2023 Rod Senft Family Business Conference

Guangdong University of Foreign Studies

Weicheng Xiao and Xuan He

Abstract

The intrafamily succession intention (IFSI) of family firms is crucial because the IFSI essentially determines the time horizons and longevity of a family firm across generations, while a lack of IFSI usually means family firm exit. Despite the importance of IFSI, we lack knowledge about how the external institutional environment affects IFSI. It is feasible for family firms in developed and stable institutional environments but could be problematic for those in transitional and intrusive institutional environments in emerging economies.

Therefore, based on an institutional perspective and socioemotional wealth theory, this paper explores the influence of state logic, a prevalent characteristic of institutional environments in emerging economies, on family firms’ IFSI. We posit that state logic advocating political discretion and social justice is incompatible with the emotional needs of business families with respect to maintaining control and obtaining private benefits. As a result, state logic may damage the socioemotional wealth (SEW) of family business owners, thus decreasing the likelihood that they will have IFSI. However, owners’ political power can alleviate and even reverse this negative relationship. In addition, the influence of political power only works in an environment with underdeveloped market institutions but not with developed ones. An empirical analysis of 774 fully family-controlled Chinese companies considering intrafamily succession supports our hypotheses.

This paper provides a new entry point for examining the integration of institutional economics and family business theory. Existing studies mainly regard institutional environments as an exogenous constraint that moderates the relationship between SEW pursuits and the behavior and performance of family firms. We further argue that owners’ pursuit of SEW can be affected by external institutional dynamics, as intrusive institutional elements can diminish owners’ IFSI by jeopardizing their SEW. This study expands our understanding of the interactions between institutional environments and family firm SEW and helps to elucidate the institutional factors that influence the achievement of family-centered goals.

Ca' Foscari University of Venice

Michele Pinelli

University of Wien

Francesco Debellis

Free University of Bozen

Alfredo De Massis

Abstract 

In this study we adopt an institutional economics perspective to explain variance in the intensity of family involvement in family firms’ governance arrangements. We argue that the informal institutional environment exerts an important influence on market observers’ perceptions about the desirability of family involvement in corporate governance.

While past research maintains that market observers are generally concerned about family firms’ noneconomic priorities and are thus skeptical of family-intensive governance arrangements, we contend that in long-term oriented cultures family involvement is seen favorably because of a greater appreciation for family members’ long-term temporal perspective. Hence, family firms have more latitude to adopt family-intensive governance arrangements in long-term oriented cultures. Our analysis of 826 listed family firms in 26 countries largely supports our hypotheses.

Our theory and results contribute both to research on family firms’ governance and on family firms’ heterogeneity.

University of Manitoba

Zixu Zhang

Missouri University of Science and Technology

Hanqing (Chevy) Fang

Abstract

According to socioemotional wealth theory, the intention to transfer assets and business to following generations make it necessary for current family business owners to have a long-term strategy, such as investing in R&D for the far future. Family businesses may invest more R&D despite the risks associated with such investments over the long term because of the potential advantages associated with successful outcomes. 

Familiarity bias can explain the tendency for individuals to favor things they are familiar with. Bounded rationality as a bias of individuals who make decisions based upon their subjective opinions rather than objective facts. Internationalization can be beneficial to firm due to providing opportunities for value creation, it may also reduce profit fluctuations by scattering risks over a few countries, and it brings in benefits as firms resolve local issues and initiate R&D projects. 

By applying argument of familiarity bias and bounded rationality, we explore market reactions given R&D investments in both family firm and non-family firms. We also want to test the relationship between volatility of stock return of perceived family firms which have operations overseas. 

University of Burgos

Virginia Blanco-Mazagatos, Juan Bautista Delgado-García, M. Elena Romero Merino, and Marcos Santamaría-Mariscal

Abstract 

The literature on debt financing in family firms is still inconclusive. Initial studies have usually focused on the influence of family involvement on firm’s debt levels by using the explanations of traditional economic theories. More recent studies have begun to focus on the role of family objectives in family firm debt levels, particularly drawing on SEW, which has helped in the development of financial theories of family business.

Nevertheless, existing arguments have usually not considered SEW as a multidimensional construct, that covers diverse family goals. In addition, literature has usually drawn on arguments considering SEW as a stock, but have not considered the importance given to SEW (SEWi), which specifically acknowledges SEW as a goal. Our paper responds to recent calls by literature to extend theoretical arguments on the influence of diverse dimensions of SEW on family firm behavior and to focus on the role of SEWi on the family firms’ debt. Specifically, we test how the importance that the family CEO attaches to the continuity, enrichment and prominence dimensions of SEWi influences the level of debt.

