The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

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The Bind that Ties:Socioemotional WealthPreservation in Family FirmsLuis R. Gomez-Mejia a , Cristina Cruz b , PascualBerrone c & Julio De Castro da Texas A&M Universityb IE Business Schoolc University of Navarra (IESE)d IE Business School

Available online: 26 Jul 2011

To cite this article: Luis R. Gomez-Mejia, Cristina Cruz, Pascual Berrone & Julio DeCastro (2011): The Bind that Ties: Socioemotional Wealth Preservation in FamilyFirms, The Academy of Management Annals, 5:1, 653-707

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The Bind that Ties:Socioemotional Wealth Preservation in Family Firms

LUIS R. GOMEZ-MEJIA∗

Texas A&M University

CRISTINA CRUZ

IE Business School

PASCUAL BERRONE

University of Navarra (IESE)

JULIO DE CASTRO

IE Business School

Abstract

A growing body of research shows that family firms are different from otherorganizations in significant ways. In this paper we review this literature byexamining how family firms differ from nonfamily firms along five broadcategories of managerial decisions. These categories encompass a set of key

∗Corresponding author. Email: [email protected]

The Academy of Management AnnalsVol. 5, No. 1, June 2011, 653–707

ISSN 1941-6520 print/ISSN 1941-6067 online# 2011 Academy of ManagementDOI: 10.1080/19416520.2011.593320http://www.informaworld.com

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organizational choices concerning management processes, firm strategies,corporate governance, stakeholder relations and business venturing. We arguethat socioemotional wealth or affective endowment of family owners explainmany of these choices. We also examine some contingency factors (namelyfamily stage, firm size, firm hazard, and the presence of nonfamily shareholders)that moderate the influence of socioemotional wealth preservation as a point ofreference when making managerial decisions in family firms. Lastly, we explorethe firm performance consequences of family ownership.

Introduction

Research on family firms has grown rapidly during the last 15 years or so.Studies published in top journals have examined varied phenomena such asexecutive compensation (Gomez-Mejia, Larraza-Kintana, & Makri, 2003;Wheelock, 1992), cost of debt (Anderson, Mansi, & Reeb, 2003), entrenchment(Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001), altruism (Schulze, Lubatkin,Dino, & Buchholtz, 2001), diversification (Gomez-Mejia, Makri, & Larraza-Kintana, 2010), acquisitions (Miller, Le Breton-Miller, & Lester, 2010),governance (Anderson & Reeb, 2004; Schulze, Lubatkin, & Dino, 2003a),and corporate social responsibility (Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010), among others. A wealth of articles in top-tier journals andspecial issues of other outlets (Chrisman, Sharma, & Taggar, 2007; Chrisman,Steier, & Chua, 2008; Heck & Mishra, 2008; Rogoff & Heck, 2003; Schulze &Gedajlovic, 2010) highlight the growing interest in this topic. A quick searchin Google Scholar of the key words “family firm” produces over 15,000entries, with most of them appearing since the mid 1990s. This is testamentto the richness of the field and its relative recency.

Most of the literature noted above has stressed the role of noneconomicfactors in the management of the firm as the key distinguishing feature thatseparates family firms from other organizational forms. The intertwinednature of family and business systems due to family embeddedness givesthese firms their distinctive flavor, as reflected in several dimensions. Thefirst is a strong emotional overtone. Because families are a social group withlong histories and enduring memories, they provide a rich context for theemotional exchanges that affect both family members and family firms (Ketsde Vries, 1996; Tagiuri & Davis, 1996). By nature, families share a range ofemotions, from warmth, intimacy, tenderness, love, consolation, and happinessto hatred, jealousy, ambivalence, and anger (Epstein, Bishop, Ryan, Miller, &Keitner, 1993). The identity of family members is closely linked to the firm,which often carries their name (Dyer & Whetten, 2006), and how othersperceive the firm directly affects the image and reputation of family owners(Chen, Chen, Cheng, & Shevlin, 2010). This means that personal pride andself-concept of family members tends to be intimately tied to the business.

654 † The Academy of Management Annals

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Because of their close attachment to the firm, the ability of family members toexercise authority and control over the business represent an important sourceof emotional satisfaction (Schulze et al., 2001).

It is now widely accepted that the boundaries between the family and the firmare blurred in family businesses, and that emotions flow back and forth,ultimately affecting how the firm conducts its activities (Baron, 2008). As aresult, scholars increasingly call for the inclusion of emotions when studyingthe management of family firms. To this end, many emotional constructshave been proposed in recent years such as emotional capital (Sharma, 2004),emotional ownership (Bjornberg & Nicholson, 2007), emotional returns andcosts (Astrachan & Jaskiewicz, 2008), emotional value (Zellweger & Astrachan,2008), commitment entrapment (Chirico & Salvato, 2008), and possessionattachment (Astrachan & Jaskiewicz, 2008; Habbershon & Pistrui, 2002).These constructs represent attempts to capture the emotional connectionfamily owners feel for their firms and to portray the organization as a recipientof the family’s affective stock, which influences the psychological, behavioral,social, and cognitive aspects of managing the business. Unlike a nonfamilybusiness, where employees are free to leave and owners are free to sell theirshares, family members are generally stuck in the business, and their emotionalissues cannot be resolved by walking away. Hence, while emotions may bepresent in all types of firms (Ashforth & Humphrey, 1995), they are likely toplay a much stronger role in family businesses because exit of key actors (as isoften the case in nonfamily firms) may not be a viable alternative.

In addition to emotions, another noneconomic factor that is often mentionedin the literature as a distinguishing feature of family firms is how values idiosyn-cratic to the family permeate the organization (Dyer, 2003; Fletcher, 2000;Habbershon & Pistrui, 2002). The perpetuation of family values through thebusiness (Handler, 1990), the preservation of family dynasty (Casson, 1999)and the conservation of the family’s social capital (Arregle, Hitt, Sirmon, &Very, 2007) are frequently highlighted in the literature. Many authors also seefamily’s strong desire to infuse its values into the business as the spring wellof organizational culture. For instance, Aronoff (2004: 57) emphasizes “theimportance of family values as the pillars of the family business’s culture. . .enabling the company to be differentiated from other enterprises.” Both anecdo-tal and empirical evidence show that, compared with nonfamily firms, the pres-ence of strong family values favors the development of a distinct organizationalculture (Astrachan, Klein, & Smyrnios, 2002). Moreover, because of the domi-nant role of the founder, not only during the entrepreneurial period but alsopotentially through successive stages, these values and owner motivations arepowerful cultural drivers across generations (Hall & Nordqvist, 2008).

A third distinctive aspect of family firms noted in the literature concernsaltruistic behavior among family owners, referring to their desire to cater to thewelfare of the family unit. Altruism as an analytical concept has been around in

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the field of economics for a long time. Indeed, research on this issue by Nobel Prizelaureate in economics Gary Becker goes back almost 50 years (see Becker’s book[1981] summarizing much of this work). Altruism, as commonly defined in thatearlier economics literature, has a calculated utilitarian orientation, where analtruistic exchange would maximize the welfare of the entire family engaged ina common endeavor (running a business). For Becker (1981), altruism is associ-ated with efficiency and economic rationality in family firms. The importance ofaltruism has received renewed attention in the family business literature over thelast few years (see for instance, Jorissen, Laveren, Martens, & Reheul, 2005;Lubatkin, Schulze, Ling, & Dino, 2005; Lubatkin, Durand, & Ling, 2007; Miller,Le Breton-Miller, Lester, & Cannella, 2007; Volpin, 2002). However, in thisrecent literature altruism is presented as a noneconomic aspect of the business,whereby family owners receive satisfaction by benefiting family employeesindependent of their relative contribution to the organization or their capacityto reciprocate in kind. Hence, according to these authors, the fulfillment offamily obligations based on blood ties rather than competence or demonstratedperformance become paramount in family firms.

Gomez-Mejia, Takacs-Haynes, Nunez-Nickel, Jacobson, and Moyano-Fuentes (2007) collectively labeled the utilities family owners derive from thenoneconomic aspects of the business noted above as “socioemotional wealth”or “affective endowments.” These authors argued that family owners arelikely to see potential gains or losses in socioemotional wealth as theirprimary frame of reference in the management of the firm. Therefore majormanagerial choices will be driven by a desire to preserve and enhance thefamily’s socioemotional wealth apart from efficiency or economic instrumental-ity considerations. According to Gomez-Mejia et al. (2007), family firms may bejust as rational as nonfamily firms when making managerial choices; yet the cri-teria for judging whether these choices are good or bad vary between these twotypes of firms. In their words, “for family firms a key criterion, or at least onethat has greater priority, is whether their socioemotional endowment will bepreserved. . . for nonfamily firms, financial criteria seem to be most importantwhen it comes to assessing the value of a business decision, as they are lessdriven by the need to protect their socioemotional endowment” (2007: 131).

This paper will review the family business literature from this socioemo-tional lens because it captures the essence of differentiating family businessesfrom all other firms. This allows us to explain many seemingly disparate find-ings under one umbrella, stressing that family firms are a distinct organiz-ational form where noneconomic factors play a pivotal role in themanagerial choices made by the firm. We will examine these choices alongseveral broad conceptual dimensions encompassing most key organizationaldecisions. As graphically shown in Figure 1, these choice dimensions includemanagement processes, strategic choices, organizational governance, stake-holder relations, and business venturing. We also examine some important


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Figure 1 Family Firm Research from a Socioemotional Wealth Preservation Perspective.

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contingency variables that moderate the importance of family’s socioemotionalwealth as the primary frame of reference in the management of the firm(namely: hazards faced by the firm, family stage, firm size, and the presenceof nonfamily shareholders). Lastly, we address the normative “so what?” ques-tion in terms of the implications of the pursuit of socioemotional wealth infamily firms to firm performance.

Before we delve into these issues, the first task at hand is to define what afamily firm is; as we will see next, the answer to this question is morecomplex than first meets the eye.

Setting the Boundaries: Defining and Capturing the Essence of a Family Firm

There is general consensus that family firms represent the most common typeof organization around the world (La Porta, Lopez-de-Silanes, & Shleifer, 1999;Morck & Yeung, 2003), although the percentage they represent varies accord-ing to the operational definition being used and the industry and country beingstudied. In Asia and the Middle East, for example, they comprise around 95%of all firms (Kets de Vries, Carlock, & Florent-Treacy, 2007). In the U.S., theynumber around 70% of all publicly traded firms (Sirmon & Hitt, 2003),employing upward of 80% of the workforce (Neubauer & Lank, 1998). Insome American industries, such as construction, the percentage of familyfirms is as high as 95% (Gomez-Mejia et al., 2003). And while it is true thatmost family firms are smaller in size, in the United States they compriseabout one-third of the companies listed in the S&P 500 and Fortune 500indices (Anderson et al., 2003) and close to one-half of the Fortune 1000firms (Gomez-Mejia et al., 2010).

At a theoretical level, there is broad agreement that family firms are thosewhere a family owner exercises much influence over the firm’s affairs. Thismay well be the case even when other nonfamily owners are present (as in pub-licly traded firms) and/or the firm is managed by professional (nonfamily)executives. However, when it comes to operational definitions, there is awide assortment of proxies that have been used in the empirical literature tocapture the family firm construct. These include a single family that holdsthe majority of shares (Gallo & Sveen, 1991), an excess of 50% of ordinaryvoting power in the hands of family members (Westhead, Cowling, &Howarth, 2001), a family member as an officer or director (Anderson &Reeb, 2003a), 10% or more of company shares in the hands of the family(Allen & Panian, 1982) and 5% or more family ownership and at least oneperson with family ties on the board (Gomez-Mejia et al., 2003), among others.

In an attempt to view family businesses as non-monolithic, other authorshave highlighted the varying degrees of family involvement when operationallydefining family businesses. Depending on the definition employed, scholarsrefer to a family business as “family owned,” “family managed,” “family


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owned and managed,” and “family controlled.” Based on these distinctions,Shanker and Astrachan (1996) sorted family firm definitions into three tiersbased on family involvement, ranging from broad (the family sets the strategicdirection for the business), to middle (some family involvement), to narrow(the family is involved in day-to-day operations).

Easy access to archival databases online offers many advantages to investi-gators all over the world, including instant availability of large samples of firms,low cost, and the possibility of replication. Understandably, scholars who uselarge archival databases rely on reductionist proxies (e.g., composition ofboard of directors or percentage of stock owned by family and nonfamily inves-tors) to measure the degree of “familiness.” However, critics argue that theseindicators, while convenient, hardly capture the essence of family firms (e.g.,Astrachan et al., 2002).

