Recent literature (McNulty, Yeh, Schulze, & Lubatkin, 2002) states that the assumptions behind the capital asset pricing model, in particular the irrelevance of time horizon, do not correspond to the ...characteristics of firms that prefer long-term investment horizons. I show that family firms display a longer time horizon than most of their nonfamily counterparts, since (1) family firms display a longer CEO tenure, (2) this type of firm strives for long-term independence and succession within the family, and (3) due to the fact that family firms are overrepresented on western European stock markets in cyclical industries in which business cycles inhibit short-term success. As the annual default risk of an investment diminishes with increasing holding period (Hull, 2003), the risk-equivalent cost of equity capital of firms with longer planning horizons (e.g., family firms) can be lower as well. Based on the assumption that economic value to shareholders is created when firms invest in projects with returns above the associated cost of capital (Copeland, Koller, & Murrin, 2000), I argue that long-term-oriented firms can tackle unique investment projects represented by two generic investment strategies—the perseverance and the outpacing strategy. The first one, the perseverance strategy, represents investment strategies in which long-term-oriented firms invest in lower return but equal risk projects than their more short-term-oriented counterparts. The second one, the outpacing strategy, comprises investment projects with higher risk and equal return than the short-term competitors.
Family firms are thought to pursue nonfinancial goals that provide socioemotional wealth, but socioemotional wealth is feasible only with family control of the firm. Using prospect theory, we ...hypothesize that socioemotional wealth increases with the extent of current control, duration of control, and intentions for transgenerational control, thus adding to the price at which owners would be willing to sell their firms to nonfamily buyers. Findings from two countries show that current control has no impact, and duration of control has a mixed impact. However, intention for transgenerational control has a consistently positive impact on the perceived acceptable selling price.
This paper develops an organizational identity–based rationale for why family firms strive for nonfinancial goals. We show that the visibility of the family in the firm, the transgenerational ...sustainability intentions of the family, and the capability of the firm for self–enhancement of the family positively influence the importance of identity fit between family and firm as well as the family's concern for corporate reputation. We suggest that the concern for corporate reputation leads the family to pursue nonfinancial goals to the benefit of nonfamily stakeholders. We also discuss reinforcing feedback loops in these processes.
We extend the socioemotional wealth (SEW) perspective by arguing that SEW can be negatively associated with proactive stakeholder engagement (PSE). We further suggest that the SEW dimensions can be ...associated with positive or negative valence. Lastly, we propose that negatively valenced SEW dimensions lead to family-centric behavior, which negatively affects PSE. This multifaceted conceptualization of SEW allows us to explain how family firms can partake in harmful stakeholder behaviors despite having seemingly strong SEW. Our paper suggests that SEW can be either an affective endowment or burden for family firms and their constituents. PUBLICATION ABSTRACT
In this introduction, we observe that the study of social structures and social relationships constitutes a common theme among the articles and commentaries contained within this special issue on ...Theories of Family Enterprise. Individuals and organizations are embedded in complex networks of social organization and exchange. Within business enterprises, familial relationships engender unique goals, governance structures, resources, and outcomes. We discuss these relationships, potential research directions, and the contributions made by the articles and commentaries. In so doing, we expand the literature on how social structures and social relationships affect the behavior and performance of family firms.
Drawing from stewardship theory, we investigated corporate entrepreneurship in family firms. We argued that stewardship culture determinants––comprehensive strategic decision making, participative ...governance, long–term orientation, and human capital––differentiate the most entrepreneurial family firms. Based on a study of 179 family firms, we showed that comprehensive strategic decision making and long–term orientation contribute to corporate entrepreneurship. Additionally, family–to–firm unity enhanced the positive effects participative governance and long–term orientation have on corporate entrepreneurship. While we found that family–to–firm unity can compensate for low human capital, unexpectedly, we also found that family–to–firm unity can dampen the positive relationship between human capital and corporate entrepreneurship.
Value Is in the Eye of the Owner Zellweger, Thomas Markus; Dehlen, Tobias
Family business review,
09/2012, Volume:
25, Issue:
3
Journal Article
Peer reviewed
Drawing on the affect infusion model from cognitive psychology, the authors develop a conceptual framework that explains how affect related to corporate ownership influences the formation of ...socioemotional wealth perceptions among family firm owners, reflected in altered subjective value perceptions for the ownership stake. The authors explore target, personal, and situational features in the subjective valuation process for the ownership stake and explain how these factors mediate the relationship between affect and socioemotional wealth perceptions. They further the understanding about the level of bias in family owners’ subjective firm value assessments and offer new approaches for socioemotional wealth research.
We advance a dynamic institution-based view of the firm that extends the theory's current focus on scope of pro-market reforms (degree of market liberalization in a given year) to consider how speed ...of reforms (rate of market liberalization achieved over time) affects the performance of firms from transitioning economies. Utilizing a sample of public firms from Chinese provinces with varying reform speeds, we find that while scope of reforms positively impacts firm performance, speed of reforms detracts from firm performance. We further find that while family firms have an advantage in gradually reforming provinces, non-family firms have an advantage in rapidly reforming provinces. Thus, we extend the institution-based view across time (speed of reforms) and firms (family vs. non-family firms).
Whereas existing research on the longevity of family firms has focused on the survival of firms, this article investigates transgenerational entrepreneurship of families. By building on the ...transgenerational entrepreneurship research framework, the authors argue that by shifting from firm to family level of analysis, one gains a deeper understanding of family firms’ ability to create value across generations. The authors find evidence for their argument in that such a level shift reveals extended entrepreneurial activity, which is missed when focusing exclusively on the firm level. The study introduces and empirically explores the construct of family entrepreneurial orientation, which may serve as an antecedent to transgenerational value creation by families.
This article examines how owners of firms subjectively value their ownership stake in monetary terms. We utilize endowment and possession attachment literature to investigate how emotional benefits ...and costs related to organizational ownership affect emotional value. We define emotional value as that part of willingness to accept unexplained by the financial value of the ownership stake and the private financial benefits of control accruing to the owner. Our research provides new insight into firm owners' psychology and value considerations where an owner values nonfinancial aspects of the ownership stake.
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