Family Business Performance: A Perspective of Family Influence

Abstract

Purpose-The purpose of this study is to analyze the relationship between family influence, measured through power, experience and culture (F-PEC) and family business (FB) performance. Performance is measured from a financial and non-financial perspective. Design/methodology/approach-Empirical study using the quantitative method and data collected through a questionnaire, answered by 169 Portuguese family firms. The survey design was based on prior research of FB performance and the F-PEC questionnaire. The exploratory factor analysis and multiple linear regression models are used. Findings-The results indicate a negative relationship between experience and financial performance, a positive association between a culture of family commitment and performance (financial and noneconomic goals), and a positive relationship between a culture of family values and non-economic goals. The results show the importance of agreement between the firm and the family goals. Family influence on FB performance cannot be seen only from a positive (stewardship theory) or a negative (agency theory) perspective. Originality/value-Commitment increases financial performance and the achievement of non-economic goals (perpetuity and family assets). It is important to study how a culture of commitment leads to superior performance.

Managerial ability and real earnings management in family firms

“…It indicates that H1 is accepted where family firms reduce the possibility of higher ability managers to engage in REM. The result is consistent with previous findings (Alves and Gama, 2020;Andres, 2008;G omez-Mejı ´a et al, 2007;Santoso and Rakhman, 2013;Tabor et al, 2018;Wang, 2006) where family firms are more likely to avoid earnings management and improve earnings quality. As family firms perform effective monitoring on managers, higher ability managers in family firms follow the firms' culture to maintain firms' reputation and credibility by engaging less in REM.…”

“…Family firms refer to the firms where the founders or their family take a position in corporate governance and control mechanism (Andersson et al, 2018), either as block-holders shareholders (Gama and Rodrigues, 2013;Lam andLee, 2012), board members (Al-Najjar andKilincarslan, 2016;Oba et al, 2010;Vieira, 2018) or executive members (Bjuggren et al, 2018) to affect the decision-making (Cheng, 2014). Family firms have a unique characteristic where the founders or their family motivate to maintain firms' reputation (Santoso and Rakhman, 2013) and focus more on family existence than financial performance (G omez-Mejı ´a et al, 2007) because they intend to pass on the firms' business to the next generation (Alves and Gama, 2020;Andres, 2008;Tabor et al, 2018).…”

“…Firms' characteristics bring an important role to determine if managers can or cannot engage in the REM (Huang and Sun, 2017). Family firms have a unique characteristic where the founding family concern more on the culture of reputation and credibility (Alves and Gama, 2020;Andres, 2008;G omez-Mejı ´a et al, 2007;Santoso and Rakhman, 2013;Tabor et al, 2018), include credibility of earnings information (Wang, 2006). Family block-holders and family members of the board use the culture as a core to monitor the managers' behavior, while a family member of the executive will make a business decision that does not harm the firms' reputation.…”

“…Family firms are more likely to have lower agency conflicts of managers-shareholders. Effective monitoring comes from motivation by founder and family to maintain their reputation to not engage in controversial behavior such as earnings management (Santoso and Rakhman, 2013) as the business will be passed on to the next generation of the founding family (Alves and Gama, 2020;Andres, 2008;Tabor et al, 2018). Family firms do not only give priority to financial return but also family existence (G omez-Mejı ´a et al, 2007), so higher business performance (explicit performance) comes in second place after the good reputation of the family name (culture performance) (Hall and Nordqvist, 2008;Tabor et al, 2018).…”

The effect of ownership and management structure on family businesses performance

“…Some researchers show that family members in ownership and management of the family business are considered good stewards and a source of stewardship that is positively associated with the performance of the business (Alves & Gama, 2020;Le Breton-Miller et al, 2011;Corbetta & Salvato, 2004;Davis et al, 2010;Eddleston & Kellermanns, 2007;Mucci et al, 2020;Zahra et al, 2008). Organizations with good stewards and a stewardship orientation, however, do not have the costs associated with an agency, and, as a result, can direct resources that would have been spent on monitoring and control, toward maximizing firm performance.…”