Another important operationalization problem is that most empiricallyderived taxonomies of family ownership and influence may not consider therole played by other important shareholders. As Schneper and Guillen (2004:264) noted, “publicly held corporations are beset by perennial conflict as towho should participate and who benefits.” In organizations whose ownershipis highly diversified—including a wide assortment of nonfamily shareholderssuch as institutional investors, pension funds, insurance funds, atomistic inves-tors, foreign governments, and banks—it is not always easy to elucidate whichparty has the motivation and the power to impose its will on another.

A related issue to the one noted in the prior paragraph is that the oper-ational threshold to designate a firm as family owned is often too lowoutside the realm of the largest publicly traded American firms (such as theFortune 1000). In Spain, for instance, Cruz, Gomez-Mejia, and Becerra(2010) had difficulties finding a nonfamily firm according to these criteria,and hence adopted the threshold of 20% family ownership recommended byLa Porta et al. (1999). Even then, the vast majority of Spanish firms—includingthe largest—would be classified as family firms. On the other hand, amongFortune 1000 firms, holding 5% or more of the company’s shares is sufficientto give an owner substantial control of the organization (Gomez-Mejia, Tosi, &Hinkin, 1987; Hambrick & Finkelstein, 1995; McEachern, 1975; Werner, Tosi,& Gomez-Mejia, 2005). The potential existence of unknown threshold effectsalso poses a problem when relying on continuous measures of ownership.For example, holding 5% or more of a firm’s shares in a Fortune 500company may convey a dominant position, and owning an additional 20%or 30% of the shares may not make much difference in terms of influenceover the firm’s affairs (Tosi et al., 1999).

In the end, it is safe to conclude that every operational definition is contextspecific rather than generalizable. Meaningful thresholds of ownership andinfluence by a given party (such as a single family) are likely to depend onsuch factors as industry (Beehr, Drexler, & Faulkner, 1997), prevalence of


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atomistic shareholdings (Hambrick & Finkelstein, 1995), the presence of mul-tiple owners with large blocks of stock (Hoskisson, Hitt, Johnson, & Grossman,2002), conflicting interests such as short- and long-term investors (Aghion,Van Reneen, & Zingales, 2009), firm size (Daily & Dollinger, 1992; James,1999), and the presence of firm networks and pyramidal structures in manycountries (La Porta et al., 1999). It is doubtful or even desirable that therewill ever be a standard operational definition of a family firm. Researchersmust therefore defend their choice of measures depending on the sample—for instance, a survey of privately owned American firms (Schulze et al.,2001) versus Fortune 1000 companies (Miller et al., 2010) and context—forexample, olive oil mills in Spain (Gomez-Mejia et al., 2007) versus CEOs ofFlemish businesses (Stockmans, Lybaert, & Voordeckers, 2010). In somespecific domains (large Fortune 1000 firms, for example), conventions mayemerge over time, but they will be restricted to that context.

The wide range of measures and units of analysis for empirical workdiscussed above is not necessarily a drawback; it may even be necessary, giventhe diversity of business contexts in which families exercise influence. But thismeans the theoretical framework and conceptual logic of the study as a justifica-tion for using a particular family influence measure remains paramount. Other-wise, we end up with a set of descriptive and often conflicting sample-specificresults and a disjointed, rather than additive, body of knowledge.

For the sake of parsimony, we use the term “family firm” as a genericumbrella that encompasses the various terms used in the literature (family-owned firm, family business, family-controlled firm, and the like) to labelorganizations in which families exercise substantial influence on the firm’saffairs. We will, however, make finer-grained distinctions when family firmheterogeneity (for example, privately owned versus publicly traded) is impor-tant to an understanding of the phenomenon being discussed.

Socioemotional Wealth Preservation as a Predictor of Managerial Choices inFamily Firms

The family business literature is highly fragmented; yet, as noted earlier, webelieve that the pursuit of nonfinancial utilities, or what we refer to as thefamily’s socioemotional wealth, can best capture the family firms’ uniquenessand thus serve as a unifying analytical perspective to explain differences inmanagerial choices.

Management Processes

This section examines how noneconomic factors influence decisions concern-ing key management processes within the family firm. Three aspects that havereceived considerable attention in the literature are the handling of succession,


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professionalization, and the management of human resources. Consistent withthe perspective taken in this paper, we argue that the family’s pursuit of socio-emotional wealth explains many of the managerial choices that fall into thesethree categories.

Succession. The desire to transfer business control to the next generation isone of the key factors that separate family firms from nonfamily firms. It is notsurprising, then, that family business succession has been a popular topic forresearch (Dyer & Sanchez, 1998; Sharma, Chrisman, Pablo, & Chua, 2001).According to Le Breton-Miller, Miller, and Steier (2004), choosing and nurtur-ing a successor are among the most critical decisions made by the family patri-arch or business leader. Although the literature is fragmented, with moststudies being descriptive and nontheoretical, researchers agree that there areimportant differences between family and nonfamily firms regarding thechoice of a successor and succession planning.

Research suggests that the freedom to choose from a pool of potential suc-cessors is constrained in family firms. In particular, anecdotal evidence suggeststhat family firms favor a successor from within the family even if a better can-didate exists internally or in the external labor market (Kets de Vries, 1993).The most cited reasons for this are the owner’s desire to retain family control(Astrachan et al., 2002) and to satisfy a “dynastic” family ambition (Goldberg& Wooldridge, 1993). Here again, the evidence points toward the preservationof the family’s socioemotional wealth as driving this decision rather than econ-omic rationality (that is, choosing the most qualified candidate). In fact, the lit-erature suggests that the family may be willing to incur an economic cost bypursuing a family candidate. With some exceptions (e.g. Shen & Cannella,2002), most studies show negative market reactions to family-CEO appoint-ments (Bennedsen, Meisner, Perez-Gonzalez, & Wolfenzon, 2007; Morck, Stan-geland, & Yeung, 2000; Perez-Gonzalez, 2006; Villalonga & Amit, 2006).

Succession planning has also received considerable attention in the familybusiness literature. The importance of non-economic factors in family firmsbecomes evident when considering differences in the leadership transitionprocess between family and nonfamily firms. For instance, it has beensuggested that while nonfamily firms tend to favor outsourced successor prep-arations (e.g., executive development seminars), family firms place a premiumon developing personal relationships between the leader and the successor(e.g., mentoring and coaching), and between the successor and other stake-holders in the business (Fiegener, Brown, Prince, & File, 1996). The emphasison mentoring and coaching to nurture successors in family firms is seen as away to ensure a better transfer of idiosyncratic knowledge across generations(Castanias & Helfat, 1991, 1992). But more than that, it is also a way tofoster the identification of the successor with the firm and to increase his orher emotional attachment to the organization (Sharma, 2004).


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The literature also suggests that when the current incumbent is a familymember, this individual tends to be more reluctant to plan for his or her suc-cession. Most authors see this reluctance as the desire to retain a position ofprominence within the family (Lansberg, 1999). Family executives see retire-ment as a loss of power and status. Moreover, they value control of the businessabove all else because they have spent their lives achieving that status, often atgreat personal cost (Casson, 1999). This is particularly true for founder CEOs(Miller, Le Breton-Miller, & Lester, 2011). Therefore, reluctance to plan forsuccession can be understood as the family executive’s desire to perpetuatedirect control and influence over the firm’s affairs even if this might not bein the best economic interest of the firm.

The pervasive nature of the non-economic factors described above suggeststhat socioemotional wealth is a fundamental driver that helps explain a familyfirm’s posture towards the selection of a successor as well as the design of thesuccession process. Indeed, referring to succession as “the core of the familybusiness literature,” Sharma, Chrisman, and Chua (1997: 22) note that familiesexperience a sense of loss when a leader steps down. The deep and potentiallydivisive emotions among family members and the trauma of letting go after along, unchallenged reign at the top differentiate succession in family businessesfrom succession in other types of organizations.

Two recent studies provide additional support for socioemotional wealth asa driver of relative appointees at the time of succession in family firms. Basedon a sample of 200 small Dominican firms, Cruz, Justo and De Castro (inpress) concluded that the choice of a family successor makes perfect sensefrom a socioemotional wealth preservation perspective (although it mightinvolve appointment of a less qualified executive) for several reasons. First, itreinforces the sense of legacy and the transgenerational vision of familyowners. Second, it induces a sense of family community since nonfamilysuccessors are unlikely to be as closely identified with the family firm. Lastly,the choice of a family successor reinforces family power and influence in thefirm, which is another key element of socioemotional wealth. A secondrecent study on this issue by Zellweger, Kellermanns, Chrisman, and Chua(in press) surveyed 219 Swiss firms and 349 German firms. Applying a socio-emotional wealth preservation logic, the authors concluded that “familyowners count the future benefits of control [by hiring a family appointee] aspart of their current socioemotional wealth endowment” (in press: 11).

Professionalization. The literature has also emphasized differences in theprofessionalization process between family and nonfamily firms. Understand-ing professionalization as both the incorporation of specialists and managersfrom outside the firm and the introduction of more formal management struc-tures (Dyer, 1989), the literature suggests that family businesses are generallyreluctant to professionalize the organization. For instance, Kets de Vries


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(1993) held in-depth interviews with family owners of more than 300 firms andfound that delegating responsibility to outsiders tends to be discouraged.Similar arguments can be found in Kepner (1983); Gersick, Davis, Hampton,and Lansberg (1997); Schulze, Lubatkin, and Dino (2003a); Gomez-Mejiaet al. (2007); and Jones, Makri, and Gomez-Mejia (2008). This tendencymight be less pronounced in family firms that are publicly traded, since bythat stage they have already relinquished control to outsiders. Even then,however, this tendency can be observed (Gomez-Mejia et al., 2010).

The greater reluctance of family firms to professionalize may have a socio-emotional wealth explanation, even if other factors are involved, such as fewerresources to pay competitive salaries to outsiders and smaller size. Hiringoutside managers, delegating authority to them, and relying on a commandstructure independent from the family are all likely to decrease familycontrol over strategic decisions. In particular, hiring an expert who has special-ized knowledge outside the experience of the family owners increases infor-mation asymmetries (Gomez-Mejia, Hoskisson, Makri, & Campbell, 2011).It also increases behavioral uncertainty, since predicting employees’ behaviorsbecomes more difficult when recruiting an outsider (Cruz et al., 2010). Lastly, itincreases conflicts about goals owing to the divergent motivations and careergoals of family and nonfamily employees (Gersick et al., 1997).

Human resource management practices. The same logic that applies tosuccession and professionalization can be extended to explain the empiricalevidence that shows differences between family and nonfamily firms inhuman resource (HR) practices. The literature suggests that while bothfamily and nonfamily firms adopt more differentiated HR policies (for selec-tion, training, appraisals, compensation and such) as they experience growth(e.g., Leon-Guerrero, McCann, & Haley, 1998; Reid, Morrow, Kelly, Adams,& McCartan, 2000), family firms are less formalized when it comes to theseHR policies (De Kok, Uhlaner, & Thurik, 2006; Reid & Adams, 2001). Forexample, family firms tend to rely more heavily on social networks duringthe recruitment process and tend to avoid explicit and clear criteria toscreen applicants (Adkins, 1995; Scase & Goffee, 1987). They place moreemphasis on informal training regardless of firm size (Kotey & Folker, 2007)and assign more importance to mentoring relationships (Fiegener et al.,1996). Regarding employee performance and rewards, they tend to emphasizeseniority as a criterion for guiding promotions and establishing wage levels(Carrasco-Hernandez & Sanchez-Marin, 2007), place greater weight on non-monetary rewards (Cruz et al., 2010), and make variable pay a smaller com-ponent of the pay package (Gomez-Mejia et al., 2003). Empirical evidencealso shows differences regarding employee relation practices, with familybusinesses communicating with employees through informal (impromptumeetings, social gatherings, daily coaching) rather than formal systems


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(annual performance appraisals, management by objectives, balanced scorecards) (Harris & Reid, 2008).

The HR practices described above are consistent with a socioemotionalwealth preservation motive in family firms. Informal recruitment practicesare more likely to focus on the small pool of candidates who share thefamily’s values and culture and represent the ideal employee, based on theunstated selection criterion of how the prospective employee will fit in withthe family’s expectations (Cruz et al., 2010). Using social networks in therecruitment process reduces information asymmetries and ensures a better fitbetween the person and organizational values (which are a reflection offamily values). The implementation of long-term, focused developmentalplans rather than short-term training may help indoctrinate new employeeswith the norms and values of the organization, thus strengthening an identifi-cation with the firm and fostering the family’s socioemotional wealth. Reward-ing tenure implies supporting employees for their loyalty to the firm and hencethe family (Davis & Harveston, 2001; Gersick et al., 1997), and not necessarilyfor specific deeds (Dyer, 1992). Moreover, compensation and appraisal pro-grams consider non-economic criteria such as fulfilling family obligations, con-tributing to the harmony of the family, and supporting the family’s agenda injudging performance (Beehr et al., 1997). Lastly, the use of informal communi-cation channels can be interpreted as the family’s desire to build a familialatmosphere that helps transmit family culture and values (Harris & Reid, 2008).

