, the transition between generations brings benefits in terms of incorporation of knowledge (see the experience curve on succession), on the other hand, a higher generational dispersion changes the ownership structure and the relationships among family members are potentially more conflicting, which can cause negative effects on performance. In fact, our family business sample consists of companies with an average age of 38, in which the 2nd and 3rd generations are integrated into the ownership and management of the company. The negative effect of transition and generational dispersion coincides with the results found by several authors (e.g., Zellweger, 2006; Astrachan and Zellweger, 2008; Kellermanns et al., 2010) in which multigenerational family businesses have lower financial performance levels. Ward (1997) also states that the highest mortality rate occurs after the 3rd generation. Analyzing the results obtained for culture (hypothesis 3), which is subdivided between culture of commitment and culture of values, it appears that the culture of commitment is positively associated with either the economic performance as non-economic performance. Thus, the presence of a strong culture of commitment surpasses the individual interests of family members, through behaviors such as loyalty, pride, and the sense of belonging to the company that guide their decisions and actions toward greater performance. Hence, when the commitment increases the responsibility of the family members in the company leading them to adopt behaviors for the success of the organization, which involves simultaneously protecting the company as “family business” but also gaining benefits for the organization (e.g., increase wealth

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of the firms). Similar results were found by Eddleston et al. (2008) and Patel and Kellermanns (2010). Thus, family businesses tend to have a high level of commitment and perseverance stemming from the feeling of loyalty, pride, and reputation present at individual and family level. Consequently, the culture of commitment encourages family members to act for the benefit of the company. Long-term commitments are also established with stakeholders, namely customers, suppliers, banks, employees, and others that relate to the company. These relationships allow family firms to gain a reputation, consolidate their position, and bear lower transaction costs, and consequently their market presence is maintained more permanently (e.g., Sharma et al., 1997). As for noneconomic performance (medium- and long-term goals and family wealth), family businesses are particularly successful when they reveal a strong culture of commitment and culture of values. Thus, family members strike the balance between a culture of commitment and values to achieve business and family goals (e.g., Denison et al., 2004; Labaki, 2007; Ward, 1987). The requirements for mediation set out by Baron and Kenny (1986) stipulate that four sets of relationships are needed to confirm hypothesis 4 (H4a and H4b). Jointly by analyzing the results for mediation provided in Model I to V (Table 6.21) partially support H4a. According to the results presented in Sect. 6.3.4, we find that only the stewardship motivation mediates the relationship between the culture of commitment and the economic performance. The presence of a total mediation means that the introduction of stewardship motivation drops the relationship between the culture of commitment and the economic performance. The entire (or total) effect of the culture of commitment on economic performance is transmitted through the stewardship motivation. In this case since the stewardship motivation indicate that individual needs of family members meet the interests of the organization and the owners (shareholders/partners) with economic performance and the culture of commitment is already assumed in the presence of stewardship motivation by assuming an identification with the company. Also, the results for mediation provided in Model I to V (Tables 6.22 and 6.23) partially support H4b. First, given the results presented in Sect. 6.3.5 we find that the stewardship motivation and stewardship culture mediate the relationship between the culture of commitment and the culture of values and medium- and long-term goals, in different ways. We observed a total mediation of stewardship behavior (both, stewardship motivation and stewardship culture), that is, the relationship between the culture of commitment and the medium- and long-term goals is absorbed (or neutralized). In this case, a stewardship behavior itself encouraged family and nonfamily members to sustain commitment to family business and, to develop long-term-oriented social and organizational behaviors (survival and growth). At the same time, we found a partial mediation that implies there is not only a relationship between the stewardship behavior and the medium- and long-term goals but also a direct relationship between the culture of values and medium- and long-term goals. In addition to stewardship behavior, it

6

ANALYSES AND DISCUSSION OF RESULTS

101

contributes to better long-term performance, as well as a high identification with the company and the cohesion in the sharing (overlapping) of family and company values. Second, given the results presented in Sect. 6.3.6 we find that the stewardship motivation mediates partially the relationship between the culture of commitment and family wealth (noneconomic goals). In this case, the direct effect between culture of commitment and family wealth is not mediated, whereas the indirect effect is transmitted through the stewardship motivation. Thus, culture of commitment variables such as agreement, involvement, loyalty, and pride of family members, are directly related noneconomic goals concerning wealth, succession, and ownership of family. Also the stewardship motivation explains as the family members tend to consider the organization as an extension of itself, valuing responsibility, altruism, and intrinsic motivation for satisfaction in the accomplishment of its tasks that is indirectly related to family wealth.

