Does Increased Generational Involvement Foster Business Growth? The Moderating Roles of Family Involvement in Ownership and Management

• Author: Bart Henssen,Daniel Pittino,Wouter Broekaert,Francesco Chirico
• DOI: http://doi.org/10.1111/emre.12366
• Date: 01 September 2020
• Published date: 01 September 2020

Does Increased Generational Involvement

Foster Business Growth? The Moderating

Roles of Family Involvement in Ownership

and Management

DANIEL PITTINO,

1,2

FRANCESCO CHIRICO,

4,1

BART HENSSEN

3

and WOUTER BROEKAERT

3

1

Center for Family Enterprise and Ownership (CeFEO), Jönköping International Business School, Sweden

2

Università degli Studi di Udine, Italy

3

KU Leuven, Center for Sustainable Entrepreneurship (CenSE), Odisee University of AppliedSciences

4

Macquarie University, Macquarie Business School, Sidney, Australia

Buildingupon the upper echelon perspective,we examine the effect of generationalinvolvement in managementon

various measures of business growth and considerdifferent levels of family participation. Specifically, we argue that

generational involvement and the participation of family actors in ownership and management foster cognitive

diversity at the TMT level, which may ultimately positively or negatively impactfamily business growth. Our theory,

which is tested using a longitudinal sample of unlisted Belgian family firms, contributes primarily to the literature

related to the determinants of family firm growth, which, to date, has paid limited attention to the combined effect

of different family involvement factors.

Keywords: family firms; generational involvement; growth; ownership; top management team

Introduction

Firm growth among family firms is a critical topic given

the predominance of these types of organizations

worldwide (e.g., Astrachan and Shanker, 2003; Claessens

et al., 2002) and their contribution to both regional and

global economies (e.g., Basco, 2015). Previous studies

suggest that family involvement affects family decision

makers’attitude towards growth and related firm growth

performance (e.g., Bjuggren et al., 2013; Hamelin, 2013;

Yordanova, 2011). On the one hand, firm growth appears

to contrast withfamily decision makers’emphasison non-

economic goals (e.g., Chrisman et al., 2012) and their

willingness to maintain control in the hands of the family

(e.g., Gómez-Mejía et al., 2007). In fact, some

prerequisites of growth, such as the participation of

external investors or the relianceon equity funding or debt

financing (Chrisman & Patel, 2012),are likely to diminish

the capacity of the family to exert control over the

business (Gómez-Mejía et al., 2007). On the other hand,

the long-term orientation and specific resources of family

firms compared to those of their non-family counterparts

have been suggested to positively affect firm growth

(e.g., Baù et al., 2019; Sirmon & Hitt, 2003).

Given these contrasting arguments, the effect of

family involvement on business growth remains unclear

(Basco, 2013; Calabrò et al., 2017; Gibb Dyer, 2006;

O’Boyle et al., 2012). However, it is known that the

composition of the top management team (TMT) and

the characteristics of its decision makers play a decisive

role in the strategy and goal definition of family

businesses (Geyer, 2016; Hambrick & Mason, 1984).

Yet, our knowledge regarding the impact of generational

involvement, that is, the joint involvement of multiple

generations in the TMT (Sciascia et al., 2013), on family

firm growth is minimal. This lack of knowledge is not a

trivial issue since generational involvement is among the

most distinctive ways through which family dynamics

influence company goals, decisions and related

outcomes (e.g., De Massis et al., 2015; Sciascia et al.,

2013; Upton et al., 2001).

Correspondence: Daniel Pittino,Jönköping International Business School,

Italy.E-mail: daniel.pittino@ju.se

European Management Review, Vol. 17, 785–801, (2020)

DOI: 10.1111/emre.12366

© 2019 European Academy of Management

Therefore, building upon the upper echelons

perspective (Finkelstein et al., 2009; Hambrick & Mason,

1984), according to which the composition of a firm’s

TMT affects the team’s strategic decision-making and

subsequent organizational outcomes (Carpenter et al.,

2004), we examine theeffect of generational involvement

in management on various measures of business growth

and consider different levels of family participation.

