A Mixed Gamble Approach of the Impact of Family Management on Firm's Growth: A Longitudinal Analysis

• Author: Unai Arzubiaga,Vanessa Diaz‐Moriana,Jonathan Bauweraerts
• DOI: http://doi.org/10.1111/emre.12359
• Date: 01 September 2020
• Published date: 01 September 2020

A Mixed Gamble Approach of the Impact of

Family Management on Firm’s Growth: A

Longitudinal Analysis

JONATHAN BAUWERAERTS,

1

VANESSA DIAZ-MORIANA

2

and UNAI ARZUBIAGA

3

1

Department of Control,Audit, Risk Management and Entrepreneurship, University of Mons, Mons, Belgium

2

Department of Business Economics, University of the Balearic Islands (UIB), Palma de Mallorca, Balearic Islands, Spain

3

Department of Financial Economics, University of the Basque Country (UPV/EHU), Bilbao, Spain

We drawupon the socioemotional wealth perspective and the mixed gambleapproach to employ a five-year panel

dataset of 223 Belgian private family firms to investigate the relationship between family management and growth,

with family management ownership, generational involvement, and the CEO’s family status moderating this link.

We find an inverted U-shaped relationship, with growth reaching its maximum at intermediate levels of family

management. Additionally, we demonstrate that family management ownership, generational involvement, and the

presenceof a family CEO hamper the family management-growth link:all these variables attenuate thepositive effect

of low to moderate family management, and accentuate the negative impact of high family management.

Consequently, our research contributes to a deeper understanding of the relationship between family management

and growth.

Keywords: family management; growth; top management team; socioemotional wealth; mixed gamble

Introduction

Business growthis a key driver of the wealth creation that

sustains private family firms across generations (Miller

and Le Breton-Miller, 2005). Regarded as an increase in

business activities (McKelvie and Wiklund, 2010),

business growth implies not only a variety of potential

benefits, but also challenges and risks (Wiklund et al.,

2003). The advantages and costs of business growth as

well as the associated risk–return trade-off have created

confusionin the understanding of familyfirms’propensity

to sustain growth.Some family firms may support growth

because of their long-term vision (Miller et al., 2008;

Kellermanns et al., 2012b) and their perception of

business growth as an opportunity to provide jobs to the

next generation of family members (Cruz and Justo,

2017). Others are particularly reluctant to experience

business growth because of the risk to their

socioemotional wealth (SEW), which refers to the

nonfinancial utility the family derives from the business

(Gómez-Mejía et al., 2007). This includes the family’s

control over the organization, the emotional attachment

to the firm, the family values instilled in the family

business’culture, or the perpetuationof the family legacy

(Gómez-Mejía et al., 2011). These diverging views

suggest that researchers need a framework to explain

why some family firms focus more on the advantages of

business growth while others further emphasize the

potential costs.

We advance this debate by int egrating the SEW

perspective (Gómez-Mejía et al., 2007) and the mixed

gamble approach (Bromiley, 2009) into a coherent

framework to arguethat business growth has the potential

for both gains and losses, whether financially or in terms

of SEW (Martin et al., 2013). Further, we investigate

how heterogeneity arising from the family’s involvement

in management affects family firms’emphasis on SEW

and financial gains and losses (e.g., Sacristán-Navarro

et al., 2011; Schmid et al., 2015; Boellis et al., 2016).

Specifically, we explore how the extent of family

management (FM –)–or the proportion of family

members involved in the top management team (TMT)

(Chirico and Bau, 2014) –influences how family firms

weigh SEW gains and losses against financial gains and

Correspondence: Jonathan Bauweraerts, Department of Control, Audit,

Risk Management and Entrepreneurship, University of Mons, Mons,

Belgium. E-mail:jonathan.bauweraerts@umons.ac.be

European Management Review, Vol. 17, 747–764, (2020)

DOI: 10.1111/emre.12359

©2019 European Academy of Management

losses relative to business growth. Wesuggest that family

firms differently frame the value of business growth’s

benefits and costs depending on the degree of FM

(Alessandri et al., 2018), which induces either positive

or negative consequences for firm growth. These

contrasting effects lead us to suspect that the FM-growth

relationship is not uniformly positive or negative, then

address the following research question: Is the

relationship between FM and firm growth curvilinear?

