Influence of Federal Disaster Assistance on Family Business Survival and Success

Influence of Federal Disaster Assistanceon Family Business Survival and Success

George W. Haynes*, Sharon M. Danes** andKathryn Stafford***

*Department of Agricultural Economics and Economics, Montana State University, 210E Linfield Hall, Bozeman 59717,MT, USA. E-mail: [email protected]**Department of Family Social Science, University of Minnesota, Room 275F McNeal Hall, 1985 Buford Avenue, St. Paul,MN 55108, USA. E-mail: [email protected]***Department of Consumer Sciences, The Ohio State University, 265 B Campbell Hall, Columbus, OH, USA.E-mail: [email protected]

This study examines the impact of federal disaster assistance on the survival and success of small family-owned businesses

with fewer than 500 employees from 1996 to 1999. Small family-owned business owners were defined as those who had

been in business at least a year, had spent a least 6 hours a week or a minimum of 312 hours annually working in the

business, had lived with at least one family member and had fewer than 500 employees. This study suggests firms located

in counties receiving more disaster assistance are not more likely to survive, however these firms are more likely to realize

positive changes in revenue than firms located in counties receiving less disaster assistance. Businesses located in an

economically vulnerable rural county, those engaged in family to business resource intermingling and those transferring

more business income to the household were more likely to survive. Larger businesses, those headed by women and those

transferring more income from the business to the family were most likely to succeed.

1. Introduction

Federal disaster aid was instituted to facilitate the recov-

ery of households, businesses and communities. Disaster

assistance is distributed through the United States Depart-

ment of Agriculture (USDA), Federal Emergency Manage-

ment Agency (FEMA), Small Business Administration (SBA)

and others. USDA, FEMA and SBA are responsible for

allocating federal money in the form of grants and loans to

areas that have been adversely impacted by natural disasters.

In 2007, the Agricultural Assistance Act, provided approxi-

mately US$3 billion in agricultural disaster aid for US farm-

ers and ranchers (Farm Service Agency, 2009), while FEMA

provided annual relief expenditures of about US$3 billion for

about 50 declared disasters each year (Garrett & Sobel,

2002). The SBA provides low interest disaster loans to

homeowners, renters, small businesses and non-profit orga-

nizations. This study focuses on small family-owned busi-

nesses, where these business owners have been in business

at least a year, had spent a least 6 hours a week or minimum

of 312 hours annually working in the business, had lived with

at least one family member and had fewer than 500 employ-

ees. While this disaster assistance is considered to be

critically important for recovery, the impact of disaster

assistance on the survival and success of small family-owned

businesses is an open question.

Small family-owned business owners differ from wage

earners when a natural disaster hits. They are often times

stressed twice by a natural disaster, once as business owners

and once as private citizens (Runyan, 2006). Research has

found that disaster assistance helps individuals recover, but

not businesses (Alesch, Holly, Mittler, & Nagy, 2001). Related

research has examined the role of the government in

supplying disaster assistance and the subsidy rates paid by

taxpayers for this assistance (Barnett, 1999). Little is known

about economic losses experienced by small businesses after

a natural disaster or the long-term impact of losses (Alesch

et al., 2001; Rose, 2004). Although researchers expected to

find that disaster assistance aided business recovery, Webb,

Tierney, and Dahlhamer (2000) found no significant effect,

and Dahlhamer and Tierney (1998) found post-disaster aid

was negatively related to disaster recovery. This negative

relationship between disaster aid and recovery may be

caused by several barriers to disaster recovery identified

& 2011 Blackwell Publishing Ltd. DOI: 10.1111/j.1468-5973.2011.00637.x

Journal of Contingencies and Crisis Management Volume 19 Number 2 June 2011

mailto:[email protected]




http://www.sheldus.org





http://www.riskinstitute.org

by Runyan in his qualitative study of small businesses

following the Hurricane Katrina disaster. The barriers

identified included lack of planning, vulnerability to cash

flow interruptions, lack of access to capital for recovery,

problems cause by federal assistance and serious infrastruc-

ture problems impeding recovery.

This study extends earlier work by utilizing a longitudinal,

nationally representative household sample of small family-

owned businesses [National Family Business Panel (NFBS)]

and high-quality information on disasters from the Spatial

Hazards Economic Loss Database for the United States

(SHELDUS) and the Public Entity Risk Institute (PERI). The

SHELDUS information provides estimates of the total

amount of damage in the county, while the PERI information

provides the actual amount of Federal Disaster Assistance

paid into the counties declared Presidential Disaster Areas.

The study further introduces into the models measures of

owning-family resilience and characteristics of the business

and business manager as controls. The objective of this

paper is to assess the effects of county-level federal disaster

assistance on small family-owned businesses from 1996 to

1999. This study asks two critically important questions:

1. Does Federal Disaster Assistance to the county have a

positive effect on small family-owned business survival?

2. Does Federal Disaster Assistance to the county have a

positive effect on small family-owned business success?

2. Literature review

This literature review examines the existing literature on the

survival and success of small family-owned businesses and

reviews theoretical models addressing the impact of natural

disasters and disaster recovery on businesses. The review of

the small family-owned business literature summarizes the

influence of family business characteristics and behaviours

on the objective and subjective success of the business. The

review of other theoretical models briefly summarizes

selected disaster models and compares them to the Sustain-

able Family Business Theory (SFBT) employed in this study.