More rigorous research is needed on these issues, since the evidence tends tobe based on self-report surveys, anecdotes, isolated interviews with HR man-agers, general impressions, and even conjecture. However, when consideredalong with the other findings in this paper, there is strong circumstantialevidence in favor of the socioemotional wealth preservation motive in familyfirms as an important driver of HR policies.

Strategic Choices

A growing stream of research shows major differences in the strategic decisionsmade by family and nonfamily firms. These decisions can steer the organizationin a particular direction and require large resource commitments, which is whythey are made by senior executives. They can also be difficult to reverse, so theytend to have a long-term impact on the firm. And because these decisions aremade at the top, they generally have an impact on the entire organization,affecting internal resource allocation, managerial attention, the channeling ofemployee behavior, and the structure and flow of work (Hitt, Ireland, &Hosskisson, 2009). In this section we examine major strategic decisionswhere there is well-documented evidence that dominant family owners haveunique preferences that guide them. The differences between family and non-family firms manifested in the research cannot be easily reconciled with an


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economically driven logic, and may be better explained by a socioemotionalwealth preservation logic on the part of family owners.

Risk taking. Using a variant of agency theory, many authors havepredicted that family firms are more risk averse in making business decisionsthan are nonfamily firms (e.g., Basu, Dimitrova, & Paeglis, 2009; McConaughy,Mathews, & Fialko, 2001; Mishra & McConaughy, 1999). Their reasoning maybe summarized as follows. Because family principals have most of their wealthconcentrated in a single enterprise, unlike shareholders who invest across mul-tiple firms, their risks and returns are tied to a single asset, the family firm.Therefore, the family’s welfare would be severely affected if risky choicesturn out poorly. Given this vulnerability, family principals prefer to avoidrisk because the costs of negative outcomes more than outweigh any benefitsthat might accrue through the pursuit of a high-risk/high-return strategy.

Despite its popularity, particularly in accounting and finance circles, theviewpoint summarized above is not consistent with empirical evidence,which shows that family firms are capable of being risk willing and riskaverse at the same time when it comes to strategic choices. Some of this evi-dence will be discussed in greater detail when we address specific strategicchoices like corporate diversification, internationalization, and R&D expendi-tures. Here we tackle the broader question of why agency-based economicexplanations seem inadequate to explain observed findings. The empiricalevidence reviewed next reveals a paradox that agency-based models cannotresolve: undiversified family principals contemplating certain strategicchoices are willing to take business risks even when the economic welfare ofthe family is at stake and regardless of the potential returns associated withthese choices. We conclude that the main problem with agency-based expla-nations is that they ignore the role of socioemotional gains or losses for thefamily when considering the relative risk of various strategic choices.

Gomez-Mejia et al. (2007) addressed this paradox by applying the behavior-al agency theory or BAM (Wiseman & Gomez-Mejia, 1998) to the special caseof socioemotional wealth. According to this model, which combines elementsof agency theory, prospect theory, and behavioral theory of the firm, strategicchoices can be framed as a selection of alternatives that vary in potential gainsor losses. From this perspective, decision makers prefer to avoid a loss even ifthis means accepting a higher risk; hence, “the risk preferences of loss-aversedecision makers will vary with the framing of problems in order to preventlosses to accumulated endowment” (Wiseman & Gomez-Mejia, 1998: 135).A key notion of BAM is that risk evaluation is subjective rather than basedon an economic calculus that weighs risk against financial returns. Decisionmakers weigh perceived threats to their endowment according to a subjectivevaluation of what is important to their welfare, what is already accrued, andwhat can be counted on.


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Because socioemotional wealth is a fundamental endowment of family prin-cipals potential losses to that endowment increase subjective risk bearing.Family principals would therefore be willing to accept greater risks to thefirm’s financial well-being if taking risks prevents those losses. In otherwords, contrary to the conventional agency-based view, family principals areloss averse with respect to socioemotional wealth, which is reflected in thestrategic choices they make.

According to Gomez-Mejia et al. (2007: 106), “organizational failure [byaccepting greater business risk] implies the loss of all socioemotional wealth,yet this is a gamble that these firms are willing to take, perhaps believingthat this risk can be managed, hoping for the best, namely, continuity of thefirm under the family’s stewardship.” Following this reasoning, these authorsadvanced several hypotheses: (a) family principals are more willing to makestrategic choices associated with a greater probability of failure than their non-family counterparts if this is necessary to preserve socioemotional wealth;(b) family principals are more willing than nonfamily principals to make stra-tegic choices that imply below-target performance relative to their own pastperformance in order to preserve socioemotional wealth; (c) family principalsare more willing than nonfamily principals to make strategic choices likely tolead to below-target performance relative to the performance of comparisonfirms if these choices enhance socioemotional wealth; and (d) because preser-ving socioemotional wealth is critical to family principals, when performance isbelow target they avoid high-variance investments that may have upside anddownside potential, even if such a choice might bring performance closer totarget.

Gomez-Mejia et al. (2007) found strong support for the above hypothesesusing the entire population of olive oil mills (n ¼ 1237 firms) in the provinceof Jaen, Spain, between 1944 and 1988. These mills had the choice of joiningcooperatives and receiving numerous financial benefits, or remaining indepen-dent but facing higher business risks, including a greater probability of failureand lower performance. In this empirical study, the desire to preserve socioe-motional wealth was operationalized in terms of maintaining family control ofthe olive oil mill by not joining the coop. This was a voluntary act on the part ofthe family principal, so that the decision to join (and enjoy lower business risk)or remain autonomous (and face higher business risk) rested entirely on thefirms’ owners. That is, the ultimate decision to be “in or out” of the coopwas made by the family principal, not the coop. Failure to join (retainingfamily control and thereby preserving the family’s socioemotional wealth)implies forfeiting the business risk protection offered by the coop, an advantagewell known to the mill owners, most of whom live in small agricultural townswhere this information is common knowledge.

This large-scale longitudinal study of relatively simple firms (olive oil mills)questions the widely held belief among economics-minded scholars that family


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principals are inherently more risk averse because of their undiversifiedfinancial wealth. The findings suggest that family firms are willing to accepta performance hazard in order to retain family control.

Corporate diversification. Until recently, a common belief in the strategyand finance literature was that family principals have strong incentives toengage in corporate diversification as a way to avoid risk. This seems like alogical choice in undiversified firms whose principals have a preference forbusiness activities with imperfectly correlated cash flows relative to existingbusiness activities (Faccio & Lang, 2002; Shleifer & Vishny, 1992). Becauseincreased diversification, particularly unrelated diversification, lowers riskbut tends to decrease overall returns, it has been portrayed as a moralhazard conflict between large, undiversified shareholders (such as family prin-cipals) and minority-equity claimants (Faccio & Lang, 2002). This view is con-sistent with the agency logic concerning risk discussed earlier. Because thewealth of family owners is concentrated in a single enterprise, they shouldactively seek the strategic choices that offer the greatest reductions in risk.The most expedient way to accomplish this would be to diversify (Ahimud& Lev, 1981). Diversification, in turn, may result in “expropriation” ofwealth from nonfamily principals who are forced to sacrifice higher overallreturns through an expanded portfolio (Fernandez, 2002). In the words ofAnderson and Reeb (2003b: 641), “mitigating risk levels via corporate diversi-fication may be an effective investment strategy for the family even at the costof creating severe conflicts with the firm’s other constituents.”

However, empirical results disconfirm the agency-based hypothesis of apositive relationship between family ownership and corporate diversification.The first published study on this topic by Anderson and Reeb (2003b) usedthe S&P 500 industrial firms from 1993 to 1999. It found that family ownershipis negatively related to corporate diversification: “contrary to our moral hazardhypothesis, we find that family firms engage in significantly less corporatediversification. After controlling for industry and firm specific attributes, weshow that family firms exhibit about 15 percent less corporate diversification”(2003b: 680). The authors did not attempt to provide a theoretical explanationfor these findings, simply concluding that “our results imply that in wellregulated and transparent financial markets (as in the United States), familyownership appears to mitigate moral hazard conflicts” (2003b: 686).

A follow-up study by Gomez-Mejia et al. (2010) reexamined the relation-ship between family ownership and corporate diversification using a sampleof 160 family and 200 nonfamily firms from 1998 to 2001. Consistent withthe results of Anderson and Reeb (2003b), and contrary to a traditionalagency prediction, they found that family firms are less likely to engage incorporate diversification. The socioemotional wealth explanation for theseunexpected results was that diversification poses a hazard for family principals


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for several interrelated reasons. First, diversification usually requires externalfunding, which may be obtained by issuing new stock or through debt finan-cing. This can erode the family principal’s ability to exercise unconstrainedauthority, influence, and power. Second, diversification usually requires man-agerial talent and expertise that may not be available within the family. Hiringoutsiders to take over decision making in organizational units would diminishthe family’s socioemotional wealth by increasing information asymmetries,raising the possibility of conflicting goals, and eroding the authority and identi-fication foundations of this form of wealth. Lastly, adding new products to thecompany’s offerings and entering new markets may introduce changes in theway family firms are organized, which could create resistance in familymembers who feel that their influence is being threatened.

The results of Gomez-Mejia et al. (2010) also suggest that family firms maybe willing to diversify, but only when there is a strong “fear factor” that inducesthem to follow that path reluctantly. This fear factor arises when a firm enters acontext characterized by high systematic and unsystematic risk and decliningperformance. That is, the value of corporate diversification as a way toreduce risk while preserving socioemotional wealth increases when thefamily faces greater peril. This topic will be discussed later in relation to mod-erator variables.

International diversification. Another strategic choice likely to differen-tiate family firms from nonfamily firms is internationalization. From atraditional agency perspective, family principals prefer to engage in globaldiversification because it offers advantages in terms of risk diversification,and lowers the firm’s financial dependence on the revenues generated in asingle domestic context. The international business literature notes thatglobal diversification can (1) reduce earnings uncertainty by spreading invest-ment risk across several countries (Kim, Hwang, & Burgers, 1993); (2) bettermanage systematic (economy-wide) risk and unsystematic (firm-specific)risk by increasing the number of business opportunities and “theaters of oper-ations” (Fatemi, 1984; Lessard, 1985); and (3) reduce the firm’s dependence onparticular suppliers, distributors, and customers (Kogut, 1985; Rugman, 1979,1981). All these risk-reduction benefits should be highly attractive to a familyprincipal with a relatively undiversified ownership position. Indeed, severalstudies have shown that multinational firms enjoy lower total risk than thosethat limit their operations to a domestic or regional arena (Agmon &Lessard, 1977; Collins, 1990; Fatemi, 1984).

Like the findings on corporate diversification, empirical evidence runs con-trary to the economic logic discussed above when it comes to internationaldiversification choices made by family firms. By using four different measuresof international diversification (volume of foreign sales, percentage of totalsales, number of global regions where the firm operates, and diversity of


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cultures where the firm operates), Gomez-Mejia et al. (2010) found that, on anyone of these indicators, family firms exhibit lower levels of international diver-sification than nonfamily firms. They performed multiple tests to rule outalternative explanations for these findings; they took into account industryeffects, concentrated holdings in low-risk businesses, endogeneity, and a hostof firm and managerial characteristics (such as return on assets, firm size,CEO tenure, etc.). The results remained robust: family firms are less likely todiversify internationally.

Again, the explanation for these findings may lie in a socioemotional wealthpreservation logic. International diversification can be a double-edged sword toa family business: it allows the risk to be spread across geographic segments,but also carries a higher risk of losing socioemotional wealth. The studyoffers several reasons why international diversification would reduce the socio-emotional wealth of the family principal. First, it demands more externalfunding (Fatemi, 1984; Lessard, 1985), which dilutes family holdings and trans-fers power to outside parties like banks and venture capitalists. These outsidersare then likely to claim a say in the firm’s affairs (such as selecting top manage-ment and assessing executive performance), something the family would ratheravoid. Second, the family can exercise more influence by capitalizing on exper-tise and knowledge in the domestic market rather than venturing into inter-national markets where they have less experience. Third, even if the familyprincipal has substantial international experience, international diversificationis associated with increased information-processing demands and informationasymmetries, both of which might require outside managerial talent. Thiscould lead to a loss of family control and less ability by family principals toestablish an effective monitoring system that ensures that nonfamily executivesin distant locations will act in accordance with family wishes. Lastly, inter-national diversification requires increased ties to foreign stakeholders,resources, and institutions (Hitt, Hoskisson, & Kim, 1997), which also makesthe family more dependent on human and relational capital outside thefamily circle. Because it is likely to restrain the family’s direct control overoperations and reduce its ability to appoint trusted individuals in key positions,international diversification is likely to lead to a loss of socioemotional wealth.

