The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

TLDR

Family firms differ from other organizations in significant ways, as shown by growing research. The paper reviews how family firms differ from nonfamily firms across five managerial decision categories and examines the performance consequences of family ownership. The authors analyze five categories of managerial decisions—management processes, firm strategies, corporate governance, stakeholder relations, and business venturing—while considering contingency factors such as family stage, firm size, hazard, and nonfamily shareholders that moderate socioemotional wealth preservation. Socioemotional wealth or the affective endowment of family owners explains many of these managerial choices.

Abstract

A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.