2.1. Survival and success

Firms must survive to succeed; however, survival is not

simply a cruder measure of success. Rather, firm success and

survival are distinct components of business performance.

Predictors of success are not necessarily the same as those

for survival. For example, large firms are more likely to

survive, yet small firms tend to be more profitable (Kalle-

berg & Leicht, 1991). Extensive literature exists on how

family businesses need to operate for long-term survival,

performance, growth and success (e.g., Bates, 1990; Davids-

son, 1991; Hall, 1991; Kalleberg & Leicht, 1991; Korsching &

Allen, 2004; Olson, Zuiker, Danes, Stafford, Heck, & Duncan,

2003; Sharfman & Dean, 1991; Siegel, Siegel, & Macmillan,

1993). More recent literature has suggested a systematic

model to examine the impact environmental disasters on

businesses (Zhang, Lindell, & Prater, 2009).

Typical objective indicators of business success are gross

revenue, survival, return on assets, growth in sales, profits

and number of employees (Miner, 1997). Subjective indica-

tors of success have also been identified as important to

assess; in fact, Stafford, Duncan, Danes, and Winter (1999)

in their SFBT argue that privately owned firms must meet

owner expectations as well as economic criteria to be

considered successful. In furthering this argument, Danes,

Loy, and Stafford (2008b) found stronger evidence to sup-

port the argument that objective and subjective indicators of

business success are two dimensions of success rather than

a one-dimensional construct.

For small firms and the self-employed especially, subjec-

tive indicators assume greater significance. While the ma-

jority of firm studies utilize objective performance measures,

a growing number incorporate subjective measures examin-

ing the non-economic dimensions of firm performance and

complementing the use of financial data (Kotey, 1997).

Subjective, non-pecuniary measures of firm success provide

more insights into the owner’s commitment to the firm, and

take into account customer satisfaction, personal develop-

ment and a sense of personal achievement (Rosenblatt, de

Mik, Anderson, & Johnson, 1985; Stanforth & Muske, 2001).

The short life of small businesses is often attributed to

poor business management, but personal and family reasons

also account for business closures. In 2000 NFBS, 69% of all

businesses that closed between 1997 and 2000 did so for

personal or family reasons (Winter, Danes, Koh, Fredericks,

& Paul, 2004). Many small businesses survive because the

family works without pay or uses family assets to secure a

loan. Olson et al. (2003) found that how the family managed

the interface with the business accounted for 22% of the

variance in business gross revenues and 33% of the variance

in perceived business success.

Firm success has also been shown to increase when family

members help in the firm and provide emotional support to

the owner (Danes & Lee, 2004; Danes & Morgan, 2004; Green

& Pryde, 1989; Van Auken & Werbel, 2006). Firm success was

negatively affected by heavy family demands, goal conflict

between active and non-active family members (Danes, Haber-

man, & McTavish, 2005; Hoy & Verser, 1994). Firm manage-

ment and family interactions affect firm success (Masuo,

Fong, Yanagida, & Cabal, 2001; Olson et al., 2003). The long

held belief that work and family life are separate spheres

operating independently has been challenged by studies that

suggest that there are extensive, positive and negative bi-

directional influences between work conditions and outcomes

that affect family life and vice versa (Heck & Trent, 1999;

Stafford et al., 1999; Duncan, Stafford, & Zuiker, 2003).

Firm income, profitability, growth and survival have been

linked to certain owner and family characteristics. Educa-

tion, managerial skills and experience, and to some extent,

gender (being male), have been found to increase earnings

(Rowe, Haynes, & Bentley, 1993). The owner’s age, lack of

Family Business Survival and Success 87

& 2011 Blackwell Publishing Ltd.

Journal of Contingencies and Crisis Management

Volume 19 Number 2 June 2011

experience and management skills decreased firm success

(Hoy & Verser, 1994; Olson et al., 2003). Firm success

increases when family members help in the firm and provide

emotional support to the owner (Danes & Lee, 2004; Danes

& Morgan, 2004; Green & Pryde, 1989). Success was

negatively affected by heavy family demands and goal conflict

between active and non-active family members (Danes et al.,

2005), and by tension levels within the firm (Amarapurkar &

Danes, 2005; Danes & Olson, 2003; Danes, Zuiker, Kean, &

Arbuthnot, 1999). Family dynamics influenced family firm

success perceptions (Masuo et al., 2001), and higher levels of

family functionality are positively linked to firm success

(Duncan et al., 2003). Additionally, the family’s responses

to disruption significantly affected gross revenues and own-

er’s perceived firm success (Olson et al., 2003).

2.2. Theoretical approaches

Modeling natural disasters and natural disaster recovery is

challenging because there is no such thing a routine disaster

(Boin & Lagadec, 2000). Moreover, just because an individual,

business or community is prepared for a certain type of

disaster does not mean they are prepared for all types of

disasters (Tierney, 1989). Many theoretical approaches have

been employed to define natural disasters and their impact.

Carr (1932) argued that the impact of disasters was largely

from forces outside one’s control. Other authors have

argued that the impact of disasters was a function of the

knowledge held by those living in the affected area (Dom-

browsky, 1993). More recently, theoretical approaches to

disasters have focused on the concept of vulnerability when

modeling personal, business and community impacts. Vulner-

ability has been modeled using three prominent themes

(Cutter, 1996): biophysical, social and place vulnerability.