Acquisition behavior. Another issue related to diversification is the acqui-sition behavior of family firms. In one of the few empirical studies examiningthis subject, Miller et al. (2010) looked at a sample of Fortune 1000 firms andfound a strong inverse relationship between family ownership and the numberand value of acquisitions. In the authors’ words: “A higher level of family own-ership is associated with a lower volume and value of acquisitions. Specifically,at 20 percent of family ownership, the average number of acquisitions is 1.55with a value of $788MM; at 60 percent of family ownership these numbersdecline to 1.03 and $28MM, respectively” (2010: 208). This finding is entirely


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consistent with the logic discussed above for corporate and international diver-sification, namely that more acquisitions tend to dilute the family’s socioemo-tional wealth vested in the business. Family firms are therefore reluctant toengage in acquisitions. They also found that, while family firms acquire lessoften, they tend to diversify outside their core businesses. This might beexplained by the fact that these firms engage in acquisitions only when theyface high business risks and therefore higher hazard. Making acquisitionsoutside the core business might be a response motivated by fear. This wouldbe an interesting issue to explore, ideally in a broader population of firms.

Debt. Because family principals enjoy a concentrated ownership position,agency logic suggests that they are less likely to use debt and suffer the attend-ant risks to their undiversified wealth. While empirical tests of this notion arelimited, a study of 1464 family firms by Schulze et al. (2003a) shows that thesituation is far more complex. While the authors acknowledge some of theweaknesses of their study (the data were cross-sectional and relied on asurvey gathered for other purposes), they report that “family firms are mostvulnerable to conflict, and less likely to bear added risk (through debt) whenownership is split in relatively equal proportions [among family members].”(p. 182). This suggests that socioemotional wealth in the form of sustainingfamily harmony plays a role in the use of debt, at least when debt acquisitionmay exacerbate the possibility of family conflict.

Accounting choices. Accounting choices have been treated in the agencyliterature as an area where moral hazard can lurk (e.g., Dyreng, Hanlon, &Maydrew, 2008; Wilson, 2009). This is because firms enjoy latitude in howtaxes, earnings, and profitability are reported, and the reporting can bebiased in favor of management, which has access to the numbers and mayinfluence the auditors who check those numbers. Even if firms remainwithin legal parameters and fraud is not involved, they are likely to releasenumbers that make management look as good as possible (Gaspar, Massa, &Matos, 2006). This may hurt shareholders because “reported” firm perform-ance can overestimate results, and information asymmetries can keep themfrom accurately assessing how much distortion exists (e.g., Fama & French,1997; Frank, Lynch, & Rego, 2009).

One question that arises in this context is whether family ownership lessensthese distortions. Unfortunately, “accounting fails to receive attention as aphenomenon that merits distinct consideration in family firms” (Salvato &Moores, 2010: 206). The literature examining these issues, while limited inscope, focuses on two types of accounting distortions: tax aggressiveness andearnings manipulation.

In a recent study, Chen et al.(2010: 45) argue that the potential financialbenefits of aggressive tax avoidance are greater for family owners than for


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managers and shareholders in nonfamily firms. First, because of their undiver-sified ownership position, family principals capture more of the tax savings,“thus, the potential private benefits from rent extraction can also be biggerfor family owners. . .” Second, the influence family owners wield over thefirm’s operations provides “more opportunities to seek rents, through trans-action such as tax avoidance activities and related-party transactions.”

Using four different indicators of tax aggressiveness and a sample of 1003firms in the S&P 1500 index from 1996 to 2000, Chen et al. (2010) foundthat, contrary to expectations, family firms are less tax aggressive than theirnonfamily counterparts. The authors conclude that “our result is consistentwith family owners being more concerned with the potential penalty and repu-tation damage from an IRS audit than non-family firms. We obtain similarinferences when using a small sample of tax shelter cases” (2010: 41). We inter-pret this to mean that for family principals, preserving the family’s socioemo-tional wealth supersedes any financial advantages that could be gained by a taxaggressive policy. The authors of the study seem to agree with our interpret-ation. In their words, “family owners also have incentives to protect thefamily reputation or the ‘family name’ since they generally view their firmsas legacies to be passed on to the next generations, not wealth to be consumedduring their lifetime. . . anecdotal evidence suggests that family owners havehigher incentives to avoid any negative publicity from an IRS audit of tax strat-egies” (2010: 45).

The second accounting dimension relevant here is earnings management.Earnings management and earnings manipulation have been extensivelystudied by scholars of finance. They differ in that earnings management islawful and compliant with generally accepted accounting practices (GAAP);earnings manipulation, in contrast, is neither lawful nor GAAP compliant.Earnings management occurs when “managers use judgment in financialreporting and in structuring transactions to alter financial reports to eithermislead some stakeholders about the economic performance of the companyor to influence contractual outcomes that depend on reported accountingnumbers” (Healy & Wahlen, 1998: 368). We will concentrate on earnings man-agement as opposed to manipulation because the former is not illegal and thusrepresents the “lower bound” of accounting policies that may benefit undiver-sified family shareholders (Salvato & Moores, 2010).

Earnings management may offer financial advantages (at least in the shortterm), such as an increase in stock price, a reduction in market-to-book ratio,and a reduced takeover risk. For example, firms have been found to manageearnings more prior to stock issues in order to attract investors and improvedemand for the stock (Dechow, Sloan, & Sweeney, 1996; Rangan, 1998;Teoh, Welch, & Wong., 1998). Firms also manage earnings to discouragehostile takeovers by inflating stock prices (Easterwood, 1997; Erickson &Wang, 1999). When earnings are poor, firms have been found to engage in


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earnings management to conceal their true financial position from outsiders(Haw, Hu, Hwang, & Wu, 2004; Leuz, Nanda, & Wysocki, 2003).

Despite these advantages, particularly for undiversified shareholders, thelimited finance and accounting literature that has examined this issue reportsthat family firms are less likely to manage earnings and more likely to providehonest reporting to the public. Chen, Chen, and Cheng (2008: 45) note that“although family firms on average provide less voluntary disclosure than non-family firms, they are more likely to give earnings warnings to preempt the nega-tive publicity that can result from not issuing warnings.” Martin, Gomez-Mejia,and Campbell (2011) found that among S&P 500 firms from 1992 to 1999,family firms are less likely to use income increasing accruals to manage earningsin comparison to nonfamily counterparts. Ali, Chen, and Radhakrishnan (2007)report that manipulation of discretionary accruals is less frequent among familyfirms. Wang (2006), as well as Cascino, Pugliese, Mussolino, and Sansone(2010), report that family firms provide more accurate and detailed accountinginformation than nonfamily firms. Jiraporn and Dadalt (2009) and Setia-Atmaga, Tanewski, and Skully (2009) note that family firms are more likelyto publicly warn others of bad news. Khalil, Cohen, and Trompeter (2010)report that audit firms are less likely to resign in family firms, suggesting thatauditors receive less pressure from family owners and principals to engage inaggressive earnings manipulation.

In short, when it comes to earnings management, preserving socioemo-tional wealth by maintaining a good reputation and projecting a positivefamily image once again seems to weigh more heavily in the minds of familyprincipals than the achievement of financial objectives. For family principals,the possible loss of reputation or image if earnings management practicesare disclosed more than outweighs any boost to earnings.

R&D investment and technological diversification. Another importantstrategic choice is the extent to which firms invest in research and development(R&D) to spur innovation and engage in technological diversification. WhileR&D investments represent risk because of greater complexity, higher uncer-tainty, and rapid technological change, in some industries the risk of investingin innovation is lower than the risk of not doing so (Palmer & Wiseman, 1999).As Ahuja, Lampert and Tandon (2008: 58) noted:

Developing a competitive advantage through product and process inno-vation is essential for the success of technology based companies . . .Investments in R&D can create barriers for established firms viapatents, or alternatively can allow new firms to overcome existingentry barriers with innovative new technologies. The technological capa-bilities created by R&D are among the best sources of competitive advan-tage and a driving force behind growth.


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It is conventional wisdom among technology intensive firms that R&D isneeded to spur innovation and that ignoring continuous innovation puts thefirm at risk (Sundaram, John, & John, 1996). Put differently, not investing inR&D will almost certainly threaten the growth and even survival of firmscompeting in high technology markets, while maintaining investment levelsprovides opportunities to remain competitive. Therefore, from an agency per-spective, given their concentrated ownership position, family principals in hightechnology firms should insist that their firms invest in innovation and offermanagers inducements to mitigate risk-averse attitudes (Trembley & Chene-vert, 2008).

Likewise, because technological diversification, or drawing on an array oftechnological knowledge, reduces risk, it should be financially attractive toundiversified high technology family principals. First, it can promote cross-fertilization between technologies and create synergies across seemingly unre-lated projects (Makri, Hitt & Lane, 2010; Makri & Lane, 2008). Second, theeconomic depreciation and technological obsolescence resulting from rapidtechnological change and imitation can be attenuated if a firm is technologi-cally diversified (Grandstrand, 1998). Third, because R&D is inherentlyrisky—Scherer (1999) reports a 50% success rate—technological diversificationcan reduce the variance associated with returns from these investments. Lastly,since technological diversification prevents a negative lock-in effect in onetechnology, it presents back-up options and Plan B alternatives to counteractdisappointing results in what was originally the “first best” option (Garcia-Vega, 2006).

Despite the economic benefits summarized above, Gomez-Mejia, Hoskis-son, Makri, Sirmon and Campbell (2011) argue that non-economic utilitiesof family principals often conflict with economic rationality, contributing toR&D choices that defy conventional wisdom in the high technology sector.They also hypothesize that family principals are less likely to support techno-logical diversification even though it reduces firm risk. Because both of thesestrategic choices could diminish the socioemotional wealth of family princi-pals, they should choose a riskier route: invest less in innovation and engagein lower technological diversification.

Consistent with a socioemotional wealth preservation hypothesis, theyadvance five reasons to explain why R&D investment and technological diver-sification threaten the family principal’s socioemotional wealth. First, sinceR&D tends to be specialized and complex, it forces the family to draw on exper-tise from outside the family circle. Second, R&D usually requires a willingness toexperiment as well as new routines that move the firm away from “tried andtrue” methods of operation. Third, R&D conveys the greatest benefits onfirms with broad product lines because of the cross-pollination of ideasacross domains and the extension of research findings from one product lineto another (Nelson, 1959). But these benefits are limited in family firms


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because, as discussed earlier, they tend to diversify less. Fourth, high technologyfirms usually finance R&D by ceding some ownership to parties outside thefirm, such as venture capitalists and institutional investors. Issuing new stockmeans that nonfamily outsiders can more closely monitor how the firm ismanaged, how R&D funds are allocated, and what general strategic directionthe firm takes, thus undermining the family’s power.

Lastly, technological diversification demands a larger, complex knowledgebase and a more heterogeneous set of specialized skills. The need for talentand expertise to create and manage such diverse knowledge domains forcesthe high technology firm to actively recruit outside the family circle, increasinginformation asymmetries between family owners and the rest of the organiz-ation. Such diversity may also necessitate the adoption of a multidivisionalstructure, with decentralized decision making by division managers (Palmer,Jennings, & Zhou 1993). This implies loss of control for the family andhence loss of socioemotional wealth.

Gomez-Mejia et al. (2011) found support for these arguments using asample of 402 high technology firms, roughly split into equal proportions byfamily ownership status, from 1994 to 2001. Controlling for a large numberof variables (firm size, firm risk, firm age, ROA, and the like), they foundthat among technology-intensive firms, family control is associated withlower R&D expenditure as a percentage of sales and lower technological diver-sification (operationalized as the degree to which the firm’s patents cite pre-vious patents that belong to a wide set of technologies). These results wererobust after testing for potential endogeneity. Additional supporting evidenceis provided in two other studies. Based on a sample of 369 electronic firms fromTaiwan, Chen and Hsu (2009) reports that R&D investment is negativelyassociated with family ownership. More recently, based on an unbalancedpanel of data for 1764 (firm year) observations in a sample of 736 Canadiancompanies, Munoz-Bullon and Sanchez-Bueno (2011) concluded that publiclytraded family firms in Canada record lower R&D intensity compared with non-family firms. In short, there is substantial evidence that ceteris paribus familyfirms tend to invest less in R&D; and one reasonable explanation, consistentwith the general logic used in this paper, is that socioemotional wealth preser-vation plays an important role in this decision.

