Academic journal article Entrepreneurship: Theory and Practice

The Role of Family Influence in Firms' Strategic Responses to Threat of Imitation

Academic journal article Entrepreneurship: Theory and Practice

The Role of Family Influence in Firms' Strategic Responses to Threat of Imitation

Article excerpt

We integrate theory on the resource-based view and threat rigidity with family business research to explain the role family influence plays in responding to threats of imitation. As opposed to family control, we find that family influence affects resource management actions taken in response to threats of imitation. Specifically, results show that R&D investment and internationalization actions mediate the relationship between imitability and performance. However, we find that family-influenced firms are less rigid in their responses to such threats, reducing R&D and internationalization significantly less than firms without family influence.

Introduction

Research focusing on the implications of family involvement in business ventures is growing (Steier, Chrisman, & Chua, 2004). This is not surprising given that family involvement in firm governance is pervasive throughout the United States and the world (e.g., Claessens, Djankov, & Lang, 2000; Faccio & Lang, 2002; Morck & Yeung, 2004). Moreover, family involvement is not confined to only small or private firms. Business Week (2003) reports that one-third of the S&P 500 firms continue to have founding family members in their management teams. As a result, the impact of firms with family involvement is quite staggering. Firms with family involvement employ over 80% of the workforce and produce more than 50% of the United States' GNP (Neubauer & Lank, 1998; Sharma, Chrisman, & Chua, 1996).

The economic impact of firms with family involvement heightens the importance of understanding how such involvement affects performance. One perspective suggests that family involvement increases agency costs due to challenges such as nepotism, free riding, family entrenchment, and intergenerational conflict, thereby negatively affecting performance (e.g., Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Miller, Le Breton-Miller, Lester, & Cannella, 2007; Schulze, Lubatkin, & Dino 2003). An alternative view suggests that family involvement leads to unique and valuable resources, such as asymmetric information held by family managers, patient and survivability capital, or possibly lower agency costs. This perspective, therefore, proposes a positive relationship between family involvement and performance (e.g., Anderson & Reeb, 2003, 2004; Arregle, Hitt, Sirmon, & Very, 2007; Fama & Jensen, 1983; Habbershon, Williams, & MacMillan, 2003; Sirmon & Hitt, 2003; Villalonga & Amit, 2006). Empirical results reflect such diversity. Some research has shown family involvement's positive effects on firms' performance (Anderson & Reeb, 2003; Chrisman, Chua, & Steier, 2002; McConaughy, Matthews, & Fialko, 2001; McConaughy, Walker, Henderson, & Mishra, 1998), while other work has shown its negative effects (e.g., Gallo, 1995; Gomez-Mejia et al.). Taken together, these conflicting propositions and results demonstrate that (1) family involvement is important, yet (2) more work is needed to sort through the nuances of families' effects on firm performance (Chrisman, Chua, & Sharma, 2005).

While methodological issues (i.e., measuring family involvement; founder versus various family categorizations) may be a potential source of these inconsistent results, we argue that the primary culprit for the conflicting results is the underdeveloped state of theory regarding family involvement in a firm. For example, the majority of these studies theorize direct effects of family involvement on firm performance, while theory and related empirical work would suggest that indirect effects may be more important. Specifically, family involvement makes a firm unique because of "familiness," or the integration of family and business life (Chrisman et al., 2005). Familiness is the idiosyncratic firm level bundle of resources and capabilities resulting from systems of interactions between the family unit, business entity, and individual family members (Habbershon et al. …

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