Biophysical vulnerability examines the potential exposure to

biophysical hazards. Social vulnerability examines the capa-

city of individuals and societies to respond to natural hazards

by assessing social, political and economic forces. Place

vulnerability attempts to integrate biophysical and social

vulnerability in the context of a social place or geographic

location (Cutter, Michell, & Scott, 2000).

Social vulnerability modeling arose from criticism of a

more technocratic paradigm suggesting that disasters were

natural, chance events, which could be managed by science

or technology. In this instance, these models suggested that

people would choose some level of risk based on their

perceptions of the problem and possible adjustment strate-

gies that could be employed if the problem arose. The

disaster was often the primary sampling unit in these more

technocratic studies (Stallings, 1998). Social vulnerability

theory posed a substantially different argument. This theory

argues that societal conditions (such as socioeconomic

status, race or ethnicity and location) are as important as

physical circumstances in assessing the impact of a disaster

(Chang & Falit-Baiamonte, 2002). In this instance, the primary

sampling unit is the individual, business or community. This

theory has been actively used to show how disasters impact

various socioeconomic groups and how people respond to

disaster assistance. In this study, we examine an important

socioeconomic group, family business owners.

The SFBT proposed in this study is an important exten-

sion of the social vulnerability model. While the social

vulnerability model examines the capacity of individuals,

businesses and communities to cope and respond to ha-

zards, the SFBT model examines the impact of a natural

disaster by treating the natural disaster as just another type

of disruption (Stallings, 1998). The SFBT is especially im-

portant because it allows the researcher to examine the

impact of the natural disaster or the disaster response on

the family and business and the interface between the family

and business. The primary sampling unit within the model is

the household (or family), rather than the disaster; hence,

this study can assess the impact of natural disasters by

comparing those family businesses experiencing a natural

disaster with those not experiencing a natural disaster. The

next section explains the SFBT in more detail.

3. Theoretical foundation

SFBT was first introduced in 1999 by Stafford, Duncan,

Danes, and Winter. In 2008 several changes were introduced

to clarify tenets and introduce advancements, leading to

SFBT II (Danes, Lee, Stafford, & Heck, 2008a). In SFBT, family

and firm structure were added; resources and constraints

were separated; family capital inputs were identified as

social, human and financial capital; greater detail was pro-

vided about output content; and a distinction was made

between short-term viability and long-term sustainability.

Family firm literature refers to it as a major innovation

(Trent & Astrachan, 1999, p. v). It draws from family systems

theory and behavioural theories of firm management, giving

equal recognition to family and business and to the interplay

between them in achieving mutual sustainability (Stafford

et al., 1999). In contrast to traditional models of firm and

entrepreneurial success (Cramton, 1993), the SFBT locates

entrepreneurship within the social context of family. The

approach was subsequently validated by Aldrich’s work

(1999) on social networks of family firms. It is flexible

enough to address issues of either family or firm indepen-

dently or in conjunction with each other.

Change resulting from internal or external disruptions

and responses to those disruptions is a major facet of the

model. The theory recognizes that different processes occur

in each system during times of stability and change (Danes,

Reuter, Kwon, & Doherty, 2002; Stewart & Danes, 2001).

Modified patterns of interaction are needed for family firms

to remain healthy when responding to chronic, normal and

acute disruptions in either the family or firm (Danes, 1999;

Danes et al., 2002). During times of change, the modified

patterns of interpersonal and resource interactions are

adjusted at the interface of family and firm to sustain the

family and firm (Danes, 1999; Danes et al., 2002).

88 George W. Haynes, Sharon M. Danes and Kathryn Stafford


Volume 19 Number 2 June 2011 & 2011 Blackwell Publishing Ltd.

SBFT II recognizes the importance of the positive or

negative effects of family human, social and financial capital

on firm performance. Family human capital is skills, abilities,

attitudes and values of family members (Danes et al., 2008a).

Family social capital is goodwill among family members and

between families and their community members. Unlike

human capital, embodied in individuals, social capital is

embodied in relationships among people and formal social

institutions. Family financial capital is composed of both

monetary and physical assets owned by family members,

individually or together. In this study, human capital is

operationalized by gender and experience of the business

owner variables; social capital is operationalized by business

as a way of life, customer focused business, business to family

intermingling, use of volunteers or hired help in hectic times,

family functional integrity and scheduling congruity. Financial

capital is operationalized by the transfer of business income

to the household.

A Model of the SFBT

In addition, this model recognizes normative and non-

normative disruptions, which are operationalized by the use

of disaster damage and economic vulnerability of rural

county variables. The disaster damage variables estimate

the total damage from the disaster. The economic vulner-

ability of rural county variable estimates the expected

occurrence of a disaster event.

Resilience during times of change is the ability of a family

business to adjust resource and interpersonal processes to

internal and external disruptions (Danes, 2006). Using the

metaphor of stock and flow in economics and system

dynamics modeling, a stock of resilience capacity can be

built in either the family or business system, and that

capacity can flow across permeable boundaries when it is

needed. If families have built a stored capacity for resilience,

when they encounter a disruption, the store of trust

and creativity in problem solving can be more easily and

quickly tapped and adapted to the new situation (Danes

et al., 2002).