To do so, we use a sample of 126 Spanish unlisted family businesses. Our results show that the continuity dimension of SEW leads family businesses to increase their debt level being a key determinant of this financing decision.    

Iowa State University

Paul Sanchez

Old Dominion University

Robert J. Pidduck

University of Delaware

Duygu Phillips

Texas State University

Joshua J. Daspit

University of Louisville

Daniel Holt

ABSTRACT 

Combining the socioemotional wealth (SEW) approach to family business with the classic economic theory of the firm, we develop an integrated model that explains how family firms’ organizational humility rhetoric influences market perceptions of family firm risk and shareholder returns. 

By employing a linguistic tool to create a novel measure of organizational humility rhetoric, we hypothesize that higher levels of observed organizational humility rhetoric decrease the market perceptions of family firm riskiness, as reflected in stock volatility, by mitigating the misalignment between shareholders’ risk preferences and the family’s SEW concerns. Further, we predict that organizational humility rhetoric moderates the relationship between family firm stock risk and shareholder returns, ultimately reinforcing the perception that the family firm is reliable and responsible. 

While previous research on family business typically assumes that shareholders perceive family firms as generally risk-averse due to the potential loss of SEW, we find that this relationship may be either positive or negative for a focal family firm, depending on the observed level of organizational humility rhetoric. We empirically test our model using a panel of 136 publicly traded family firms in the United States spanning the period from 2010 to 2019, resulting in 852 firm-year observations. Our theory and findings extend family business research by showing that family firms’ organizational humility rhetoric not only influences market perceptions of the firm but also translate those perceptions into value creation. 

University of Manitoba

Yuying Sun and Zhenyu Wu

Abstract 

This study examines the relationship between reputational risk and firm financial performance of both family and nonfamily firms. Relying on an international sample of over 5,000 listed firms from 42 countries from 2007 to 2019, we find that family firms are related to lower reputational risk compared to nonfamily firms, and family firms can further mitigate the negative effect of reputational risk on firm performance. 

However, this effect varies in different macro-regulatory environments. In countries with better regulatory quality, family firms show no significant difference in reputational risk with nonfamily firms, but still able to ease the performance drop due to reputational risk. In countries with poor regulatory quality, although we observe lower reputational risk for family firms, the effect of reputational risk on performance becomes positive, and family firms strengthen such positive influence. 

Our justification for the findings is mainly based on the socioemotional wealth (SEW) theory and rent-seeking theory.

University of Wisconsin Whitewater

Robert Yu

Missouri University of Science and Technology

Li Li Eng

Nanjing Agricultural University

Xi Tian

Chulalongkorn University

Thanyaluk Vichitsarawong

Abstract 

This paper examines whether Chinese family firms have better Environmental, Social and Governance (ESG) performance relative to non-family firms during the period 2018-2021. We also investigate whether the COVID-19 pandemic impacted the ESG performance of our sample firms in 2020-2021. We then examine the impact of ESG performance on the profitability (ROA) and firm value (Tobin’s Q) of the companies.

Family firm in our sample is defined as the ultimate controller holding at least 20% voting rights and one family member is the Chair of the Board of Directors or Chief Executive Officer of the company. Our findings indicate that family firms have better ESG performance than non-family firms. Family firms also have better ESG performance during the pandemic period than non-family firms. ESG performance is positively associated with ROA for both family and non-family firms. However, ESG performance is negatively associated with Tobin’s Q, in particular for non-family firms.

The findings suggest that family firms, which tend to pursue a long-term goal of preserving the family’s socioemotional wealth, took a more active role in ESG during the recent health crisis.

University of Manitoba

Darcy MacPherson

Abstract 

In this paper, the author reviews the recent decision in Rogers v Rogers Communications Inc., from late 2021.  While the author agrees with the legal result in the case, the case emphasizes (for the author, at least) the need for succession planning, and usually, the use of one or more legal tools can help.  But, in order to figure out which tool or tools which work best in the scenario, there are a number of questions that can help with this decision.  The paper reviews the Rogers judgment, and provides some questions to start the discussion, and some of the legal tools that may come into play.

University of Manitoba

Jingnan Li and Jijun Gao

Sun Yat-sen University

Xianzhe Jin