The Enigma of the Family Successor–Firm Performance Relationship

[We’re pleased to welcome authors Jan-Philipp Ahrens of the University of Mannheim, Andrea Calabrò of IPAG Business School, Jolien Huybrechts of Maastricht University, Michael Woywode of the University of Mannheim and the Centre of European Economic Research. They recently published an article in Entrepreneurship Theory and Practice entitled “The Enigma of the Family Successor–Firm Performance Relationship: A Methodological Reflection and Reconciliation Attempt,” which is currently free to read for a limited time. Below, they briefly describe the motivation and impact of their research.]

What motivated you to pursue this research?

The vast majority of firms on the planet are family firms. Often they are the institutionalized ‘Gestalt’ of the family’s or founder’s work, identity, and vision – and are typically managed for the long run so that a unique social constellation wrought by social capital, a vivid culture and a mutual commitment emerges over time. In essence, this includes an aspiration of an intergenerational continuity in family leadership and values, as well as in obligations and in the reciprocity that this entails. Interestingly, this peculiar long run horizon that is very difficult to imitate for non-family firms – as they cannot offer the same continuity in relationships and are more short term oriented – has been found to be a source of competitive advantage. At the same time, quite paradoxically, extant research has frequently documented that choosing a family successor is detrimental to firm performance. Thus – especially because several of us have a family firm background – we thought that there might be more to discover that could help to explain this enigma.

In what ways is your research innovative, and how do you think it will impact the field?

Our article takes a fresh and reconciliatory perspective by re-conceptualizing succession in family firms and, in particular, by making the social individual, i.e. the family successor in his/her social context and the reciprocal human interactions that constitute this group, the unit of analysis. Relying on social exchange theory and its core concepts of generalized exchange, the norm of reciprocity, and extended credit, we develop a new framework that can explain how social capital, values, and identity can be perpetuated across generations which – we argue – is of singular advantage to family successors. And indeed, when we isolate and separate important economic forces on the successor level, we observe that a “family member attribute” of the successor – understood as a CEO attribute – is performance enhancing or put differently: All other attributes equal, the family successor is the superior successor. That in itself has a series of implications for family firm theory. Of course, that is only the cocktail-party-version here, the full arguments are inside the article, which we highly recommend, especially to practitioners. The bottom line is that there is often value in the continuity of family leadership, as garnered social capital, identity, and values are retained.

What is the most important/ influential piece of scholarship you’ve read in the last year?

This would be Marcus Aurelius’ “Meditations” (Roman Emperor 161-180). Not only does it directly and in their core reveal the views on the world of the most powerful person of the time, which is entirely breathtaking and inspiring to read, but it is a towering literary monument to governing and human precepts of service and duty.

Our research is innovative in that we take a multi-pronged approach and test a three-way interaction to determine how performance will be impacted by commitment, supervisor familial status, and SEW importance all in concert. Testing three-ways effects is less common in family firm research and provides a unique means for understanding how these factors influence the family firm.

We hope that our work encourages future researchers to continue to find ways to examine other factors at the individual level that influences family firm outcomes. Only through the continued pursuit of future research at multiple levels within the family firm can we come to a better understanding of why the family firm is the unique environment that it is.

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The Influence of Supervisors on Employee Performance in Family Firms

[We’re pleased to welcome authors Benjamin D. McLarty, James M. Vardaman, and Tim Barnett of Mississippi State University. They recently published an article in Entrepreneurship Theory and Practice entitled “Congruence in Exchange: The Influence of Supervisors on Employee Performance in Family Firms,” which is currently free to read for a limited time. Below, they briefly describe the motivation and impact of their research]

Research on family firms predominantly takes place at the firm-level. Findings suggest that family firms prioritize specific non-economic goals labeled socio-emotional wealth, and that emphasizing socio-emotional wealth drives many strategic decisions in family firms. We were motivated to pursue this research because, although we knew socio-emotional wealth affects how family firms behave, we wanted to know how people in family firms behaved. Specifically, we wanted to explore how the importance that supervisors placed on socio-emotional wealth could impact their employees’ job performance as well as employees’ commitment to the family firm. Here, we reasoned that employees could perceive their supervisors differently based on whether they were a member of the family firm, and if they embraced the firm’s socio-emotional wealth goals. When these factors were in congruence, we surmised that employees would translate their commitment to the family firm into greater job performance (both task and citizenship behavior). When they perceived a lack of congruence in their supervisor, we argue that decreased performance would occur based on a reduced sense of genuineness in the social exchange relationship with their supervisor. Our results supported our hypothesizing and demonstrate that employees seek supervisors in family firms who accurately represent their true interests—i.e., if they are family members they should support the family’s goals, if they are not, they should not.