Organizational Governance

Organizational governance has been discussed in the literature as a dimensionthat differentiates family from nonfamily firms. Prior to the late 1990s,researchers tended to portray family firms as devoid of agency problems(Daily & Dollinger, 1992; Fama & Jensen, 1983), which hampered theory devel-opment. Concentrated family ownership presumably neutralized the moralhazard on the part of management that so concerned Berle and Means


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(1932) under atomistic ownership. Why design and implement costly govern-ance mechanisms to monitor and incentivize top managers when vigilantowners (undiversified family shareholders) carefully watch their investment?Until recently, the answer to this question was a “no-brainer,” since no onewould expect family owners to choose higher governance expenses andlower residual claims (Fama & Jensen, 1983).

Starting in the late 1990s, the governance literature began to question thisassumption. Skeptical scholars have noted, as was obvious in our literaturereview, that family ownership may lead to the pursuit of non-economic objec-tives that other shareholders consider contrary to their interests (Schulze et al.,2003a) or that family principals may face “an agency problem with themselvesby consuming firm perquisites and abusing their freedom to make businessdecisions, even bad ones” (Schulze et al., 2001: 112). This revisionist perspec-tive challenges the traditional wisdom that family firms are “superior forms ofgovernance” (Fama & Jensen, 1983: 305) and reconsiders them as “a theoreti-cally distinct form of governance” (Schulze et al., 2001: 111). During the past12 years, the governance literature has described agency problems withinfamily firms that affect the design of corporate control mechanisms. Thefirst is often referred to as “principal–principal” agency conflict. This meansthat the interests of the family diverge from those of nonfamily investors,and the family enjoys too much power to impose its will on minorityowners (La Porta et al., 1999). The appeal to family principals of non-economicgoals (for example, providing jobs for family members) may thus come at theexpense of other shareholders (Morck & Yeung, 2003). While both family andnonfamily shareholders financially benefit when the firm does well, the familyprincipal is more likely to be guided by preferences that are not economicallymotivated. In the end, the family is likely to prevail because it holds a largeblock of voting shares and it is reluctant to sell its stake in the firm.

A second agency problem discussed in the more recent family literature ismanagerial entrenchment, which means family executives are protected fromperformance accountability. In their study of Spanish newspapers, Gomez-Mejia et al. (2001) found that family CEOs retain their tenure much longerthan their performance justifies. Gomez-Mejia et al. (2001) reported thatfamily CEOs remain on the job seven years longer than nonfamily CEOs whenthe probability of firm failure is high. McConaughy (2000) found that thetenure of family members at the top is almost three times longer than that of non-family executives (17.6 versus 6.43 years). Cruz et al. (2010) reported similarresults. Schulze et al. (2003b) blamed this “entrenchment problem” not onlyon family power but also on the presence of one-way or asymmetrical altruism,which makes the family incapable of effectively disciplining one of its own.

The agency concerns discussed above are reflected in differences betweenfamily and nonfamily firms when it comes to two governance mechanisms:the board of directors and financial incentives for senior management. Next,


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we argue that in family firms the drive to preserve socioemotional wealth tendsto mold both of these mechanisms.

Role of the Board. An abundance of literature on corporate governanceargues that the board of director plays two major roles: monitoring executivesand providing resources and expertise to top managers (Hillman & Dalziel,2003; Korn/Ferry, 2000).

Monitoring refers to the observation, measurement, and assessment ofmanagerial behaviors and decisions (Tosi & Gomez-Mejia, 1989). It is acentral concept in agency theory because, in the absence of close monitoring,managers may use their positions in self-serving ways. For senior executives,particularly the CEO, the board of directors is responsible for fulfilling thisfunction by acting as a watchdog (Dalton, Daily, Ellstrand, & Johnson, 1998;Fama & Jensen, 1983). When a family owns a large portion of shares, familyprincipals are likely to see the board as a tool to reinforce their control andto pressure top executives to pursue the family’s objectives. Hence, thefamily principal may see the board as a vehicle to legitimize the appointment,evaluation, and retention of senior executives, and to justify strategic decisionsthat cater to the family’s socioemotional wealth preservation agenda (Joneset al., 2008). Ownership concentration may give the family unrestrictedpower to assemble a board that will actively support, or at least will not inter-fere with, the family’s preferences.

Family influence on boards under high family ownership is well documen-ted, even in Fortune 500 firms. Muskataillo, Autio, and Zahra (2002) reportedthat family members or their representatives hold the majority of board seats infamily firms. Shleiffer and Vishny (1992) noted that founding families have asubstantial stake in roughly one-third of the largest publicly traded U.S. com-panies, and, in these firms, they directly control nearly 20% of all board seats(although the percentage is probably much higher if indirect family influenceon the selection of board members and interlocking networks is considered).Voordeckers, Van Gils, and Van den Heuvel (2007) reported a prevalence ofCEO duality (when the CEO is also chairperson of the board) in familyfirms. Gersick et al. (1997) pointed out the minuscule number of board outsi-ders in family firms. When they are on the board, they tend to have a closerelationship with the family. Daily and Dollinger (1992) and Sharma,Chrisman, and Chua (1996) argued that in most cases family owners are reluc-tant to cede control to boards. Consequently, the informality and centrality ofdecision making that characterized the company prior to board formation con-tinues. Loukas, Lena, and Manolis (2005) concluded that the preponderance offamily members or their appointees on a board is a clear signal that familyfirms are “undergoverned.”

Unless the assumption is that boards with high family representation arebetter for governance than those with high outsider representation (an


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assumption most board experts would question; see, for instance Dalton, Hitt,Certo and Dalton [2007], and that would contradict empirical evidence on thepositive effect of outsiders on family firm value, e.g. Anderson & Reeb [2004]and Voordeckers et al. [2007] ), there must be another explanation. We inter-pret this phenomenon as additional evidence that preserving socioemotionalwealth is a critical utility for dominant family principals as reflected in boardcomposition. Consistent with earlier discussion of strategic choices, familycontrol over the board should be translated in strategic choices that supportthe family’s socioemotional wealth preservation agenda. The limited empiricalevidence seems to point in that direction. In a study based on a randomlyselected sample of 203 family and 200 nonfamily large firms, Jones et al.(2008) reported that the absence of unaffiliated directors in family firms (pre-sumably reflecting greater family influence) tends to be negatively associatedwith product diversification. The Taiwanese study noted earlier by Chen andHsu (2009: 348) found that “[technology-intensive] firms with high familyownership may increase R&D investment when the CEO–Board chair rolesare separated or when more independent outsiders are included in the board.”

The corporate governance literature has long argued that the board is animportant source of expertise for top managers (Hillman & Dalziel, 2003).In family firms, the board carries additional weight because it is expected tobring much-needed legitimacy to the firm’s governance. Family businessesare often portrayed by financial economists as more likely to face specialagency and competence problems (Bertrand & Schoar, 2006; Claessens,Djankov, Fan, & Lang, 2002; Morck, Wolfenzon, & Yeung, 2005; Volpin,2002). Some go so far as to suggest that family members, when appointed toexecutive positions, are often unprofessional (Bennedsen et al., 2007) andthat a “family handcuff” prevents them from getting an equivalent job in theopen market (Landes, 2006).

The negative stereotypes noted above mean that family firms are underpressure to use the board as a way to assure the outside world that they havea good governance system in place. Based on survey responses from 104CEOs of family firms and 136 CEOs of nonfamily firms in Italy, Zona andGomez-Mejia (2011) concluded that most CEOs in family firms believe thatthe board brings much-needed legitimacy to the firm’s management. Zonaand Gomez-Mejia (2011) confirmed that from the CEO’s perspective, boardsof family firms are used to allay some of these fears in external stakeholders.But whether this actually happens remains an open question.

Incentive alignment. Another element of firm governance is the incentivestructure for top executives. While more than a thousand studies haveaddressed this issue over the past century (e.g., Gomez-Mejia, Berrone, &Franco-Santos, 2010) very little of that research has focused on family firms.Gomez-Mejia et al. (2003) hypothesized that CEOs who are members of the


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controlling family receive lower compensation, and that there is an inversecorrelation between family ownership concentration and pay level of familyCEOs. There are several explanations for these hypotheses, all consistentwith a socioemotional wealth preservation perspective. First, family executivesfill two roles at once: a work role as steward of the company and a non-workrole as fulfiller of family obligations. The reward is a relatively secure job.Second, the dominant family philosophy gives the family CEO the benefit ofthe doubt, so that disappointing results are attributed to uncontrollablefactors rather than to the CEO. The family principal or family representativeson the board are more likely to cite bad luck or unfortunate circumstancesrather than incompetence when interpreting ambiguous performance data.

Third, monetary quid pro quo expectations do not loom as large for familyexecutives who are emotionally attached to the firm, and they are thereforemore likely to accept lower remuneration in exchange for “psychic rewards,”including the “security blanket” provided by the family. Fourth, family CEOsare less likely to take advantage of the external labor market for executivesbecause they are restrained by the “family handcuff” and have fewer jobalternatives. Lastly, and related to the last point, the labor market may discrimi-nate against family CEOs because it discounts the value of their services anddoubts whether they attained their jobs because of demonstrated competencerather than nepotism (Volpin, 2002).

Based on a sample of 253 publicly traded family firms from 1995 to 1998,Gomez-Mejia et al. (2003) found strong support for the negative effect offamily membership on CEO pay. The authors also found, consistent withprior research, that family CEO tenure was much longer than the tenure ofnonfamily CEOs, suggesting a trade-off between job security and compen-sation. Reinforcing this conclusion, Gomez-Mejia et al. (2003) observed thatas industry-wide risk increased, the family offered greater compensation tothe family CEO to make up for the increased probability of firm failure ortake over leading to CEO dismissal. They also noted that the family CEO’spay is largely decoupled from firm performance, again suggesting a tradeoffbetween greater security and lower pay. A study by McConaughy (2000),using a sample of 47 family CEOs and 35 nonfamily CEOs, uncoveredsimilar results. He concluded that “univariate and multivariate analyses showthat family CEOs’ compensation levels are lower and that they receive lessincentive-based pay, . . .suggesting the possible need for family firms to increaseCEO compensation when they replace a family CEO with a non-family CEO”(2000: 121).

A recent study by Combs, Penney, Crook, and Short (2010) providedadditional confirmation of the tradeoff between pay and security for familyCEOs. It reports that the willingness of family CEOs, relative to nonfamilyCEOs, to sacrifice pay appears highest when the family exercises a highdegree of power in the firm (as operationalized by having other family


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members on the top management team and family control of the board). Asfamily power decreases and family protection weakens, the compensation ofthe family CEO increases.

The study noted earlier by Cruz et al. (2010) that focuses on the top man-agement team (TMT) added an interesting twist to the story. Based on a sampleof 122 Spanish firms, the authors examined pay structures by comparing theproportion of variable over fixed pay for family and nonfamily senior execu-tives that directly report to the CEO. In their sample of Spanish firms, theyfound that the proportion of pay purportedly at risk does not differ byfamily status, as reported by the CEO. Yet when variable pay as reported bythe CEO is empirically correlated with firm performance (using a databasesimilar to Compustat in the United States), there is a strong link in the caseof the nonfamily TMT member and a decoupling in the case of the familyTMT member. This suggests that these firms manipulate pay symbolically togive the impression of equal treatment (variable pay as a proportion of totalpay being the same for family and nonfamily TMT members). Nonetheless,in actuality the family executive receives the benefit of family protection(through variable pay–performance decoupling), while the nonfamily execu-tive bears the full risk of incentive compensation (through variable pay–performance coupling). Perhaps this symbolic equality is sustained becauseof information asymmetries that make it difficult for nonfamily executives toactually assess the substantive implementation of this policy.

We interpret the studies reviewed above as additional evidence of the influ-ence played by socioemotional wealth preservation motives in family firms.Incentive alignment operates differently for family and nonfamily executives,whether one examines pay level or pay risk. Family executives are willing tosacrifice their economic well-being by accepting lower compensation becauseof their emotional commitment to the firm, and because the family is likelyto protect one of its own. Compensation policies that differ according tofamily status cannot be explained on economic grounds. Both the family prin-cipals and the family CEO seem to share an affective alignment when it comesto pay that transcends economic rationality.