By doing so, we better capture the advantages and

drawbacks of FM and offer more clarity on whether

family involvement is conducive for growth based on

the extent of FM.

To refine our knowledge of the complexity

characterizing the FM’s effects on business growth, we

also examine how other sources of heterogeneity in the

TMT moderate the curvilinear relationship between FM

and growth. This app roach allows us to explore t he

growth implications of the interactive effect of FM and

TMT heterogeneity, a topic that prior research has largely

neglected (Kraiczyet al., 2014). Specifically, we consider

the moderating effect of family management ownership

(FMO), or the percentage of shares family managers hold

(Liang et al., 2014); generational involvement (GI), or the

number of generations simultaneously involved in the

TMT (Chirico et al., 2011; Sciascia et al., 2013); and the

CEO’sfamilystatus(Strikeet al., 2015). We focus on

these sources of TMT heterogeneity because they are

more likely to affect the family’s preferences for SEW

and financial wealth (Ling and Kellermanns, 2010;

Minichilli et al., 2010; Sciascia et al., 2014), and thus,

the growth mixed gamble. We primarily assume that each

of these TMT characteristics will influence the weighting

of the SEW and the financial gains and losses associated

with business growth in different ways depending on the

degrees of FM, altering the shape of the FM-growth

relationship.

This study provides sev eral contributions to lit erature.

First, this article augments family business literature by

providing a more nuanced understanding of how family

firms’heterogeneity affects business growth (Chua

et al., 2012; Hamelin, 2013; Karaevli and Yurtoglu,

2018). Specifically, we integrate the SEW perspective

and the mixed gamble logic into a coherent model to

develop consistent theoretical explanations on how the

extent of FM and its combination with additional sources

of family-induced TMT heterogeneity affect business

growth (Kraiczy et al., 2014). Second, our research

contributes to lit erature at an intersec tion of the

management and family business fields by exploring

how functional diversity in the TMT –derived from the

business’familial nature –affects organizational

outcomes. While prior research is often inconclusive

about TMT diversity’s effects on firm outcomes

(Nuscheler et al., 2019), this study adds to this debate by

exploring how a combination of various sources of

family-induced TMT diversity is conducive for growth,

thereby extending our knowledge on whether TMT

diversity is beneficial or detrimental to organizational

outcomes. Finally, this study also supplements

entrepreneurship literature by offering new insights into

the drivers of growth in a family business context. Prior

works have emphasized the family’scriticalrolefor

business growth (Naldi et al., 2007), but research has

scarcely attempted to understand how family-specific

organizational factors explain growth differences among

family firms (Aldrich and Cliff, 2003; Kellermanns

et al., 2008; Powell and Eddleston, 2017). By

demonstrating that the type and extent of the family’s

involvement in the TMT affects business growth in

different ways, our study not only provides additional

evidence that the family factor is an important, complex

component in understanding firms’growth, but also

highlights thesignificance of further studying the family’s

role in driving business growth.

The paper is structured as follows. First, we review

relevant literature to subsequentlydevelop our hypothesis

on the relationships between family management and

growth. Second, we present the sample, variable

treatments, and a nalyses. In the closin g section, we

discuss our findings, outline potential limitations, and

identify further research opportunities.

Theoretical background and hypotheses

development

Family firms and business growth

As a multi-faceted phenomenon that covers a variety of

perspectives, business growth represents a key concept

within both strategic and management literature (Delmar,

2006; Gilbert et al., 2006; Davidsson and Wiklund,

2013). Whilesome studies investigatethe type of business

growth (organicor acquisition) or its process or regularity

(Delmar et al., 2003), most scholars adopt the change-in-

amount perspective to analyze how antecedents relate to

the amount of growth (Delmar, 2006). The remainder of

our article ascribes to that perspective by explaining the

differences in theamount of growth among private family

firms, as we consider business growth as an increase in

business activities (McKelvie and Wiklund, 2010).

In the scarce literature on family business growth,

scholars remain divided between suggesting that family

firms represent a fertile field for business growth (Miller

and Le Breton-Miller,2005; Miller et al., 2008) and those

pointing to their reluctance to growth (Gómez-Mejia

et al., 2011; Madison et al., 2016). This confusion has

urged researchers to develop a theoretical framework that

explains why some family firms primarily focus on the

748 J. Bauweraerts et al.

©2019 European Academy of Management