Our research is innovative in that we take a multi-pronged approach and test a three-way interaction to determine how performance will be impacted by commitment, supervisor familial status, and socio-emotional wealth importance all in concert. Testing three-ways effects is less common in family firm research and provides a unique means for understanding how these factors influence the family firm.

We hope that our work encourages future researchers to continue to find ways to examine other factors at the individual level that influences family firm outcomes. Only through the continued pursuit of future research at multiple levels within the family firm can we come to a better understanding of why the family firm is the unique environment that it is.

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Student Assessment of Venture Creation Courses in Entrepreneurship Higher Education

[We’re pleased to welcome author Helena Wenninger of Lancaster University Management School. Dr. Wenninger recently published an article in Entrepreneurship Education and Pedagogy entitled “Student Assessment of Venture Creation Courses in Entrepreneurship Higher Education—An Interdisciplinary Literature Review and Practical Case Analysis,” which is currently free to read for a limited time. Below, Dr. Wenninger discusses the motivations and impact of this research.]

What motivated you to pursue this research?

Living in the 21st century brings huge opportunities but also responsibilities for today’s graduates. Requirements from employers, quickly changing economic conditions, global competition, and environmental concerns highlight the need for people having a vision, being resilient, and have no fear of making decisions under uncertain conditions. Thus, entrepreneurial skills are more relevant than ever not only for creating a venture but also to contribute to a meaningful business environment and to society as a whole. However, students’ performance is mainly measured and benchmarked by their grade point average, which comprehensively gives assessment high priority in students’ considerations. Based on those observations, the idea was born to investigate how I as an assistant professor teaching e-business venture creation in one of my courses can contribute to a better match of these two aspects and spread the insights.

In what ways is your research innovative, and how do you think it will impact the field?

This research offers insights into student assessment for experiential entrepreneurship education. Entrepreneurship programmes are mushrooming around the world, but research is lacking behind regarding the impact that assessment has on student learning in this area. I hope my work will further direct attention on the importance of assessment methods for students’ experience and learning for action-oriented, experiential, and learning-by-doing approaches.

What advice would you give to new scholars and incoming researchers in this particular field of study?

Drawing from my personal experience as a lecturer in Information Systems, investigating the work from experienced scholars in the Entrepreneurship field, and discussing the topic with colleagues from the Educational Research department of my university was an encouraging and stimulating process for me to develop this work. Thus, I would recommend considering various sources of inspiration across relevant disciplines.

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To Patent or Not to Patent?

[We’re pleased to welcome authors Francesco Chirico of Jo¨nko¨ping International Business School and EGADE Business Schoo, Giuseppe Criaco of  Rotterdam School of Management, Massimo Bau`of Jo¨nko¨ping International Business School, Lucia Naldi of Jo¨nko¨ping International Business School, Luis R. Gomez-Mejia of W.P. Carey School of Business, and Josip Kotlar of Politecnico di Milano. They recently published an article in Entrepreneurship Theory and Practice entitled “To patent or not to patent: That is the question. Intellectual property protection in family firms,” which is currently free to read for a limited time. Below, they briefly describe the motivation and impact of their research.]

Patents help firms appropriate greater returns from innovation, leading to superior financial returns. However, patenting also entails significant costs, many of which are non-financial in nature. Family firms are a case in point: in these firms, the financial benefits of patenting may come at the expense of socioemotional losses for the family, such as diverting resources from traditional lines of business, disclosing tacit knowledge, increasing reputational risks, or creating dependence on external sources of finance and specialized human capital. Understanding these trade-offs and disentangling family firms’ decision to patent is the main purpose of this study.

We rely on a novel theoretical perspective – the mixed gamble logic – to conceptualize family firms’ patenting decisions as a trade-off between: (1) benefits in terms of gains in prospective financial wealth and (2) costs in terms of losses in the family’s current SEW. This theory suggests that family firms will not necessarily privilege financial or socioemotional wealth considerations; rather, it points to critical factors that are likely to shape the way family firms frame the value of benefits and costs of patenting.

