Factors Associated with Longevity of Small, Family-Owned Firms

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ABSTRACT

This study reports on an empirical investigation into the factors that impact the longevity of small, family-owned firms from a developing economy. There is a dearth of empirical literature on the factors that influence longevity of firms in developing economies. Using variables from other empirical studies in other geographical jurisdiction, this study modelled the impact these variables have on the longevity of small, family owned businesses in Jamaica. The analysis drew on data for over 260 small, family-owned firms in Jamaica. Using the ANOVA statistical technique to derive results, the findings revealed that the possession of a succession plan, the size of the firm and, the location of the firm all impact on its longevity. The implications of these findings are explored in the paper.

Keywords: Longevity, Small, Family-Owned Firms, Developing Economies.

INTRODUCTION

It is argued that with each successive generation, the life span of family-owned businesses is reduced (Jivraj & Woods, 2002). Further, researchers have posited that only one third of family firms survive to the second generation (Ward, 2004). Indeed, it appears that the number of firms that make it through successive generations is very small. In other words, the life of many small, familyowned businesses is very short. This pattern however, has to be reversed if small and family-owned firms are to live up to their expectation as the foundation for economic growth, job creation and wealth creation, especially in small, open developing economies. To reverse this trend, it is critical that policymakers and managers in these firms understand the factors that are associated with increased longevity of small, family-owned firms. That is, they need to know what factors have helped these firms to overcome the "generational curse" and continue to operate successfully over long periods. This issue is at the heart of the research in this paper.

A plethora of work exists on the likely demographic, organisational and social factors that influence planning for continuity in family businesses (Handler & Kram, 1998). Effective succession planning is also seen as one of the strong determinants of longevity in the family business (Lank, 2001). The aim of this paper is to determine which organisational, demographic and social factors are most critical in impacting on the longevity of small, family firms in Jamaica. The extant literature posits a number of factors that are critical for increased longevity in small firms. In this paper, this work will be extended by replicating some of the variables in the Jamaican context. The goal of the study is to determine whether or not succession planning along with other factors such as; location, industry sector, firm size and, education level of the principal (owner) influence the longevity of firms in Jamaica. The guiding research question is: what internal and external factors influence the longevity of small, family-owned firms in Jamaica? This issue is under-researched in the Jamaican context. A thorough understanding of it will be critical for those who manage these firms and public policymakers who want the small firm to be the driver for economic prosperity. Further, this research will provide theorists in the field of small business research with a strong basis for building an evidence base in this line of work.

The literature argues that the factors that impact longevity may vary from one geographical location to another, given the idiosyncrasies associated with firms from different geographical locations (Lank, 2001). Some critical structural and socio-economic conditions in Jamaica (e.g. high crime levels, low growth, high debt burden, high levels of migration, inefficient government bureaucracy, inadequate infrastructure etc.) make it important that a geographically-based study be done on this location. These conditions will mediate the level of impact that these factors have on the longevity of the small, family-owned firms in Jamaica. …