CHAPTER 7

Conclusions, Contributions, and Recommendations

This chapter presents the main conclusions of the research, the theoretical contributions of the study, and the practical recommendations for practitioners with some suggestions for further research.

7.1

General Conclusions of the Investigation

SMEs and in particular family businesses are important for the development of any economy. According to the PFBA, SMEs family firms represent around 70–80% of Portuguese companies as well as in different regions of the world. The literature about economic and financial performance produces controversial results for listed family companies and private companies. Further, the research has mainly focused on the differences between family businesses and nonfamily businesses. In these cases, ownership, power, and/or control arise as the variables that are most commonly used in the definition of a family business. More recently, although comparative studies continue to be carried out, the recent research highlights the role of the family in the family firms, trying to understand how family influence affects the company, in particular its performance. This research examines how family influences the business performance (economic and noneconomic) of Portuguese SMEs and how such a relationship is mediated by stewardship behavior. This general objective has been broken down into several specific objectives. The first objective concerns the theoretical framework and the identification of different approaches to the concept of the family business. The literature review confirms that there is no single definition that is generically accepted, however, some common criteria © Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2_7

103

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can be found, such as ownership (although partial) and management of the company by family members. In order to better understand these organizations, several models were developed to represent the family business. These models highlight the uniqueness of the family business that is present in the family’s involvement with unique and distinct characteristics, and which constantly family influences the organization in its various subsystems (e.g., ownership, management, governance/supervision). As a result, family businesses should be viewed as heterogeneous entities in which there are different levels of involvement and influence of the family. The concept of influence leads us to the second specific objective. In this context, Astrachan et al. (2002) and Klein et al. (2005) develop the F-PEC scale that determines the degree of family involvement considering three dimensions: P—power, E—experience, and C—culture—that was originally developed to establish some “order” in the definition family business, by considering the family business as a “continuum” from less familiar to more familiar. Thus, the underlying concept of F-PEC scale is the level of family influence. The versatility of the scale, consisting of three dimensions, allows us to explore each dimension individually to gauge its impact in particular on performance. Thus, the F-PEC survey proposed by Astrachan et al. (2002) and validated by Klein et al. (2005), Holt et al. (2010), and revisited by Rau et al. (2018), was adapted to the Portuguese business reality. Thus, we conduct a survey that comprises a final sample of 169 family SMEs. Further, we use the F-PEC scale to measure the influence of the family in the performance: economic and noneconomic of the company. The results from applying the F-PEC scale to the Portuguese reality show that: First, the dimension “Culture” does not constitute a single dimension, as we found two constructs: “culture of commitment” and “culture of values” that is family firm identity and shared values as opposed to F-PEC. Based on the results of the exploratory factorial analysis and the literature review, we decide to maintain these two constructs. The third objective aims to use a broader concept of performance— economic and noneconomic. This strategy intends to introduce a multidimensional approach in the analysis. Although economic and financial performance is a determinant of the success of any organization, the continuity and perpetuity of the business as a family firm depends on the pursuit of noneconomic goals, no less important for family members (e.g., Holt et al., 2017). In fact, in family businesses there is a concern, not only with the financial aspects, but also with the affective needs of the family (e.g., protection of the social emotional wealth, reputation, conservation of social capital, perpetuation of values— Berrone et al., 2012). The 13-item model of measurement performance revealed that the concept of business performance consists of three dimensions: economic performance, medium and long-term goals, that is perpetuity of the company, and objectives focused on family wealth conservation. In relation to our the fourth and last objective, several hypotheses of investigation were defined to test a system of relations between the influence of