Three processes contribute to resilience capacity in family

businesses: family functional integrity, cognitive predisposi-

tion for scheduling congruity and pattern of adjusting to

disruptions. The strength of these processes creates a set of

mechanisms that will tend to automatically kick in when

encountering natural disasters. Family functional integrity

represents the stability of the family and is measured by

family APGAR which has five components: adaptation,

partnership, growth, affection and resolve (Smilkstein,

1978; Smilkstein, Ashworth, & Montano, 1982). Each com-

ponent has a unique function, yet is related to the whole

(Danes & Morgan, 2004). It connotes a sense of trust,

creativity and openness that brings a family’s interactions

to a higher level of responsiveness (Danes & Morgan, 2004;

Stewart & Danes, 2001). It was developed to assess the

capacity of a family to respond to a health emergency and

help take care of a family member. It has been found to

distinguish between families that hold together and families

that fall apart (Sawin & Harrigan, 1995).

In addition, organizational and community resilience are

important in assessing the impact of disasters and disaster

responses on family businesses. Somers (2009) examined the

importance of building organizational resilience potential and

concluded that a new paradigm incorporating organizational

Processes

Times of StabilityInterpersonal Transactions

Resource Transactions

BUSINESS

FAMILY

Long-term Family Business

Sustainability

COMMUNITY

DisruptionsNormative

Non normative

Processes

Times of ChangeInterpersonal Transactions


Short-termFamily Business

Viability

Processes

Times of StabilityInterpersonal Transactions


Achievements

Functional IntegrityHuman Capital GrowthFinancial SoundnessStructural Integrity

Achievements

Functional Integrity Human Capital GrowthFinancial SoundnessStructural Integrity

ResourcesSocial CapitalHuman Capital

Financial Capital

Constraints Sociocultural

LegalEconomicTechnical

StructureRolesRules

ResourcesSocial CapitalHuman Capital

Financial Capital

Constraints Sociocultural

LegalEconomicTechnical

StructureOwnership

Governance





resilience was needed in natural disaster research. Lewis and

Mioch (2005) examined community resilience and concluded

that resilient communities are more sustainable by making

livelihoods more secure, institutions more responsive, public–

private partnerships more effective. They also make poverty

less prevalent and personal and social protection is dramati-

cally enhanced.

Stafford and Avery (1993) defined a predisposition for

scheduling congruity as ‘the extent to which the different

schedules pursued by a family, both individually and

collectively, fit together harmoniously, appropriately, suita-

bly, or agreeably’ (p. 18). This predisposition for scheduling

congruity between family and business systems can affect

long-term family business sustainability, and represents the

perception family members have about decision making and

activity coordination that fit together harmoniously into

group knowledge and action (Avery & Stafford, 1991). At any

point in time the flow of resilience capacity, represented by

scheduling congruity, can vary depending upon current

conditions at the family/business interface. Lack of congruity

undermines efficiency, reduces cooperation and decreases

resilience.

Patterns of adjusting to change/disruptions are changes

made in one system (business or family) to accommodate

needs of the other when unusually heavy demands exist. The

use of adjustment behaviours during normal but high-

demand times creates a resilience capacity that tends to

automatically kick in when encountering a disaster or other

acute disruption. Five adjustment types occur at the family–

business intersection: (a) personal time reallocation,

(b) obtaining additional help, (c) adjusting family resources,

(d) adjusting business resources and (e) intertwining

tasks (Fitzgerald, Winter, Miller, & Paul, 2001; Miller, Fitzger-

ald, Winter, & Paul, 1999; Miller, Winter, Fitzgerald,

& Paul, 2000). Intermingling of family and firm finances is

another adjustment strategy building resilience capacity.

Haynes, Muske, Fitzgerald, and Fong (2005) found that

two-thirds of family firms intermingled household and firm

finances, indicating that finances are inextricably inter-

twined. When investigating family-to-firm intermingling,

sole proprietorships were more likely to use family re-

sources in the firm than other types of firms, as were those

who were younger owners, and owners without children.

Intermingling of money also made it virtually impossible to

predict the impact of a loan on firm success. Thus, inter-

mingling may affect the family firm’s ability to qualify for

disaster assistance.

The SFBT recognizes the organizational behaviour pre-

mise that one explanation for the birth, growth and death of

businesses is the community in which they reside (Tigges &

Green, 1994). Socioeconomic vulnerability is the extent to

which the economic or social structure of a geographic area

is likely to be severely disrupted by the impact of a crisis or

disastrous event (Haynes et al., 2005). The Family Business

Research Group, a regional USDA research project, devel-

oped the county-level Economic Vulnerability Index that

measures social and economic vulnerability using 18 indica-

tors (Haynes et al., 2005) with foundation variables of rate of

county growth in total earnings (economic) and rate of total

population change (social). Counties were considered vul-

nerable if either foundation variable was zero or negative.

Economic opportunities also accrue when a business is

located near a large metropolitan area that provides an

infrastructure to connect to national and international

markets. The county-level urban influence codes measure

the contribution of this opportunity.

The SFBT provides important guidance to this project in

selecting business, family and community variables for the

empirical models. Most importantly, it recognizes times of

change and provides a framework for examining the business

and family’s response to the changes caused by natural

disasters. Three of the central tenets of the SFBT that are

most applicable to this study are (a) resource and interpersonal

processes in the family or firm may facilitate or inhibit family

firm sustainability; (b) family and firm interact by exchanging

resources across boundaries; and (c) owning families manage

firm and family jointly to optimize achievements.

4. Empirical model

This study will utilize three sources of existing data. The first

source, SHELDUS, contains county-level natural disaster

data and provides estimates of the amount of damage in

the county. The second source, the PERI, provides the actual

amount of Federal Disaster Assistance paid into the counties

declared Presidential Disaster Areas. The third, the NFBS

Panel, provides business and family data.

