Managerial Controls in Private Family Firms: The Influence of a Family’s Decision Premises

Abstract

In most studies, the affiliation of the manager (family-affiliated or non-family affiliated) and supposedly related behavior (agent or steward) is considered the sole antecedent to explain a family business’ (non) professionalization of managerial controls. This paper, based on Luhmann’s new system theory, examines whether a family’s decision premises influence the design of managerial controls in family firms in addition to a manager’s family affiliation status. Using survey data of 135 large and medium-sized Brazilian family firms and testing the hypotheses with SEM, this study provides evidence that a family’s decision premises significantly influence the design of managerial controls in family firms. This study provides evidence that when a family’s intention to transfer the firm to next generation (TGO) is high, more formal controls, as well as controls of a more participative nature are adopted in a family firm. Moreover, the results do not indicate that the level of family involvement in management affects the design of controls in firms with high TGO. The results only showed a significant relationship between a family’s intention to control and influence (FCI) the firm and the absence of participative controls. In addition, these findings also illustrate that each single family-induced decision premise has the potential to explain family firm behavior, since each of the two premises considered in our study is related to a different design of the controls adopted by the family firm.

How is risk different in family and non-family businesses? A comparative statistical analysis during the COVID-19 pandemic

“…The perception of strategic risk has a positive influence on the perception of financial risk both on family ( β = 0.30 and p < 0.001) and non-family businesses ( β = 0.30 and p < 0.001), supporting the H2c. Petry and Nascimento (2009), Mucci et al (2021) and Geney (2021) state that strategic planning is fundamental to generate present and future revenues, which naturally has a direct impact on the companies' financial health.…”

“…For Alves and Gama (2020), many family businesses survive through generations not only because they are more efficient or profitable but also because they satisfy the socio-emotional needs of their owners to pursuit non-economic goals. Mucci et al (2021) conclude that families with a strong intention to pass on the company to the next generation adopt controls that are significantly more formal, important and participative.…”

“…For Petry and Nascimento (2009), in family businesses that are larger and with greater longevity, the management process (strategic and operational planning, execution and control) is formal. Moreover, according to Mucci et al (2021), the families that intend to pass on the company to the next generation adopt more formal and participative control forms, with premises of forecasting and control. Mucci (2020) refers that the family essence, supported by the professionalization of the family business, enables its growth, innovation and the maintenance of its competitiveness in the market.…”

“…Tagiuri and Davis (1996) refer that family members who work on family businesses may eventually have multiple positions in the company simultaneously, which is why it is possible that in some items, family businesses present higher values than non-family businesses. Conversely, Moreira and Frezatti (2019), Mucci et al (2021), Ayres et al (2018) and Ames et al (2020) refer that family businesses seek investments that help them preserve their good image and continuity in the market and, as such, present and appreciate good internal control.…”

Intergenerational Differences in Family Business Management and Their Influence on Business Profitability

“…Other studies have concluded that there is a preference for family members to assume management positions, regardless of whether or not they have the necessary skills to do so [34]. Occasionally, the family chooses family members who are willing to work to enter the company, while adopting more formal managerial controls, as well as controls of a more participatory nature [35] but without guaranteed promotion. In other cases, the family is more demanding and follows a selective policy, recruiting only relatives with potential for advancement.…”