Academic journal article Family Relations

Passing the Torch: Factors Influencing Transgenerational Intent in Family Firms

Academic journal article Family Relations

Passing the Torch: Factors Influencing Transgenerational Intent in Family Firms

Article excerpt

Recent family business research has focused on transgenerational intent (TI)-the plan to pass management of the business to future generations-as a defining characteristic of family firms. We theorize that TI is influenced by the current leader's consideration of factors related to three subsystems (business, ownership, and family) that underlie the family business system. Specifically, we hypothesize that characteristics of the business (the age and size of the firm), the owners (gender and minority status), and the family, specifically the family's engagement in the firm (time until succession and the family's role in advising the CEO) influence the current leader's TI. Results based on a survey of over 700 family-managed firms are largely supportive of our hypotheses. Understanding what affects TI will help advance researchers' efforts to develop a theory of the family firm.

Key Words: family business, female, minority, succession, transgeneration.

Family firms are influential and unique in the business world. The 5.5 million family firms in the United States account for 63% of employment and 57% of GDP and create 75% of all new jobs (Kinkade, 2011). In addition to being important to national economies, family firms must not only satisfy numerous stakeholders such as employees, customers, suppliers, and the local communities in which they operate, but they also must deal with family issues and relationships (Chrisman, Chua, Pearson, & Barnett, 2012; Gómez-Mejía, Cruz, Berrone, & De Castro, 2011). For the family members involved in family firms, the business is not only the family's primary source of current income but also a major source of long-term wealth, both financial and socioemotional (e.g., ability to help family members, perpetuation of family values, and social capital; Gómez-Mejía, Haynes, Nunez-Nickel, Jacobson, & MoyanoFuentes, 2007). When the family business suffers, so does the family's current and future economic security.

We define family firms where the business is family managed and where there exist intentions to transfer management of the business within the family (Chua, Chrisman, & Sharma, 1999). Family management is a necessary but not sufficient characteristic of a family firm (Chua et al., 1999). It is the desire to pass the firm along to others in the family that defines the essence of the family firm. As noted by Wright and Kellermanns (2011), "Family firms are generally linked by the desire for transgenerational intentions" (p. 188). In other words, family management and the intent to transfer management of the business within the family represent two essential characteristics that define family firms. Thus, family firms are a subset of family-managed firms. A key implication is that family firms must consider not only how to manage the business, but also how to transfer management within the family (Chua et al., 1999).

We focus on the plan to pass management of the business to future generations, which we call transgenerational intent (TI), for three reasons. First, by planning to pass management of the family business within the family, the family can accrue both broad classes of benefits available to family firms: financial and socioemotional (e.g., perpetuation of family values; GómezMejía et al., 2007). Some families may maintain ownership of the firm but give management roles to outsiders (Chua et al., 1999). Passing ownership, but not management, of the family firm to other family members maintains the potential for financial wealth but does not allow the family to accrue socioemotional wealth associated with the firm (Zellweger, Kellermanns, Chrisman, & Chua, 2012). Thus, TI is important because it describes the firm's long-term economic and socioemotional value to the family (Chrisman et al., 2012).

Second, although prior literature has examined the succession process, both in family firms and nonfamily firms, much less is known about what factors influence the development of the intent to transfer management of the family firm within the family. …

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