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105

the family on firm performance (economic and noneconomic) and how such relationships are mediated by stewardship behavior, as shown in our research framework (see Fig. 4.1). The results confirm that there is a negative relationship between family experience and the company’s economic performance. This result represents challenges posed by the maturity of the company and family life cycles. Although the incorporation of prior generation knowledge in subsequent generations is beneficial, family members also face greater distancing from the founding generation and greater complexity of family member relationships. The generational transition simultaneously changes the structure of ownership, management, and relationships among family members, generating fertile ground for the emergence of conflicts that compromises the company’s perpetuity goals. Further, the results did not allow us to establish any relation of the experience to the family-centered objectives (long-term goals and family wealth). The variable Power is not statistically significant with any dependent variable. Regarding the variables, the culture of commitment and culture of values the results are mixed. The findings indicate a positive relationship between the culture of commitment and culture of values and economic performance. These results may be explained due the fact that our sample comprises family firms with an average age of 38-year-olds which showed a maturity of the family and the firm over the business life cycle. However, despite the longevity of the companies, there was also a high presence of the founder, in the ownership and management of the company. As the descriptive statistics show 65% of the companies have already partially or totally transferred their ownership to the second and subsequent generations, but 61.5% of the companies still own ownership by the founder. Furthermore, in 79% of the companies the management is assumed by the second generation and following generations, but in whole or in part, the founder still assumes management functions in more than 50% of the companies. Simultaneously, the next generational change will occur in 44.68% of companies with ownership held only by the founder. The convergence of these elements simultaneously helps to explain both the negative relationships and the positive relationships found regarding economic performance. If, on the one hand, the high concentration of family ownership and management, with the presence of the founder still in a pre-succession phase inhibits economic and financial performance, on the other hand, family ties strengthen the occurrence of behaviors such as loyalty and pride in the family business that becomes a commitment, making family members responsible for the success and perpetuity of the organization. Regarding the pursuit of noneconomic goals in the family firms, the results were robust by showing a positive relationship between the family influence and the non-economic objectives. These results showed that family businesses are particularly successful in noneconomic objectives (long-term goals and

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family wealth) when they have a strong culture of commitment and culture of values. The identification of family members with the company and the sense of commitment increases their responsibility by leading them to adopt behaviors for the success of the organization (e.g., increase the wealth of the firm to guarantee its longevity), to protect the company as a “family firm.” Finally, regarding the mediating effect of the stewardship variables (i.e., stewardship motivation and stewardship culture), the results show that experience maintains the direct negative relationship with economic performance, and there is no mediation in the relationship. However, it was found that the variable stewardship motivation totally mediates the relationship between the culture of commitment and economic performance. Given that the stewardship motivation variable is a total mediator of the relationship, we can consider at the outset that family businesses that have a high degree of commitment and that have a superior economic performance are also family firms that present a high stewardship motivation and that this is the variable that best predicts performance. Regarding the medium- and long-term goals, the results revealed the existence of mediation with regard to the culture of commitment and the culture of values. In fact, the positive relationship between the commitment culture and the company’s medium and long-term goals occurs not only because family members exhibit loyalty, pride, and feelings of belonging to the company, but also because of stewardship behaviors (motivation and culture), which in turn also affect the medium- and long-term goals. The results also showed that the stewardship motivation variable partially mediates the relationship between the culture of values and the medium- and long-term goals. In this case, there was a positive relationship between the culture of values and stewardship behavior variables which in turn also positively affects the medium- and long-term goals. Regarding the family wealth (noneconomic goals), the results revealed that the stewardship motivation mediates partially the relationship between the culture of commitment and family wealth. So, the direct effect between the culture of commitment and family wealth is not mediated, whereas the indirect effect is transmitted through the stewardship motivation (valuing more the aspects of fulfillment, responsibility, altruism, and intrinsic motivation). These results suggest that family influence is a complex and multifaceted phenomenon that can have positive and negative effects on the performance of family businesses and many family businesses survive over generations not only because they are more efficient or profitable but because they meet the socio-emotional needs of their owners.

7.2

Research Contributions

With regard to the main contributions of this research, they come directly from two sources: the theoretical contributions and recommendations to practitioners.