The agency contract. The agency contract refers to the mutual expec-tations between principals and agents whenever delegation is involved (Eisen-hart, 1989). Two studies have examined the differential nature of the agencycontract for family and nonfamily executives. Both confirm the importantrole of socioemotional wealth preservation in family firms. The first, byGomez-Mejia et al. (2001), looked at the entire population of Spanish newspa-pers over a 27-year period. The authors argued that when there are family tiesbetween the executive and the owners of the firm, the exchange does not reflectpurely economic motives. Specifically, they hypothesized that “family-relatedcontracting decouples agent’s employment from performance and business


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risk” (2001: 84). Gomez-Mejia et al. found strong support for this hypothesis inthe case of the family CEO. They also reported that a family principal is morelikely to blame and terminate a nonfamily manager (typically the editor) whenperformance deteriorates. The agency contract protects the family manager anddeflects negative performance attributions onto nonfamily managers, eventhough the family managers (such as the newspapers’ CEOs) exercise moredirect control over the decisions that led to bad performance in the first place.

The second study by Cruz et al. (2010), discussed in the section on incentivealignment, also addressed the issue of the agency contract in the presence andabsence of family ties. The authors divided agency contracts into two broadcategories: controlling contracts (oriented towards close monitoring, account-ability for outcomes, and disciplinary action) and caring contracts (orientedtowards support, understanding, and consideration of agents’ welfare). Theirthree hypotheses found strong empirical support and are consistent with thesocioemotional wealth preservation approach. First, a CEO’s perception ofTMT opportunism decreases when the CEO and the majority of the TMTbelong to the same family. The main reason for this expectation is that TMTbehavioral uncertainty, and the concomitant risks are mitigated when the prin-cipal and the agent (i.e., CEO and TMT) belong to the same family. Second, afamily CEO’s perception of TMT opportunism increases as the concentrationof firm ownership in family hands decreases. This is because the family CEObears increasing risk as family ownership decreases, which in turn reducesthe family CEO’s willingness to accept the possibly opportunistic behavior ofthe TMT. Lastly, when the CEO perceives lower opportunism in the TMT,the result is caring agency contracts with stronger agent protection mechan-isms. This is because a CEO who perceives low opportunism is more likelyto feel compelled to reciprocate by designing an agency contract with featuresthat protect TMT members’ welfare.

When both the perception of agent opportunism and the principal’s riskbearing increase, Cruz et al. (2010) found that the principal is more likely toresort to controlling contracts. In family firms, blood ties between principaland agent reduce the perception of opportunism and principal risk bearing.When the agent and principal belong to same family, the result is agencycontracts that prioritize the agent’s welfare rather than control aspects of therelationship. Once again, this means that partaking in a common socioemo-tional wealth (as a result of blood ties between family executives) results inan agency contract that protects the welfare of family executives.

Stakeholder Relationships

Scholars have begun to question whether the idiosyncratic nature of familybusinesses is reflected in how they relate to external environments; in otherwords, in how family principals manage the extended set of stakeholders


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that constitutes the firm. We discuss these developments in light of theemerging literature on corporate social responsibility, institutional theory,and stakeholder management. Using a socioemotional wealth protection argu-ment, we explain why family ownership may lead to an emphasis on particulartypes of stakeholders and a particular type of socially oriented behavior.

A stakeholder is broadly defined as “any group or individual who can affector is affected by the achievement of the organization’s objectives” (Freeman,1984: 46). Stakeholders thus include not only financial claimants, but alsoemployees, customers, communities, governmental officials, and the environ-ment. At the core of the stakeholder approach is the notion that the principalfaces the never-ending task of balancing and integrating multiple relationshipsand multiple objectives (Freeman & McVea, 2001). Based on these arguments,several scholars suggest that a stakeholder approach is a good fit for the needsof family research (Chrisman, Chua, & Sharma, 2005; Lubatkin et al., 2007;Sharma, 2004). With a few exceptions, however, the concept of stakeholdermanagement is rarely applied to family firms in a formal manner. In arecent review of stakeholder theory, Laplume, Sonpar, and Litz (2008: 1174)lamented that although “family firms offer a particularly interesting researchcontext given the overlap between firm and family values, there is a conspicu-ous absence of scholarship on stakeholder management of family firms.”Indeed, references to stakeholders in research on family firms are indirectand often simplistic.

In general, two views of stakeholders have been applied to the context offamily firms. One considers the family itself as a major stakeholder. Familymembers are viewed as internal stakeholders because they are linked to thecompany either through ownership, employment, or family ties. The family(individual members or a coalitions of individuals) interact and strugglewith other internal stakeholders to gain greater power, legitimacy, andurgency (Mitchell, Agle, & Wood, 1997) in pursuing their goals. Prior researchalong these lines devoted attention to other “family” stakeholders, includingfounders, second-generation members, women, and employees. For instance,Sharma and her colleagues (Sharma, Chrisman, & Chua, 2003; Sharma et al.,2001) analyzed the stakeholder relationship between incumbents and succes-sors in the succession processes within family firms. They argue that allfamily members are stakeholders in the succession process, since they affector can be affected by leadership transitions to varying extents. Because incum-bents and candidates for succession have different perspectives and may haveconflicting objectives, successful succession depends on a number of factors,both performance related and affective, such as the incumbent’s propensityto step aside, the successor’s willingness to take over, and agreement amongfamily members to maintain family involvement in the business.

Implicit in this view, which portrays the family as the main stakeholder, isthe idea that family stakeholders are relatively insulated from the pressures


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external stakeholders might exert on the firm because of their strong ownershipposition, which shields them from outside pressures. However, new researchhas challenged this view, finding that family firms are more responsive tothe claims of external stakeholders who do not have a direct link with thecompany.

The literature presents several reasons for the claim that family firms exhibitan innate motivation to satisfy the demands of external stakeholders. First,since social and reputational sanctions affect not only the company but alsothe family name (Adams, Taschian, & Shore, 1996; Dyer & Whetten, 2006;Ward, 1987), family firms should be expected to be particularly concernedabout legitimacy and reputation. They are therefore more likely to be respon-sive to external claims to avoid being stigmatized as an irresponsible corporatecitizen, even if there are no direct financial rewards for doing so. For thisreason, Zellweger and Nason (2008) argued that the level of analysis whenunderstanding stakeholder relationships in family businesses should includenot only the individual and family but also the society at large.

Second, family firms have a natural tendency to create and protect long-termrelationships with external stakeholders like suppliers and customers in order toaccumulate social capital and reserves of goodwill (Carney, 2005). Theserelationships may also serve as a form of social insurance, protecting thefirm’s assets in times of crisis (Godfrey, 2005), so that when damage occurs, sta-keholders are more likely to give the firm the benefit of the doubt. Third, becausefamily firms often enjoy a long-time horizon and are not pressured by short-term results, they are more likely to adopt patient strategies that involve buildingrelationships with stakeholders (Miller & Le Breton-Miller, 2005).

Although most of the papers cited above do not formally refer to socioemo-tional wealth, all of them explain the family firm’s substantial responsiveness tostakeholder needs as driven by non-economic utilities derived by dominantfamily owners. Moreover, in line with a socioemotional interpretation, they allsuggest that when the family is the dominant coalition, the firm is more likelyto engage in proactive stakeholder engagement activities, even when these offerno obvious financial returns. A recent study by Berrone, Gomez-Mejia,Cennamo, and Cruz (2011) justified the greater inclination of family businessesto undertake proactive stakeholder engagement activities as a combination oftwo motives that are intrinsically tied to the preservation of socioemotionalwealth. The first is an instrumental one derived from the gains in social legitimacyand enhanced reputation that result from stakeholder engagement. The second isa normative one, based on obligations to and social connections with the commu-nity. This normative motive is buttressed by the fact that the family is not a facelessowner, unlike the typical shareholder, while the family manager is closely ident-ified with the firm’s actions and tends to live in the community.

One interesting issue that has seldom been explored is the family’s reaction tokey stakeholders (such as nonfamily shareholders) that may threaten family


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control. Consistent with the view that loss of control is associated with a loss ofsocioemotional wealth, Martin, Makri and Gomez-Mejia (2011) argue thatfamily owners are more likely to come into conflict with other shareholderswho may disagree with strategic decisions favored by the family. They testedthis idea by examining proposals presented by minority (nonfamily) share-holders at the annual meeting of publicly traded firms. This forum offersthem an opportunity to express their dissatisfaction with the firm’s policy anddirection. As such, the act of submitting a proposal provides evidence of alack of agreement between family owners and minority shareholders. Theyfound support for this hypothesis after analyzing all firms from the CorporateLibrary data base with at least one proposal made during the period2005–2009 (representing 3,634 firm years). Specifically, they found that (aftercontrolling for numerous variables such as firm performance, size, and boardcomposition) family firms are more likely than nonfamily firms to receive alarger number of shareholder proposals. Furthermore, the family firm tends tooppose those proposals, suggesting once again the desire of the dominantfamily to exercise control and to take a defensive stance against stakeholderswho may be seen as a threat to the family’s discretionary prerogatives.

Corporate social responsibility and ethical behavior in family firms.Stakeholder management is closely tied to the concept of social responsibilityand business ethics. Although limited, empirical research has examined theimpact of family ownership and management on corporate social performanceand ethical behavior. With some exceptions (e.g. Morck & Yeung, 2004), thevast majority of research in this field suggests that family firms tend toexhibit higher levels of corporate social responsibility and good communitycitizenship (Berrone et al., 2010; Dyer & Whetten, 2006; Post, 1993) and stron-ger commitment to philanthropic activities (Deniz-Deniz & Cabrera-Suarez,2005) than nonfamily firms. Dyer and Whetten (2006) compared the degreeto which family and nonfamily firms are socially responsible using data from1991 to 2000 from S&P 500 firms. They found preliminary evidence thatfamily firms are more likely than nonfamily counterparts to avoid actionsthat might cause them to be labeled as socially irresponsible. Uhlaner,vanGoor-Balk, and Masurel (2004) presented comparable findings in theirstudy of 42 small and medium-sized Dutch family businesses. Using a paneldata sample of 194 U.S. firms, Berrone et al. (2010) demonstrated that control-ling families adopt environmentally friendly strategies more frequently andmore efficiently than nonfamily firms as a way to enhance the family’simage. Moreover, they showed that this behavior is more likely when thefirm is socially and geographically embedded at the local level, becausefamily owners are far more exposed to the loss of image that would resultfrom environmental transgressions.


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Most of the studies reviewed above suggest that the family’s desire to protectand enhance its socioemotional wealth is the main driver for socially respon-sible behavior. The theoretical link between these practices and financial resultsis ambiguous, and the empirical evidence inconclusive (Margolis & Walsh,2003; Orlizky, Schmidt, & Rynes, 2003). Hence, it seems that family firmstend to be more responsive to stakeholders for intangible reasons that gobeyond economic considerations.

Business Venturing

In general, the entrepreneurship literature seems to assume that most familybusinesses are “made rather than born,” in the sense that they start as nonfam-ily firms with an owner-manager in complete control. They become familyfirms when other family members join the company as owners or managers.As a result of this assumption, research has focused on family firms as estab-lished businesses, largely neglecting the role of the family at the startup stage(Chua, Chrisman, & Sharma, 1999). However, as argued next, there is evidencesuggesting that this duality (the owner entrepreneur versus family firm) maynot hold in most cases. Furthermore, the drive to sustain socioemotionalwealth seems to play a role through family involvement in the majority ofnew ventures.

The role of families for new ventures. The neglect of family in researchabout the new venture creation process is surprising, particularly in light oftwo sets of empirical findings. First, a sizeable proportion of new businessesare founded by two or more related individuals. For example, Ruef, Aldrich,and Carter (2002), using a nationally representative sample, found thatmarried couples, cohabitating partners, or individuals with kinship ties consti-tuted more than half of the entrepreneurial team in new ventures nationally.Chua et al. (1999) showed that most firms start out with substantial familyinvolvement. More recently, two separate surveys involving thousands ofSpanish firms by Mayo, Pastor, Gomez-Mejia, and Cruz (2009) and Mayo,Gomez-Mejia, Firfiray, and Villena (2011) found that most micro firms withfewer than five employees tend to operate from home. This means thatfamily resources are invested in the enterprise, and that most likely allmembers of the household are involved in the business in some way.