Specifically, we argue that generational involvement and

the participation of family actors in ownership and

management foster cognitive diversity at the TMT level,

which may ultimately positively or negatively impact

family business growth. Cognitive diversity, i.e.,

differences in knowledge, skills, preferences, and

perspectives, among TMT members (Mello & Rentsch,

2015; Miller et al., 1998) in manageme nt is key to

explaining firmoutcomes given such diversity shedslight

on the underlyingreasons behind decision makingchoices

and outcomes, and demographic variables (e.g., age,

tenure, education, and gender) have often been used as

mere proxies by upper echelon theorists (Glick et al.,

1993; Hambrick & Mason,1984). The variables we focus

on and the related cognitive diversity arguments have

important implications for a TMT group functioning such

as cooperation, conflict and group performance (Barsade

et al., 2000).

Our study, which is based on a longitudinal sample of

Belgian private family firms resulting in 1,350 year-

observationsduring the 2009–2013 period,makes several

important contributions. First, our theory primarily allows

us to contributeto the literature related to the determinants

of family businessgrowth, which, to date, has paid limited

attention to the combined effect of different family

involvement factors (e.g., Casillas et al., 2010). In fact,

most studies examining the effects of family involvement

on firm growth address the dimensions of involvement

separately and evaluate their additive impact while

overlooking their joint effects. Understanding the

combined effect of various dimensions of family

involvement is key because this information could

provide scholars and practitioners a more realistic picture

of the heterogeneous patterns existing among familyfirms

(e.g., Chrisman et al., 2016), which emerge mainly from

configurations of multiple family attributes (e.g., Klein

et al., 2005; Nordqvist et al., 2014).

Second, we shed further light on the upper echelons

perspective applied to family firms (e.g., Binacci et al.,

2016; Ling & Kellermanns, 2010; Sciascia et al., 2013)

with an additional emphasis on the role of non-family

actors (e.g., Tabor et al., 2018) by assessing the effects

of upper echelon diversity not only within groups but also

across groups, that is, by considering the joint effect of

diversity at the TMT and ownership group levels. Third,

we advance the upper echelons literature on a broader

level by adding to the ongoing debate concerning the

relationship between TMT diversity and firm outcomes

(e.g., Carpenter, 2002; Hambrick et al., 2015; Roberson

et al., 2017). While the demographic diversity of the

TMT is an important factor to consider, upper echelons

theory has beencriticized for its unifocalattention towards

demographic variables that are mere indications of the

deep-level composition of TMTs, such as the team

members’attitudes, personality, and cognitive

characteristics (e.g., Kauer et al., 2007; Oppong, 2014;

Priem et al., 1999). Our studyaddresses the pressing need

to unravel deeper-level factors affecting firm outcomes,

such as generational and family involvement in

management and ownership.

Literature and hypotheses

Business growthis considered a key factor forthe creation

of wealth and employment (e.g., Davidsson & Wiklund,

2006). As highlighted by several review efforts (e.g.,

Davidsson et al., 2010; G ilbert et al., 2006; Shepherd &

Wiklund, 2009), research investigating this topic has

produced a very large amount of empirical work and

numerous theoretical modeling attempts. However, the

conceptual understanding of the concept is still partial,

and empirical evidence is sometimes conflicting

(Davidsson & Wiklund, 2010; Shepherd & Wiklund,

2009). In fact,business growth is a complex phenomenon

to define and measure (Achtenhagen et al., 2010). In the

seminal work ‘The Theory of the Growth of the Firm’,

Edith Penrose (1959) observes that ‘The term “growth”

(…) sometimes denotes merely increase in amount; for

example, when one speaks of “growth”in output, export,

and sales. At othertimes, however, it is used in its primary

meaning, implying an increase in size or improvement in

quality as a result of a process of development, akin to

natural biological processes in whichan interacting series

of internal changesleads to increases in size accompanied

by changes in the characteristics of the growing object’

(Penrose, 1959, p.1).

Therefore, business growth needs to be analyzed as a

multifaceted phenomenon, but there is consensus among

scholars and practitioners that business growth represents

an essential performance measureof a successful business

(Achtenhagen et al., 2010) and is mainly reflected in

growth in assets, size growth and revenue growth (e.g.,

Shepherd & Wiklund, 2009). Among other factors,

growth is dependent on a firm’s strategy (e.g., Baum

et al., 2001; Davidsson & Wiklund, 2013; Geyer, 2016)

as it can be interpreted as a strategic goal set at the top

management level (Greve, 2008). This situation is

especially valid in the context of family firms (Baù

et al., 2019), which rely heavily on internal financing

and, therefore, need to carefully plan business growth

goals and processes as these activitiesinvolve investments

786 D. Pitt ino et a l.

© 2019 European Academy of Management