Family Involvement in Ownership and Management: Exploring Nonlinear Effects On Performance
Family Business Review - Vol. 21 Nbr. 4, December 2008
Sciascia, Salvatore
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Research on the performance of family firms is growing, but results are mixed, especially for nonlisted companies. Thus, on the basis of the co-presence of benefits and disadvantages of family involvement in ownership and management, we explored the presence of nonlinear effects of these two variables on performance. We run regression analyses on data drawn from 620 privately held family firms in Italy: A negative quadratic relationship between family involvement in management and performance was found, but we did not find any association between family involvement in ownership and performance. Our results suggest that in privately held firms the positive effects that previous literature associates with the presence of family managers do not appear strong enough to compensate for the disadvantages deriving from a nonmonetary goal orientation, nor do they compensate for the costs deriving from the need to solve conflicts between family managers and the impossibility of enlarging the company's social and intellectual capital through the employment of nonfamily managers. Moreover, the quadratic nature of the relationship calls for greater attention to be paid to these effects by family business owners, especially in those cases where family involvement in management is high.
Family Involvement in Ownership and Management: Exploring Nonlinear Effects On Performance
Introduction
A remarkable number of studies have attempted to compare the performance of family and nonfamily firms in order to understand if and how family involvement in ownership (FIO) and family involvement in management (FIM) affect performance. However, there is still a need to investigate these relationships because there are no unanimous findings in the literature: Positive, negative, and null associations have been found between the two concepts and different measures of performance. Moreover, most of previous research focused on large listed firms, although the vast majority of companies are small and nonlisted in each economy.We argue that the conflicting results of previous research mirror the existence of opposite effects of both FIO and FIM on company performance: The presence of the family in the ownership and management of the firm can be a benefit or a disadvantage for company competitiveness, thus creating unique paradoxical conditions to cope with (Moores & Barrett, 2003).The presence of conflicting results, as well as the presence of opposite arguments in the literature on family firms, led us to suspect the presence of nonlinear relationships between the abovementioned variables. Our article aims to explore these nonlinear relationships; more specifically, we tested a hypothesis on an inverted-U-shaped relationship between FIO and performance and a hypothesis on an inverted-U-shaped relationship between FIM and performance. We developed two nonlinear hypotheses because, drawing from previous family business literature, we argue that the benefits of both FIO and FIM exist until they are overtaken by their disadvantages. We hypothesized the curve would have an inverted-U shape because we did not expect the benefit to be effective until FIO and FIM reached a certain level; nor did we anticipate the disadvantages being particularly relevant until FIO and FIM approached the maximum level.The study was carried out on 620 Italian firms. Unlike most of the previous studies, our sample, designed to be representative of the Italian economy, was mainly made up of small and medium-si...Try vLex for FREE for 3 days
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