Many venerable corporations (Microsoft, Hewlett Packard, Cisco andMotorola) started in the proverbial family garage, which makes it likely thatfamily members were involved. Several studies indicate that, during thestartup process, the family plays an important role in the mobilization offinancial (Aldrich & Waldinger, 1990), human (Aldrich & Langton, 1998)and physical resources in the form of space in the family home (U.S. Bureauof Labor Statistics, 2002). Faced with the challenge of being both new and


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small (Aldrich & Auster, 1986), startups often lack financial and material assets(Hannan & Freeman, 1984) and face low legitimacy and high uncertainty(Gartner, Bird & Starr, 1992), which make it difficult to attract externalresources. Under these circumstances, new ventures typically rely on familyresources so that the risk of investing is spread across the entire family.

The importance of family embeddedness in many new ventures suggests thatthe drive to protect the family’s socioemotional wealth influences how thesenascent firms are managed. While research on this issue is very scarce, resultsavailable to date are consistent with this notion. Chua et al. (1999) found thatfamily members who work as a team in new ventures express an expectationof transgenerational succession. More recently, Cruz et al. (in press) foundthat small firms are willing to employ multiple family members at the risk oflower profitability. Even when relatives are willing to work for low wages,their marginal cost often exceeds the marginal profits they generate. Oneinterpretation is that these firms are willing to exchange greater socioemotionalwealth for lower profitability by including a suboptimal number of familymembers on the payroll. This might explain the prevalence and resilience ofmany “mom and pop” concerns that operate in a state of “permanentfailure,” defined by Meyer and Zucker (1989: 68) as “a condition characterizedby sustained low performance and high persistence.”

Corporate entrepreneurship. With respect to venturing, empiricalresearch examining new business creation by established family firms is practi-cally nonexistent. Several scholars have suggested, however, that family ownerswill want to find suitable positions for as many family members as possible andwill try to do so by launching a new venture or division within the company(Barach, 1984; Miller, Steier, & Le Breton-Miller, 2003). Family firms evolvefrom family entrepreneurs, to larger family-owned entities, to family groups(Habbershon, 2006). In this way, from a socioemotional wealth perspective,corporate entrepreneurship via new venture creation may be a suitable strategyfor family owners, since it helps the family achieve the non-economic goals ofproviding jobs to an expanded family cadre and ensures continued familycontrol by accommodating each new generation.

The preservation of socioemotional wealth is likely to restrict new venturesin family firms to core-related activities. Based on data from the Global Entre-preneurship Monitor (GEM), Cruz, Justo, and Gomez-Mejia (2011) demon-strate that, as a family business matures, it is more likely to build portfoliosof related businesses, with the extended family filling key positions. Becauseof the limited pool of relatives that may be tapped, the desire to preserve thefamily’s socioemotional wealth places a constraint on product and technologi-cal innovation in new business ventures (a finding that mirrors the studyresults of publicly traded family firms concerning corporate diversification,


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international diversification, R&D and technological diversification discussedearlier under strategic choices).

Contingency Variables Moderating the Influence of Socioemotional Wealth inFamily Firms on Managerial Choices

The previous review has shown that managerial choices in family firms tend toreflect the family’s desire to preserve its socioemotional wealth apart from effi-ciency or economic instrumentality considerations. However, existing evidencealso suggests that the primacy of a socioemotional wealth point of referencewhen taking managerial decisions is affected by factors that include familystage, firm size, firm hazard, and the presence of nonfamily shareholders.

Family stage. Empirical evidence has demonstrated generational differ-ences among family firms in regard to almost all the topics reviewed so far.A common thread across these disparate studies of generational differencesis that some variant of socioemotional wealth seems to be at play. Researchersgenerally agree that family identification, influence, sense of legacy, emotionalattachment, regard for family image, and strength of social ties all change as thefirm transitions from one generation to the next. Collectively, they suggest thatthe emphasis on preserving the family’s socioemotional wealth lessens as thefirm moves through generations and that financial considerations becomemore important as a frame of reference. A representative sample of thesegenerational studies is listed below.

Beckhart and Dyer (1983) and McConaughy and Phillips (1999) report thatdescendent-controlled firms are more professionally run than founder-controlled firms. Reid and Adams (2001) showed that later generations offamily ownership are likely to evolve toward more formal HRM policies.Brun de Pontent and Wrosch (2002) demonstrated that family firms inmore advanced generational stages tended to use more objective and formalcontrol systems. Gomez-Mejia et al. (2007) found that family owners of oliveoil mills are more willing to relinquish control by joining coops (a more lucra-tive option) in later stages of family ownership. Bammens, Voordeckers, andVan Gils (2008) demonstrated the greater likelihood that outsiders will beon the board in later stages. Gomez-Mejia et al. (2001) report that familyfirms are more likely to terminate family executives for poor performance asthe firm moves into the third generation. These studies, among others, offerample evidence suggesting that a weakening of the socioemotional preservationdrive in later generations influences most aspects of the family firm’s manage-ment discussed throughout this paper. It should also be noted that most ofthese studies, when comparing family and nonfamily firms, control for othercorrelates of generational stage such as firm age, number of employees, andrevenue.


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Research also suggests that strategic choices are more likely to be driven byeconomic considerations in later stages of family businesses. This is becausefamily identification, influence, and personal investments decrease once thefirm transitions from founding-family status to other ownership configur-ations. In the words of Gomez-Mejia et al. (2007: 109):

[I]n the more advanced ownership stage, family influence becomes moredispersed or fractionalized, with a smaller average shareholding perperson. The family as a monolithic entity begins to lose its grip overthe firm in later stages, and financial considerations of multiple stake-holders move to the forefront.

For instance, in the case of the oil mills described earlier, willingness to give upfamily control is lowest when the firm is managed by the founding family,moderate when it is owned and managed by extended family, and highestwhen it is owned by the extended family and professionally managed. In thecase of tax aggressive policies, Chen et al. (2010: 55) report that, in earlierstages, family firms exhibit less tax aggressiveness. According to the authors,this finding can be interpreted as showing that descendants (that is, those inlate family stages) “are not as concerned with investors’ perception of thefamily and/or the monetary/reputation damage brought by an IRS audit.”

Firm size. Most authors consider firm size as an important variable thatmoderates managerial decisions made by family firms. Once again, most expla-nations given for the effect of firm size on these decisions concerns somevariant of socioemotional wealth. A few examples of these studies are summar-ized next. Wasserman (2006) argues that as a company grows in size and itsfounders are forced to share influence with other parties, they are likely toexhibit lower levels of psychological ownership and more inclined to pursueself-interested motives over the welfare of the entire organization. Largerfirm size also entails greater reliance on bureaucratic controls (Scott, 2003),which can change the culture of the firm, leading to further distancebetween the organization’s identity and the founding family’s identity. Inother words, as the family firm grows in size, the use of socioemotionalwealth preservation as a primary reference point for guiding managerialchoices tends to decrease. The moderating role of firm size has been demon-strated in the case of strategic choices. For instance, Gomez-Mejia et al.(2007) find that larger family olive oil mills are more likely to join coopsthan smaller family mills. Among S&P 500 firms, Martin et al. (2011) reportthat family firms are more likely to use income-increasing accruals tomanage earnings as the size of the firm increases. Among Fortune 1000firms, Miller et al. (2010) show a positive correlation between family firmsize and the number of acquisitions.


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Firm hazard. A series of studies conducted by the senior author and hiscolleagues, using widely different samples and settings, suggests that familyfirms “drag their feet” in making economically driven decisions that risk theloss of socioemotional wealth, yet are more willing to do so as the firm facesgreater performance hazard. This is because, as this hazard increases, thefamily is increasingly exposed to potentially simultaneous losses tothe family’s standard of living, patrimony, and socioemotional wealth. In theextreme case, the family loses everything if the firm does not survive. Gomez-Mejia et al. (2001) found that newspapers were more likely to terminatefamily directors when the probability of newspaper failure was very high.Gomez-Mejia et al. (2007) report that family-owned olive oil mills are morelikely to join coops (and thus accept socioemotional wealth losses) when thevolume of olive oil sales has been experiencing a major downward trend.Gomez-Mejia et al. (2010) found that large publicly traded family firms aremore likely to diversify (as thus accept socioemotional wealth losses) whenfirm performance is declining. Gomez-Mejia et al.’s (2011) study focusing ontechnology-intensive firms shows that high-technology family firms are morewilling to invest in R&D and engage in technological diversification (as thusaccept potential socioemotional wealth losses) as ROA declines. In short,family principals are more willing to compromise on socioemotional wealthpreservation when there is clear evidence of the firm’s financial deterioration.

The literature also suggests that family principals are more likely to makestrategic choices that result in diminished socioemotional wealth as externalhazards to the firm increase. Reluctance by family principals to adopt appro-priate economic responses to external threats may result in the dual loss ofsocioemotional wealth and the family’s economic welfare. Again, empirical evi-dence supports this suggestion. For example, Gomez-Mejia et al. (2007) reportthat family-owned olive oil mills are more likely to join coops as systematic(industry-wide) risk increases. Gomez-Mejia et al. (2010) also find thatfamily firms are more likely to engage in corporate and international diversi-fication as systematic (industry-wide) risk increases. Lastly, Gomez-Mejiaet al. (2011) report that high-technology family firms are more likely toinvest in R&D and engage in technological diversification as systematic (indus-try-wide) risk increases.

Presence of nonfamily shareholders. When ownership is shared amongdifferent groups and issue framing varies across these groups, some degreeof compromise among principals is needed, since one principal cannot unilat-erally force its particularistic agenda on the rest based on its idiosyncraticproblem framing. The corporate governance literature suggests that principalinterest is not a homogeneous economic construct, and even nonfamily inves-tors may have conflicting frames of reference. For instance, transient investorstend to emphasize short-term returns and thus discourage firm decisions that


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may have long-term payoffs (such as aggressive capital investments; seeHoskisson et al., 2002). At the opposite end, research in finance suggeststhat the presence of pension plan shareholders tends to be associated withlong-term orientations in firm investments (such as greater R&D; seeAghion et al., 2009).

As nonfamily entities gain ownership in publicly traded firms, some researchsuggests that the family must compromise between its wish to preserve socio-emotional wealth and other investors’ desires. For instance, Gomez-Mejiaet al. (2003) found that the presence of institutional owners discourage theawarding of firm stocks for family CEOs (because this gives this CEO morepower to pursue the family’s agenda). More recently, Gomez-Mejia et al.(2011) report that the negative relationship between family ownership andR&D investment tends to be moderated by institutional investor ownership,so that increasing institutional investor ownership weakens the relationship.

In Search of the Holy Grail: Impact of Family Ownership on Firm Performance

Presumably many of the managerial choices made by family firms (whichrespond to a desire for socioemotional wealth preservation, as discussedthroughout this paper) eventually will be reflected in observed firm performanceoutcomes. Over the past 15 or more years, great effort has been devoted to under-standing the direct family ownership effect on firm performance. Several reviewsof the relevant literature have appeared in the last five years alone, including arecent meta-analysis by Van Essen, Carney, Gedajlovic, Hengens, and vanOsterhout (in press). Since excellent summaries can be found elsewhere, wedo not offer a detailed discussion of these studies in this paper.

The main conclusion from this body of research is that the evidence ismixed: on average, family ownership has either no effect or at best offers asmall performance advantage relative to other types of ownership. Sacristan-Navarro, Gomez-Anson, and Cabeza-Garcia (2011) examined 20 publishedempirical studies that analyzed the effect of family ownership, familycontrol, and founders versus subsequent generations on firm performance.They concluded that “the evidence is inconclusive as to whether family firmsoutperform non family firms” (2011: 87). Their own study of 118 nonfinancialSpanish companies, with 711 observations made between 2002 and 2008, led toa conclusion that “once endogeneity issues were considered, it was found thatfamily ownership did not influence profitability” (2011: 88). Tsao, Chen, Lin,and Hyde (2009) reviewed the literature on the relationship between familyownership and firm performance and noted that “research for public firmsregarding the effects of family ownership on organizational performance pro-vided mixed results; there is still a need to investigate the relationships betweenthe two concepts” (2009: 319). In a study of 688 Taiwanese firms listed on the


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Taiwan Stock Exchange, the same authors concluded that “family ownershipwas found not to be associated with firm performance” (2009: 328).

Lastly, in a meta-analysis of 55 published and nonpublished empiricalstudies that included correlations between family ownership and firm perform-ance, Van Essen et al. (in press: 26) concluded that “family control has amodest, but statistically significant positive effect on performance.” Theempirical evidence thus far shows that family firms are a viable form of econ-omic organization and that they that can perform at least as well as, or slightlybetter than, their nonfamily counterparts. However, there are caveats toconsider when interpreting the results of these studies.