7

CONCLUSIONS, CONTRIBUTIONS AND RECOMMENDATIONS

107

The flexibility of using the F-PEC scale allowed us to find two opposite sides of the influence of the family: on the one hand, we find no effect of the power on economic and noneconomic performance, and the generational experience has a negative impact on the economic performance. On the other hand, we find a positive effect between the culture of commitment and the culture of values on noneconomic performance. The results obtained by the mediating effects of stewardship behavior contribute to a better understanding of how the relationship between the culture of commitment and the culture of values is established with performance. These results reinforce the application of the stewardship theory in the context of family firms, suggesting that the individual (agent) exhibits a high commitment in order to contribute to the benefit of the organization. Further, the results contribute to a better knowledge and understanding of the dynamics and complexity of family businesses. For entrepreneurs, managers, consultants, and other professionals, this study shows the need to analyze family firms from a broader perspective than the purely financial and economic perspective. In fact, it is necessary to realize that family involvement in business combines emotional and financial capital, thus its longevity depends on how both are interrelated. This research provides some indicators, both positive and negative, on which members (family and nonfamily) should focus their attention on achieving better performance. The culture of commitment emerges as the “common denominator” for increasing economic performance and perpetuity goals, and family wealth conservation (family wealth) goals. In this sense, since each family business has different goals, it is important to understand how the culture of commitment turns into better performance. One of the evidence brought in this study is that stewardship behavior is a crucial variable for higher performance. On the other hand, family businesses should develop monitoring mechanisms to master excess altruism and family benefits so that family-centered goals are not detrimental to business goals.

7.3

Limitations and Directions for Future Research

This study reveals some limitations. On the one hand, data collection on the economic and financial perception of firms occurred in 2012, with reference to the three-year period 2009–2011, which coincides with the process of adjustment of the Portuguese economy, framed by the economic and financial assistance program by International Monetary Fund, the European Central Bank and the European Commission. In a context of high uncertainty, this scenario may affect the respondent’s view of the company’s economic and financial performance. Also, the Power subscale has exposed some limitations of application in Portuguese business contexts of corporate governance system that is different from the original Anglo-Saxon model for which the F-PEC scale was designed, namely with regard to the one-tier versus two-tier board structure.

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Analyzing performance concerns in private companies provides an interesting opportunity for future research as well as a challenge, given that it is very difficult to obtain data from a large sample of these firms. Considering that in most family firms, the desired performance outcomes are based on a mix of economic and noneconomic goals, future research should use alternative research designs, like case studies as a complement of the survey. The case studies allow a better understanding of the characteristics of family members’ behavior and of the role that each family member plays in the company. For future research developments, it is proposed to include qualitative information (e.g., attitudes, vision), as additional data to capture the heterogeneity that characterizes SMEs family firms (e.g., Rau et al., 2019) and to identify specific configurations. Another direction for future research is to study how the willingness to transmit the company to future generations affects the company’s performance, and how this will may be the essence that distinguishes family businesses from other organizations.

Appendices

© Springer Nature Singapore Pte Ltd. 2021 A. P. M. Gama and C. A. Alves, Family Influence on Performance of Family Small and Medium Enterprises, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-33-4846-2

109

ECPERF1a ECPERF2 ECPERF3 ECPERF4 ECPERF5 ECPERF6 NECPERF1b NECPERF2 NECPERF3 NECPERF4 NECPERF5 NECPERF6 NECPERF7 NECPERF8 NECPERF9 NECPERF10

3.38 3.37 3.11 2.93 3.06 3.07 4.46 4.50 4.80 4.12 3.97 3.47 4.34 4.17 4.60 3.64

.82 .83 .74 .91 .90 .92 .65 .71 .45 .76 1.02 1.01 .75 .90 .63 1.18

S.D.

.782** .480** .489** .530** .502** .105 .002 .151* −.047 −.029 −.021 .145 −.016 .027 −.02

1

1

.577** .524** .559** .531** .103 −.049 .081 −.092 −.008 .014 .161* −.021 −.062 .000