The SHELDUS is a county-level hazard data set for the

United States for 18 different natural hazard events types

such thunderstorms, hurricanes, floods, wildfires, and tor-

nados. The database covers the period from 1960 to 2005.

For each event the database includes the beginning date,

location (county and state), property losses, crop losses,

injuries and fatalities that affected each county’ (http://

www.sheldus.org).

The PERI is a county-level data set reporting the actual

amount of Federal Disaster paid into the county. The PERI

database reports the Federal Disaster Assistance paid into

a set of counties declared a Presidential Disaster Area. For

instance, if four counties were included in the Presidential

Disaster declaration and US$50 million was allocated to

the four counties, each county is recognized a receiving

the US$50 million. Therefore, allocations of disaster

assistance into any one county are overestimated. All

Federal Disaster Assistance values are reported in millions

of dollars.

The NFBS Panel was constructed by merging the 1997

NFBS and the 2000 NFBS. For the 1997 NFBS, a probability

sample of households was drawn from all 50 states by the

Center for Survey Statistics and Methodology at Iowa State

University. Interviewers screened more than 14,000 house-

hold telephone numbers to ascertain whether a household






member was a family business owner. The restrictive criteria

that the business owner had to be in business at least a year,

had to spend a least 6 hours a week or a minimum of 312

hours annually working in the business and had to live with

at least one family members was met by 1,116 households.

Of the 1,116 households eligible for the study, 794 com-

pleted either a business interview or household interview

resulting in an overall response rate of 71.1%. Eighty-six of

these interviews were completed by the household manager

only; hence, they were not included in this study.

The 2000 NFBS reinterviewed the households in the 1997

NFBS. Questions paralleled the 1997 NFBS with additional

questions about business social responsibility to the com-

munity. Data were gathered from 553 households, more

than three-fourths of the 708 households surveyed in 1997.

In households where two different people were interviewed

in 1997, attempts were made to interview each individual again.

This study examines the influence of natural disasters and

disaster assistance on business survival and success from

1996 to 1999. The following empirical model was specified

to address firm survival and success:

Dependent variables measured the survival and success

of the business over time. For determining firm survival

we used as a measure the question from the 2000 NFBS

asking ‘Is the [Business Name] still in operation’ to

determine if the business survived from 1997 to 2000.

The survival model was estimated by a logistic regression.

Over 80% of the family businesses interviewed for this

study survived from 1996 to 1999.

For determining firm success we used as measures

objective and subjective changes in the business between

1996 and 1999. The objective measure was changes in

gross revenue from 1996 to 1999. The subjective mea-

sure was changes in the manager’s opinion about ‘how

successful (the business) has been to date’ from 1996 to

1999. The success models were estimated by ordinary

least squares regression.

The focal independent variables are those for Federal

Disaster Assistance in 1997, 1998 and 1999. Positive/

significant coefficients would indicate that business survi-

val and success were positively correlated with county

federal disaster assistance.

Control variables in this model include estimated

disaster damages from 1997 through 1999 (TDE69),

community characteristics (economic vulnerability of

rural counties – REV), business characteristics (number

of employees – EMP, industrial classification – ARTS, age

of the business – BAGE, home-based status – HBB,

business manager characteristics (most important goal –

GLFIN, salience of lifestyle versus profit as a motive for

business ownership – WOL, and customer focus of the

business – CUST), characteristics of the business man-

ager (gender – SEXBM, experience – EXPERBM, and

intermingling of business and family resources – FTB), and

resilience capacity (response to hectic times in the family

or business by using volunteers – VOL or hired help –

HIRE, functional integrity of the family – FAPGAR, family’s

cognitive predisposition to coordinate harmoniously –

SC and transfer of funds from the business to the

household – LTRANS).

One would expect businesses in counties receiving more

federal disaster assistance to have a higher probability of

surviving and succeeding than businesses in counties

receiving less federal disaster assistance. The next section

examines the results of this study utilizing the models

discussed above.

5. Results

Table 1 reports the means and standard deviations for the

survival and success models used in this analysis. The means

and standard deviations are very similar for the two samples

of family business households, however the sample size for

the survival model is substantially larger than the sample size

for the success models. In 2000, the owners of 553 of the

708 businesses in the 1997 NFBS spoke to interviewers.

Consequently, the NFBS panel contains survival information

on 553 businesses. For 529 of the 553 observations there is

both household and business information in the 1997 inter-

view. These 529 observations for which there was complete

information in 1997 were the sample used in this study. All

observations in counties experiencing at least one disaster

were used in the analysis of survival, or 509 observations.

The analyses of success were conditional on survival. Of the

529 observations for which survival was known, 429 sur-

vived. However, there were only 311 complete interviews

with businesses in 2000. Consequently, the success analyses

were based on the 311 surviving businesses with owners

who completed an interview in 2000.