The literature on family firms is full of normative assessments of the positiveand negative aspects of family ownership, some of which may be inferred fromour prior discussions. To name a few, aspects of family firms that may have apositive effect on performance include:

. Patient capital that values long-term returns over short-term gains (Arregleet al., 2007; Harris, Martinez, & Ward, 1994)

. Affective commitment of owners, managers, and employees who want thefirm to succeed (Chrisman, Chua, & Kellermanns, 2009)

. A culture that fosters employee identification with the organization(Astrachan et al., 2002) and lower employee turnover, thereby ensuringcontinuity and the capacity to pursue long-term projects (Habbershon,Williams, & McMillan, 2003)

. Accumulation of social capital, which becomes a “moral resource”(Sorenson, Goodpaster, Hedberg, & Yu, 2009)

. Continuity of leadership, offering greater resilience in hard times and fasterdecision making (Kets de Vries, 1993).

Negative aspects of family control mentioned in the literature that shoulddepress firm performance include:

. Appropriation of firm resources to satisfy parochial family desires (Bertrand& Schoar, 2006; Morck & Yeung, 2003)

. Nepotism, cronyism, and incompetent family members on the payroll(Claessens et al., 2002; Volpin, 2002)

. Excessive effort expended on family emotions and conflict, which distractfrom paying attention to market forces and business matters (Ward,2004). Barnett, Eddleston, and Kellermanns (2009: 42) note that “basedon theories of individual and social identity, it is possible that a familyfirm owner could regard the family as being more salient than the businessand could thus overemphasize relationship concerns at the expense ofbusiness concerns.”

. The “spoiled kid syndrome,” which can create feelings of inequity amongemployees (Kets de Vries, 1993)


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. Parental altruism, overuse of business perks, and biased hiring decisions(Schulze et al., 2003b; Schulze et al., 2001).

As the reader will notice, many of the aspects listed above relate to thefamily’s desire to preserve socioemotional wealth, some of which carry“good” connotations and some which carry “bad” connotations in terms ofconsequences for firm performance. In the end, both positives and negativesprobably coexist in family firms, and it would be difficult to determine whichpredominates when it comes to performance results. A further complicationis that sometimes the positives and negatives are two sides of the same coin(affective commitment versus more time spent handling emotions or long-term orientation versus entrenchment). It is entirely possible that in mostfamily firms, the positives neutralize the negatives and vice versa, so thatany performance advantages or disadvantages due to family ownershipmay cancel each other out. Moreover, performance in family firms is inpart influenced by a unique set of strategic choices, which in turn are affectedby socioemotional considerations (as discussed in prior sections) with con-tradicting performance implications. Thus, socioemotional elements canlead to strategic choices that shape both negatively (e.g., less investment inR&D) and positively (e.g., better stakeholder relations) the long-termresults of family firms.

Lastly, a host of methodological problems make it difficult to interpretresults concerning the singular effect of family ownership on performanceoutcomes. First, despite statistical attempts by authors to rule out endogene-ity, disentangling the effect of family ownership on firm performance from allthe other possible factors that might influence performance is a heroic chal-lenge. Firm performance is an “ultimate variable”—that is, it is influenced bymyriad factors that are difficult to model in a single study (including industryforces, firm history, time period, population density, newness, technologicalchange, government policy, changes in consumer tastes, and access tocapital). Second, with few exceptions, empirical studies on this topic relyon publicly traded firms, most of them American. The samples being com-pared when using publicly traded firms are therefore highly selective andthe results may not be generalizable to the broad population of familyfirms, relatively few of which are ever publicly traded. Third, given the differ-ences in definitions of family ownership, institutional settings, time periods,samples, measurement of control variables, and methodologies acrossstudies, it is not surprising that they came up with divergent results. Villa-longa and Amit (2006), for instance, note that performance differences aresensitive to how family ownership is defined. Likewise, Miller et al. (2007)point out that observed performance differences by family control statusdepend on how firms are classified, the time period studied, and thesample used.


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Conclusions and Directions for Future Research

Research on family firms has grown significantly over the last two decades.In this paper, we summarize this increasing body of knowledge; but it is diffi-cult, if not impossible, to examine every scholarly study. We organized the per-tinent literature along decisional categories that represent most of the majormanagement areas that have been addressed. The spinal column that linksthem all is the hypothesis that the preservation of affective utilities—whatwe refer to as socioemotional wealth—plays a major role in all of thesedecisions. By providing this unifying approach, this paper answers the follow-ing important questions concerning the most common organizational formaround the world.

Why are Family Firms Different from Other Firms?

There are hundreds of papers that show that family firms are conceptually andquantitatively different from nonfamily firms. On this point, there is virtuallyunanimous consensus among scholars from diverse fields. From a conceptualviewpoint, although various definitions and classifications are used (forinstance, family involvement at different stages of the firm’s history), acommon thread is the notion that family firms are motivated by andcommitted to the preservation of nonfinancial or affective utilities, or whatwe call socioemotional wealth. Factors like emotional attachment, siblinginvolvement, sense of legacy, family control, and concern for reputation,among many others, give family firms their distinctiveness. This is why webelieve that socioemotional wealth is the defining feature of a family business.It is central, enduring, and unique to the dominant family owner, influencingeverything the firm does. In contrast, nonfamily shareholders or professionalmanagers have more psychological, social, and in some cases even geographicaldistance from the firm, and their relationships tend to be transitory, individua-listic, and utilitarian.

There is overwhelming empirical evidence that differences between familyand nonfamily firms appear at many levels (e.g., in the management of internalrelationships, in the strategic choices made by the firm, in governance arrange-ments and the like) and affect different dependent variables (including theselection of successors, firm diversification, type of agency contracts, launchingof new ventures and such). It is indeed remarkable the consistency of resultsthat show differences by firm ownership status in the numerous studiesreviewed here despite a wide variety of methodologies, samples, and timeframes.

From a socioemotional wealth perspective, a major empirical challenge isthe operationalization of its central construct. As argued by Berrone et al.(in press: 24) : “Despite the value of the conceptual development of the socio-emotional wealth concept, prior studies left behind an important element for


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research, namely, how to measure socioemotional wealth.” Almost all empiri-cal studies using socioemotional wealth as the theoretical framework useownership in the hands of family members as a proxy for its presence. Thisis understandable when trying to draw inferences from secondary and archivalsources. Yet, it prevents researchers from breaking the construct into separateelements and compels them to treat socioemotional wealth as an unmeasuredholistic construct in predicting various aspects of firm functioning.

As this paper shows, there are many reasons to conclude that greaterconcentration of firm ownership in family hands will increase socioemotionalwealth. But as research on this topic evolves, socioemotional wealth needs to bemeasured more directly (see Berrone et al. [in press] for suggestions about howto measure it). Moreover, finding ways of operationalizing socioemotionalwealth will help shift the pendulum from comparing family with nonfamilyfirms to examining differences within family firms.

Is There a Compelling Theoretical Framework that Explains the Uniqueness of FamilyFirms?

In this paper, we have emphasized the socioemotional view as a valid lens tointerpret the distinctive set of strategic choices that family firms adopt. Oneof the main benefits of the socioemotional view is that it draws from andmirrors the large body of research on family businesses. In contrast to otherapproaches that struggle to adjust to the context of family firms, the notionthat family firms place a great emphasis on socioemotional wealth grows natu-rally from the realities of family businesses as captured by decades of research.While originally embedded in behavioral agency theory (Gomez-Mejia et al.,2010, 2007), the theoretical versatility of socioemotional wealth as a constructmakes it particularly adaptable to insights from other approaches such as insti-tutional theory (Berrone et al., 2010), affect infusion model (Zellweger &Dehlen, in press), and Ajzen’s theory of planned behavior (Sharma &Sharma, 2011). The many papers using socioemotional wealth as an explana-tory construct that have been recently published in top-tier journals are a tes-tament to analytical adaptability.

How Can Contradictory Results Regarding the Impact of Family Involvement onFinancial Performance be Explained?

Despite the numerous empirical studies and conceptual frameworks discussedin this paper, doubt remains about whether family ownership and managementare good or bad for financial outcomes since results have been mixed andconflicting. Surprisingly, despite general agreement that family firms includenonfinancial objectives in their utility functions, the focus of much of thisnormative work has been almost exclusively on financial objectives, ignoring


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nonfinancial aspects even as controls. Our perspective may be useful inexplaining contradictory evidence about family influence on financialoutcomes. According to the view advanced here, the preservation of socioemo-tional wealth is an end in and of itself, strongly influencing strategic decisionsand sometimes even conflicting with economic objectives.

This is not to say, however, that family firms sacrifice or ignore financialgoals. The key point is that when family interests predominate, firms aremore likely to bear the costs incurred in pursuing certain actions, policies,and strategies because they are driven by the belief that these costs are counter-balanced by noneconomic utilities other than financial gains. The challenge forfuture research is therefore to understand how family owners frame decisionswith socioemotional wealth as a reference point. But perhaps a more funda-mental question is whether financial performance is the ultimate objectivefor family firms rather than more intangible qualities such as stable employ-ment, harmony among kin, and long-term survival. This does not mean thatfinancial performance is unworthy of study, but rather that socioemotionalwealth should be given an equal level of importance.

What is the Status of Family Business Research as a Field of Study?

The field of family business has grown significantly over the last two decades.In its early days, much of the research was descriptive, based on superficialanecdotes and suffering from methodological problems. As the early researchstarted to draw the attention of other scholars, and the topic set its boundarieswithin the broad field of management, a need to increase its theoretical rigorand methodological soundness was identified (Chrisman et al., 2005, 2008;Sharma et al., 1997). This need was addressed by theorists who enlarged thestudy of the family firm with insights from traditional business research. Asthe field grew rapidly, so did awareness about the importance and uniquenessof family firms. But with rapid growth, the field also became too eclectic andtheoretically ambivalent. The confusion was amplified by a growing numberof empirical studies focusing on financial performance that showed contradic-tory results, further threatening the development of the field.

There are several reasons to believe, however, that research on family firmshas grown from a rather chaotic infancy to a more mature stage. The creation ofspecialized departments within business schools and universities, the endowedchairs awarded to scholars, the growing number of respected journals, and theproliferation of international conferences are all signs of maturity in the field.

Certain elements, however, still invite skepticism. The most serious drawbackis the theoretical ambivalence in the field. While some argue that paradigmaticconsensus is vital (Pfeffer, 1993), others suggest that a field cannot advancewithout pluralism (Cannella & Paetzold, 1994). There are pros and cons forboth of these views in the context of family businesses, but it is fair to say that


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the field is now highly pluralistic. While a pluralistic approach may be a better fitwith an organic field like family management as opposed to a more mechanicalone like mathematics (Nag, Hambrick, & Chen, 2007), overemphasizing thepluralistic approach risks encouraging an “anything goes” attitude. This wouldbe dangerous in a field that still needs to win and consolidate its academic legiti-macy. The concept of socioemotional wealth as a core construct (much like priceallocation in economics) is an alternative to conflicting theoretical views. It hasthe potential to advance a more unified view of the field that relies on its owntheory-based research. Moreover, it can enhance the shared identity, a qualitynecessary to develop a strong scientific community (Kuhn, 1962).

So far we have avoided the epistemological debate of whether family businessshould be considered as a phenomenon, an area of study, a field, or an aspiringdiscipline. A similar debate has been hotly contested in entrepreneurship (see,for instance, Shane & Venkataraman, 2000; Zhara, 2005; Sorenson & Stuart,2008). We take a middle position on this issue; and for this reason, we haveused the term “field,” meaning that there is a clear need to focus researchefforts on the uniqueness of family firms which differentiates them fromother organizational forms. This might lead to the development of a generallyaccepted theoretical cannon (such as the socioemotional wealth view presentedhere) that synthesizes the set of factors that arguably make family firms differentfrom the rest. This in turn can help organize disparate findings in an additivefashion in accordance to some general underlying logic (such as socioemotionalwealth preservation as a primary driver of behavior).

We should be careful, however, not to push the envelope so far as to becomeinsulated from other disciplines by drawing hard boundaries around family firmstudies, calling it a discipline unto itself. In our opinion, such advocacy wouldonly lead to unproductive conflict with little probability of a satisfactory resolution.Moreover, this posture may provoke excessive tribalism, leading to a myopic viewof family firms and failure to work closely with established disciplines that may havemuch to offer in terms of offering analytical insights to better understand the chal-lenges facing these organizations. For instance, organizational behavior and socialpsychology can help us better understand the role of emotions in these firms;finance can contribute in helping us understand the constraining role of capitaland financial markets on future growth; and sociology can help us unravel the influ-ence of institutional pressures and family networks on firm survival.

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The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

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