1

2

.448** .491** .455** .089 −.051 .12 −.015 .116 .122 .135 −.011 .007 .08

1

3

.808** .766** .055 −.037 .096 −.073 .094 −.003 .211** .022 .013 .032

1

4

.918** .104 .000 .159* .015 .073 .068 .242** .01 .073 −.002

1

5

.128 .014 .173* .031 .084 .083 .270** −.006 .117 .016

1

6

1 .311** .426** .316** .217** .222** .197* .259** .288** .275**

7

1 .489** .450** .276** .290** .260** .286** .405** .319**

8

1 .366** .206** .162* .356** .287** .395** .103

9

1 .413** .423** .250** .318** .366** .256**

10

1 .373** .403** .349** .251** .327**

11

.339** .187* .135 .346**

1

12

.310** .417** .246**

1

13

1 .268** .349**

14

1 .282**

15

1

16

S.D.—standard deviation a ECPERF—Economic performance. 5-point Likert scale ranging from 1 (very less than the main competitors) to 5 (much larger than the main competitors) b NECPERF—Non economic performance. 5-point Likert scale varying from 1 (not at all important) to 5 (highly important) ** Correlation is significant at the 0.01 level (1-tailed) * Correlation is significant at the 0.05 level (1-tailed)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Mean

Table A.1 Mean, standard deviation and correlation matrix of performance variables

110 APPENDICES

EXP2 EXP3 CUL1b CUL2 CUL3 CUL4 CUL5 CUL6 CUL7 CUL8 CUL9 CUL10 CUL11 CUL12

Ownership Management Supervision EXP1a

96.58 80.41 93.87 38.09 45.53 39.17 63.17 74.85 76.48 75.89 86.69 89.05 81.80 78.25 88.76 80.92 78.11 78.25

12.71 27.16 15.71 29.65 25.89 29.11 35.36 24.32 24.50 22.97 15.44 16.77 17.83 16.72 15.41 19.15 17.51 21.75

S.D.

.436** .753** −.052 .007 .023 .065 .115 .123 .161* .038 .0253 .025 .074 −.007 −.083 −.008 −.001

1

1

.445** −.064 −.110 −.098 −.102 −.025 −.013 .026 −.029 −.055 −.009 .081 .043 .108 .035 .043

1

2

1 −.149 −.056 −.077 .096 .011 .031 −.001 −.066 −.037 −.022 .048 .003 .001 −.061 .006

3

.787** .904** −.047 .102 .067 .032 .015 .088 −.036 −.023 −.11 −.028 .007 −.078

1

4

S.D.—standard deviation a EXP—Experience b CUL—Culture ** Correlation is significant at the 0.01 level (1-tailed) * Correlation is significant at the 0.05 level (1-tailed)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Mean

.784** .081 .154* .115 .002 −.02 .079 −.048 −.041 −.097 −.076 −.045 −.073

1

5

7

8

9

10

1

12

13

14

15

16

17

1 −.001 1 .138 .513** 1 .075 .501** .843** 1 .084 .114 .240** .262** 1 .027 .282** .371** .328** .464** 1 .114 .226** .315** .302** .421** .713** 1 .012 .264** .320** .360** .358** .399** .425** 1 .009 .267** .413** .397** .399** .558** .499** .487** 1 −.058 .280** .264** .300** .344** .493** .471** .334** .446** 1 −.035 .280** .282** .275** .301** .507** .539** .437** .521** .466** 1 .017 .306** .412** .371** .372** .594** .522** .409** .652** .503** .688** 1 −.091 .345** .324** .361** .374** .551** .486** .413** .595** .476** .552** .540**

6

Table A.2 Mean, standard deviation and correlation matrix of F-PEC variables

1

18

APPENDICES

111

112

APPENDICES

Table A.3 Mean, standard deviation and correlation matrix of Stewardship behavior variables Mean S.D. 1. 2. 3. 4. 5. 6. 7. 8. 9.

STWD1a STWD2 STWD3 STWD4 STWD5 STWD6 STWD7 STWD8 STWD9

4.05 3.96 3.91 4.13 3.99 3.82 3.81 3.98 4.09

.67 .68 .76 .72 .84 .61 .67 .63 .68

1

2

3

4

5

6

7

8

9

1 .753** 1 .746** .771** 1 .751** .708** .721** 1 .601** .596** .559** .669** 1 .471** .501** .478** .486** .438** 1 .469** .467** .549** .469** .429** .715** 1 .428** .321** .459** .403** .372** .580** .654** 1 .354** .253** .328** .301** .239** .497** .531** .728** 1

S.D.—standard deviation a STWD—Stewardship. 5-point Likert scale ranging from 1 (nothing) to 5 (extremely) ** Correlation is significant at the 0.01 level (1-tailed)

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