Mean Federal Disaster Assistance paid into the counties

ranged from just over US$18 million in 1998 to nearly

US$37 million in 1997 for those counties in the survival

study. These counties had nearly US$29 million of disasters

resulting from over 16 disaster events over the 3 years

(1997 through 1999). On average, these counties had

relatively low economic vulnerability scores. The businesses

had just under eight employees, 7% were in the arts,

entertainment and recreation industry; they were just under

19 years of age, 56% were home-based, 61% of the owners

believed that financial goals were most important, 44%

believed that business is a way of life (rather just a means

of generating money), and businesses were generally con-

sumer focused. The business managers were largely male

(72%) and they had nearly 14 years of business experience,

on average. Thirty-two percent of businesses engaged in

business to family intermingling and they transferred over

US$35,000 annually to the household. Businesses were

relatively unlikely to use volunteers or hired help in hectic

times. And finally, the composite measure of family integrity

was relatively high in 1997, 20.65 out of 25, indicating that





the family had high functional integrity. The composite

measure of the family/business congruity in 1997 also was

relatively high (13.24 out of 20) indicating a high level of

harmony between family and firm systems. The means for

the somewhat smaller success sample were very similar.

Table 2 describes the probability that a business survives

and is successful from 1996 to 1999; characteristics of

businesses are listed on the left of the table. One measure

of survival was utilized, where the business is either open or

closed in 1999. Two success measures were employed,

where a dichotomous variable indicated whether total

revenue has increased or not (hereafter, called objective

success), and whether the firm’s perceived (or subjective)

success had improved or not. Firms most likely to survive

were characterized by the following: They had older-more

established firms, were owned by men, had managers with

more business experience, were more likely to engage in

business to family intermingling of resources, were more

likely to hire help in hectic times, and transferred more

money from the business to the family.

The firms with a higher probability of realizing more

objective success from 1996 to 1999 were characterized

by the following: They were younger businesses, had

managers with less business experience, and transferred

less money from the business to the family. The firms with

a higher probability of realizing more subjective success

from 1996 to 1999 were characterized by the following:

They had experienced disasters creating higher economic

damages, were 6–10 years of age, were owned by

women and had managers with 6–10 years of business

experience.

Table 3 examines the predictors of family business

survival from 1996 to 1999, controlling for other variables

(including disaster damage; community, business and busi-

ness manager characteristics; family–business relation-

ships, business response to change; and family resilience).

In this multivariate context, Federal Disaster Assistance

paid to the county in 1997, 1998 and 1999 were not

statistically significant predictors of survival. Firms in more

economically vulnerable rural counties, those engaged in

business to family resource intermingling and those trans-

ferring more money from the business to the family were

most likely to survive. Women-owned firms and those with

a customer service focus were less likely than other firms

to survive.

Table 4 examines the predictors of increased revenue

from 1996 to 1999, controlling for other variables. Federal

Disaster Assistance paid to the county in 1999 was positively

associated with increases in objective business success. The

firms most likely to realize larger increases in revenue were

Table 1. Characteristics of the Sample for Survival and Success

Survival Success

Characteristic Mean Standard deviation Mean Standard deviation

Disaster assistanceFederal disaster payment in 1997, US$ million 36.92 107.62 40.59 110.98Federal disaster payment in 1998, US$ million 18.45 53.18 19.90 58.87Federal disaster payment in 1999, US$ million 20.77 97.67 22.34 104.15Disaster damageTotal federal disaster estimates, US$ million 28.58 150.08 20.57 63.28Number of disasters 16.08 17.02 16.28 18.17Community characteristicsEconomic vulnerability of rural counties 1.77 3.08 2.15 3.34Business characteristicsNumber of employees 7.58 27.92 6.74 22.89Arts, entertainment and recreation industry .07 .26 .06 .24Business age 18.87 21.13 20.36 22.22Home-based business .56 .50 .56 .50Financial goal is most important .61 .49 .60 .49Business as way of life is important .44 .50 .47 .50Customer focused (1¼ no to 10¼ great extent) 8.07 2.23 7.86 2.22Business manager characteristicsGender of business owner (1¼woman, 0¼man) .28 .45 .28 .45Experience of business owner 13.80 11.67 14.23 11.43Family–business relationshipBusiness to family intermingling .32 .47 .35 .48Transfer of business income to household 35,681 42,755 36,513 42,828Business response to changeUse volunteers in hectic times (1¼ never to 5¼ always) 2.28 1.02 2.31 1.02Use hire help in hectic times (1¼ never to 5¼ always) 2.03 .97 2.12 .98Family resilienceFamily APGAR integrity (maximum¼ 25) 20.65 3.19 20.68 3.05Scheduling congruity (maximum¼ 20) 13.24 2.52 13.38 2.49Number of Observations 509 311




Table 2. Probability of Business Survival and Success

Probability of . . .

Characteristic Survival Increased revenue Increased success

Presidentially declared disaster in 1997No .759 .559 .182Yes .757 .648 .176Presidentially declared disaster in 1998No .764 .605 .186Yes .745 .538 .165Presidentially declared disaster in 1999No .744 .571 .165Yes .809 .625 .225Total federal disaster estimates per capitao100 .733 .550 .099w

100–500 .810 .653 .213500–999 .756 .542 .2081000 or more* .746 .597 .247Number of disasters5 or fewer .748 .628 .1606–10 .743 .556 .15911–20 .732 .568 .19821 or more* .815 .575 .205Economic vulnerabilityEconomically vulnerable, no .732 .582 .206Economically vulnerable, yes .793 .589 .151Number of employeesFewer than one employee .764 .641 .2141–2 .715 .608 .1653–5 .806 .515 .1526 or more* .762 .540 .175Arts, entertainment and recreation industryNo .765 .575 .185Yes .667 .737 .105Business age5 years of age or less .690w .711w .1586–10 .714w .649w .281w

