Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

Abstract

This paper challenges the prevalent notion that family-owned firms are more risk averse than publicly owned firms. Using behavioral theory, we argue that for family firms, the primary reference point is the loss of their socioemotional wealth, and to avoid those losses, family firms are willing to accept a significant risk to their performance; yet at the same time, they avoid risky business decisions that might aggravate that risk. Thus, we propose that the predictions of behavioral theory differ depending on family ownership. We confirm our hypotheses using a population of 1,237 family-owned olive oil mills in Southern Spain who faced the choice during a 54-year period of becoming a member of a cooperative, a decision associated with loss of family control but lower business risk, or remaining independent, which preserves the family's socioemotional wealth but greatly increases its performance hazard. As shown in this study, family firms may be risk willing and risk averse at the same time.

Audit Quality: The Role of Board Structure in Family Firms

“…They tend to focus on family goals at the expense of other financial goals (Westhead, 2003). In addition, the emotional attachment to the firm, the self identification with the firm and the utility derived from the ability to exercise authority are strong (Gomez-Mejia et al, 2007;Schulze et al, 2003). Therefore, shareholder-manager agency costs decrease as well as the need to hire a high quality auditor.…”

The Effects of Transformational Leadership in Chinese Family Business How Should Family Business Lead Their Family Employees?

“…These firms are resistant to change, conservative, and stagnant [31][32][33]. Transformational leaders who question the status quo and seek continuous innovation and change may receive less support and be viewed as too unsettling [10,14,19].…”

Internationalisation of publicly traded family firms: a transaction cost theory perspective and longitudinal analysis

“…Accordingly, research and theory suggest that family firm strategies and behaviour are influenced by the family's desire to preserve socioemotional value through the transgenerational control of the firm (Gomez-Mejia et al, 2007, 2011Chua, Chrisman and Sharma, 1999) and by the discretion to make idiosyncratic decisions owing to the family's involvement in the business through ownership (Carney, 2005). Hence, family business owners may wish to pursue family-centred non-economic goals even at the expense of economic goals and are able to do so because they own a large portion of the firm.…”

“…This may limit the scope of their activities and cause them to refrain from undertaking risky business projects such as internationalisation (Morck and Yeung, 2003). Even though internationalisation might have the potential for transaction cost-efficiencies (e.g., through economies of scale), family firms may be willing to accept lower profits in order to reduce risk and preserve socioemotional wealth (Gómez-Mejia, Makri and Kintana, 2010;Gomez-Mejia et al 2007, 2011.…”

“…Additionally, generational majority in management and the board was controlled since family influence tends to be weaker when it is more dispersed or fractionalised owing to the involvement of later generations (Schulze, Lubatkin and Dino, 2003;Gomez-Mejia et al, 2007). Two categorical variables, coded 1-0, were created to indicate whether first-generation (GEN1) or second-generation or later (GEN2) family members were in majority in the firm's management and the board of directors.…”