How does Family Control Influence Firm Strategy and Performance? A Meta‐Analysis of US Publicly Listed Firms

Abstract

Manuscript Type Empirical Research Question/Issue A contentious and prominent research question in the management literature is whether publicly listed family firms (FFs) outperform other types of corporations. Through a research synthesis of all available studies on the performance of US FFs, we address this question directly. We also extend the debate by raising three salient follow‐up questions. First, is the performance differential between FFs and non‐FFs attributable to a unique set of strategic choices? Second, do FF performance effects persist across generational transitions in FF control? Third, are performance differentials across generations attributable to intergenerational shifts in corporate governance and strategy? Research Findings/Insights With respect to our primary research question, we find that the balance of evidence indicates that (US) FFs outperform other types of public corporations. We also evaluate competing narratives regarding which strategies are characteristic of FFs, and demonstrate that their diversification, internationalization, and financing strategies mediate the FF‐performance relationship in manners consistent with the narratives advanced by certain leading FF scholars, but not others. Further, we find that the performance of (US) FFs drops dramatically after the first generation and show that this negative performance differential is due to the much more conservative patterns of strategic decision making enacted by successor generations. Theoretical/Academic Implications In addition to providing the most comprehensive evidence to date regarding the performance attributes of FFs, we nuance several theoretical debates concerning the propensity of FFs to diversify, internationalize, and leverage their equity capital. Practitioner/Policy Implications We identify value‐creating strategic choices of FFs related to internationalization, diversification, and capital structure. We also identify strategic choices often made in successor‐led FFs which reduce value. Both sets of findings are relevant to FF executives and consultants. The policy implications of the study are that in advanced liberal market economies high‐quality capital market institutions are likely to contribute to FF outperformance vis‐à‐vis other types of publicly listed firms, but these findings may not hold in other types of national governance systems or in emerging markets.

Psychological contract and social exchange in family firms

“…Second, our findings corroborate research that proposes mediating factors that bridge individual perceptions and firm performance (Chrisman, Chua and Litz, 2003). In the family firm research, examining the family's benefits to the firm has often supported joint examinations at the micro and macro levels (Habbershon and Williams, 1999;Wortman, 1994) with erratic findings (Essen et al, 2015). By including the behaviours motivated by family members' perceptions of their firms, we help to clarify the link between the resource of family and its impact on firm performance (Habbershon, Williams and MacMillan, 2003).…”

Family ownership and environmental performance: The mediation effect of human resource practices

“…Much of the debate in corporate governance research has focused on the relationship between ownership structure and environmental performance (Walls, Berrone, & Phan, ) given that owners determine firm behavior and, consequently, firm performance (Van Essen et al, ). Although previous studies have found contradictory results (i.e., ownership can be either negatively or positively associated with environmental performance), the theoretical support adopted to explain such behavior mostly comes from agency theory, specifically the principal–principal problem, by which blockholders' needs, interests, and goals vary, and the bargaining power of the dominant coalition may impose particular goals on the business (Boyd & Solarino, ).…”

“…Second, we contribute to the theoretical development of family business studies by explaining how family ownership affects firm behavior and performance (Van Essen et al, 2015). We provide evidence that family businesses have competitive disadvantages regarding human resource management.…”

“…Such family-oriented goals include family reputation, transgenerational family control (dynastic succession), and concern about family unity and harmony (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007). Corporate governance research recognizes that this kind of problem can be resolved by organizing and defining suitable corporate governance structures (Renders & Gaeremynck, 2012), although certain blockholders can circumvent those structures and affect firm performance through decision-making interventions, such as strategy, diversification, and internationalization (Anderson & Reeb, 2003;Van Essen, Carney, Gedajlovic, & Heugens, 2015). If so, family blockholders should be able to impose their vision in the management arena, specifically on human resource practices.…”

A meta-analysis of the financial performance of family firms: Another attempt

“…To render our meta-analysis comparable to prior studies on the topic (e.g., Carney et al, 2013;O'Boyle et al, 2012;van Essen et al, 2014), we did not exclude primary studies that used samples consisting only of family firms. When we excluded these, our sample size fell from 380 to 279 firms.…”