10 years of age or more* .810 .511 .157Home-based businessNo .770 .588 .176Yes .749 .583 .183Financial goal most importantNo .747 .632 .208Yes .765 .554 .161Way of life most importantNo .740 .600 .200Yes .781 .568 .158Customer focused businessNo .780 .656 .188Yes .756 .577 .179Gender of business ownerMale .791w .578 .157w

Female .671 .602 .239Experience of business owner5 years or less .714w .701w .1616 to 10 .713w .667w .267w

More than 10 years* .803 .494 .159Business to family interminglingNo .725w .577 .184Yes .828 .600 .173Transfer of business income to household10,000 or less .675w .642w .21110,001–30,000 .768 .606 .17030,001–50,000 .815 .549 .176More than 50,000* .826 .507 .155





larger, engaged in the arts/entertainment/recreation indus-

try, owned by women, had higher family functional integrity

scores and transferred more money from the business to

the family.

Table 5 examines the predictors of changes in perceived

success of the business from 1996 to 1999. Firms receiving

more Federal Disaster Assistance in 1997 realized positive

changes in perceived business success. Interestingly, firms

located in economically vulnerable rural counties, those

using hired help in hectic times, and those with higher levels

of scheduling congruity realized decreases in perceived

business success.

Table 2. (Contd.)

Probability of . . .

Characteristic Survival Increased revenue Increased success

Use volunteers in hectic timesSeldom .754 .590 .155Often .764 .580 .207Use hire help in hectic timesSeldom .727 .599 .203Often .814w .566 .147Family APGAR integrityLow .792 .583 .174High .734 .587 .184Scheduling congruityLow .748 .556 .200High .770 .616 .159Number of Observations 509 311 311

Notes:*Reference group.wSignificant at the 10% level.

Table 3. Determinants of the Survival of Family Businesses, 1996–1999

Characteristic Parameter estimate Standard error p-value

Constant �1.3823 1.2337 .2625Disaster assistancePresidential disaster assistance, 1997 .0000 .0012 .9861Presidential disaster assistance, 1998 .0007 .0022 .7660Presidential disaster assistance, 1999 .0006 .0011 .6148Disaster damageFederal Disaster Assistance, total �.0009 .0009 .3525Number of disasters, 1997–1999 .0104 .0074 .1591Community characteristicsEconomic vulnerability of rural county .1309 .0440 .0029Business characteristicsNumber of employees �.0035 .0036 .3342Industrial classification, arts/entertainment/recreation �.4423 .4012 .2703Age of the business .0021 .0084 .8072Home-based business �.0214 .2469 .9309Most important goal is financial �.0750 .2338 .7485Business is a way of life .1054 .2267 .6419Customer focused business �.0951 .0534 .0746Business manager characteristicsGender of business manager �.5145 .2435 .0346Experience of the business manager �.0109 .0142 .4432Family–business relationshipBusiness to family intermingling .5201 .2565 .0426Transfer of business income to household .2506 .0614 .0001Business response to changeUse volunteers in hectic times .0141 .1145 .9018Use hired help in hectic times .1097 .1208 .3638Family resilienceFamily functional integrity .0128 .0348 .7127Scheduling congruity .0220 .0437 .6148R2 (McFadden) .0945




6. Discussion

This study provides support for the SFBT premise that the

community in which the business resides contributes to the

explanation of the birth, growth, and death of a family

business. The SFBT focuses this study on the interface

between the family and business and utilizes the family

business as the unit of analysis, rather than the disaster

event. It was both the location of the business and the nature

of that business that played a major role in determining the

business survival. However, neither the number of natural

disasters nor the disaster assistance received by the county

affected the odds of survival. Surprisingly, businesses in

economically vulnerable rural counties were more likely to

survive than businesses in other locations. A rural location

for the business and being in an economically vulnerable

location interacted to enhance the probability of survival. In

past research (Besser, 1999, 2002, 2003), the social respon-

sibility of rural family businesses significantly influenced busi-

ness success in rural areas through the reciprocal economic

relationship between the business and the community. From

another perspective, given the growth criteria for determin-

ing economic vulnerability, perhaps businesses in non-rural

counties have a sufficient population and income base to

constitute a market whether or not the county is growing.

Management practices affected the likelihood of survival.

When the owner was more focused on monitoring custo-

mer satisfaction and product quality than on other manage-

ment practices, the business was less likely to survive. Two

family/business overlap or interface management practices

significantly affected the likelihood of survival. Using the

business assets to secure family loans or business loans to

the family was associated with a higher likelihood of survival.

The more money the owner took out of the business for the

family’s use, the more likely the business was to survive.

While both of these variables can be thought of as family/

business interface management, they are also strong indica-

tors of the financial strength of the family and business.

Although women-owned businesses were less likely to

have survived than men-owned businesses, they were more

likely to have increased their revenue. In general, these

women-owned businesses were somewhat smaller busi-

nesses than those owned by men. Perhaps the women-

owned businesses were secondary sources of income for

the family and financially less stable businesses. For busi-

nesses that survived from 1997 to 2000, gender of the owner

had the largest effect on the change in annual revenue.

Women-owned businesses achieved greater increases in

revenue during that period than did male-owned businesses.

In addition, the size of the business, being engaged in the arts/

Table 4. Determinants of Changes in Revenue for Family Businesses, 1996–1999


Constant �707,693.00 313,269.00 .0246Disaster assistancePresidential disaster assistance, 1997 �165.92 260.09 .5240Presidential disaster assistance, 1998 461.59 470.05 .3269Presidential disaster assistance, 1999 943.18 277.08 .0008Disaster damageFederal Disaster Estimate, total �185.88 477.76 .6975Number of disasters, 1997–1999 106.66 1,590.50 .9466Community characteristicsEconomic vulnerability of rural county 6,781.00 9,034.17 .4535Business characteristicsNumber of employees 5,833.85 1,257.12 .0001Arts, entertainment and recreation 217,650.00 116,812.00 .0634Age of the business 1,246.36 1,710.21 .4667Home-based business �65,135.00 63,163.00 .3033Most important goal is financial 53,789.00 58,568.00 .3592Business is a way of life 15,339.00 55,636.00 .7830Customer focused business 497.54 12,859.00 .9692Business manager characteristicsGender of business manager 141,648.00 62,766.00 .0248Experience of the business manager �4,962.62 3,393.83 .1448Family–business relationshipBusiness to family intermingling �47,426.00 58,831.00 .4208Transfer of business income to household 42,523.00 18,173.00 .0200Business response to changeUse volunteers in hectic times 13,061.00 29,653.00 .6599Use hired help in hectic times 15,934.00 30,382.00 .6004Family resilienceFamily functional integrity 17,382.00 9,350.95 .0641Scheduling congruity �4,572.71 11,144.00 .6819Adjusted R2 .1518





entertainment/recreation and transfers of business income

to the household had positive effects on increases in revenue.

The functional integrity of the owner’s family had the

second biggest effect on changes in revenue. For each

additional unit more the owner’s family scored on the family

functional integrity scale, gross revenue increased 17.4

thousand dollars during a 3-year period from 1997 to

2000. Clearly, maintaining the functional integrity of the

family is an important aspect of enabling a privately owned

business to increase its revenue.

These study findings add to the family business perfor-

mance and practitioner literature indicating that survival and

success are two distinct components of performance.

Healthy businesses need to be supported by healthy (and

resilient) families. This study indicates that this premise is

true when consideration of disaster occurrence is incorpo-

rated into the survival and success models. It also contri-

butes support for the premise that non-pecuniary measures

of firm success provide more insights into the owner’s

commitment to the firm. In fact, by incorporating family

system variables and family interface variables, it provides

more insight into not only the owner’s commitment to the

firm, but provides insight into the total family’s commitment

and interconnection to the firm. Counselors, and others,

working with family businesses must recognize the impor-

tance of the family system’s resilience in the survival and

success of the family business.

These family system and family interface variables were

incorporated into the models because the SFBT locates

entrepreneurship within the social context of the family.

Support for this premise was found when the functional

integrity of the owner’s family had the second biggest effect

on changes in business revenue and when scheduling con-

gruity affected changes in perceived success. The functional

integrity of the family connotes a sense of trust and open-

ness that brings a family’s interactions to a higher level of

responsiveness to the business system (Danes & Morgan,

2004; Stewart & Danes, 2001); this resilience capacity can be

drawn upon in times of crises such as disasters.

This preliminary research, using county damage estimates,

federal disaster assistance information for each county and

individual business interviews, supports earlier work by

Alesch et al. (2001) which suggests that federal disaster

assistance may not positively impact business survival or

success. These prior research analyses, however, had neither

variables measuring the family’s influence nor the interface of

the family/business as in this study. With the initial finding

that the functional integrity of the owner’s family had the

second biggest effect on changes in revenue and gender had

the biggest effect on changes in revenue (when women more

Table 5. Determinants of Changes in Perceived Business Success for Family Businesses


Constant .7672 .5153 .1377Disaster assistancePresidential disaster assistance, 1997 .0008 .0004 .0746Presidential disaster assistance, 1998 �.0005 .0008 .5514Presidential disaster assistance, 1999 �.0004 .0005 .3537Disaster damageFederal Disaster Estimate, total .0001 .0008 .8603Number of disasters, 1997–1999 �.0007 .0026 .7851Community characteristicsEconomic vulnerability of rural county �.0393 .0149 .0086Business characteristicsNumber of employees .0001 .0021 .9750Arts, entertainment and recreation .0707 .1922 .7133Age of the business .0000 .0028 .9943Home-based business �.0874 .1039 .4010Most important goal is financial �.1007 .0964 .2969Business is a way of life �.0130 .0915 .8873Customer focused business �.0027 .0212 .9006Business manager characteristicsGender of business manager .0722 .1033 .4851Experience of the business manager �.0052 .0056 .3493Family–business relationshipBusiness to family intermingling �.0286 .0968 .7677Transfer of business income to household, log .0041 .0299 .8912Business response to changeUse volunteers in hectic times �.0040 .0488 .9353Use of hired help in hectic times �.1036 .0500 .0390Family resilienceFamily functional integrity .0004 .0154 .9776Scheduling congruity �.0340 .0183 .0649Adjusted R2 .0260




than men tend to have their fingers on the pulse of the family

system) (Danes & Morgan, 2004), more research is needed

to pursue two more premises of the SFBT. Those are: (a)

that family and business systems exchange resources during

times of disruption and (b) that owning families manage

family and business resources together to meet the demands

of both systems. Further work is needed to address this

question by examining business level disaster assistance to

more carefully assess the impact of federal disaster assis-

tance on family business survival and success.

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Influence of Federal Disaster Assistance on Family Business Survival and Success

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