We test these ideas using data about the patenting behavior of 4,198 small- and medium-sized family firms. First, we find that family firms’ propensity to patent changes depending on the level of family ownership: when family ownership raises beyond a threshold level, then current socioemotional wealth is safe and family firms become more likely to pursue the prospective financial gains attainable through patenting. Second, we also show that family firms’ patenting decisions change depending on the environment, as the trade-offs between financial and socioemotional wealth becomes more stringent when the availability of critical external resources is low.

These results elucidate the role of non-financial considerations in family firms’ strategies for capturing value from innovations and reconcile previous conflicting findings. The study also holds several practical implications for family firm owners and managers: it suggests that, in fact, their propensity to patent might be biased by their over-emphasis on socioemotional considerations. But our study also suggests that family firms can successfully reconcile the inherent trade-off between financial and socioemotional wealth by securing a high level of family control through majority family ownership. Thus, while the prior research has encouraged family firms to open up their innovation processes to facilitate value creation, our study rather encourages family owners to acquire or preserve a stronger controlling position in their respective firms to deploy more effective strategies for capturing value from innovations. This recommendation is likely to apply particularly in industries characterized by low environmental munificence.

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Guiding Entrepreneurs Through the Quagmire of Business Entities – Three Hypothetical Scenarios for Discussion

[We’re pleased to welcome authors Lynn M. Forsythe of California State University, Fresno, Lizhu Y. Davis of California State University, Fresno, and John M. Mueller
St. Edward’s University.They recently published an article in the Entrepreneurship Education and Pedagogy entitled “Guiding Entrepreneurs Through the Quagmire of Business Entities – Three Hypothetical Scenarios for Discussion,” which is currently free to read for a limited time. Below, they recount the motivation for this research.

EEX_72ppiRGB_powerpointWhat motivated you to pursue this research?

We felt there was a lack of teaching resources and materials for faculty who teach entrepreneurship courses when it comes to educating students (future entrepreneurs) about creating a business entity to support their new business idea.  Some faculty may be tempted to over simplify the topic or ignore it completely.  These cases help faculty illustrate the complexity of the decision. These cases are not particularly intended for business law faculty; however, they can definitely use them if they need a variety of tools to convey knowledge about legal entities for nascent companies.

In what ways is your research innovative, and how do you think it will impact the field?

The research is not innovation. Rather it is the method of conveying knowledge that is new and useful for faculty and students.  We intended to create more diverse pedagogical offerings.  Legal topics tend to be taught out of a textbook, and through results of court cases, not from case studies.  The three case scenarios we have written help students better understand the legal entity decision by engaging them in a context they can relate to with their business idea.  The case scenarios are an experiential means of engaging students on a topic that could be considered dry.

What did not make it into your published manuscript that you would like to share with us?

The main portion of the manuscript consists of three case scenarios, which are couched in different industries with different decision points.  We have provided outside of the manuscript, and online with the publisher, supporting materials that simplify the basic differences between various legal entities (sole proprietorship, limited liability partnership, limited liability corporation, C corporation). This information is normally found in textbooks, however, we have simplified it in a PowerPoint slide deck and chart format to easily and quickly enable both faculty and students to reference the additional material.

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Crowdfunding and Museums: A Field Trip Exemplar in the United Kingdom

[Professors Miriam Isabella Cavalcanti Junqueira and Allan Discua Cruz of Lancaster University Management School recently published an article in the Entrepreneurship Education and Pedagogy which is entitled “Crowdfunding and Museums: A Field Trip Exemplar in the United Kingdom.” We are pleased to welcome them as contributors and excited to announce that the case study will be free to access on our site for a limited time. Below they reveal the development and impact of this research.]

This crowdfunding and field trip exemplar grew out of an attempt to integrate intra and extra classroom activities that could accentuate innovative trends in entrepreneurship teaching bridging theory and real-life applications. Additional considerations included galvanizing engagement of an international and multidisciplinary classroom environment. In the past few years, new financial trends and challenges have infiltrated the creative industries. This has prompted organizations to examine new funding models that could promote innovative artistic representations as well as entrepreneurial opportunities to increase visibility and the commercialization of enhanced consumer experiences including new products and services. We chose a local museum in the Northwest region of the United Kingdom to provide a social context for a museum field trip. The purpose of the field trip was to inform students on the challenges these types of organizations face. Additionally, students were asked to help this museum devise a crowdfunding campaign for a specific project that could publicize the museums offerings and heighten its online presence. Reward-based crowdfunding is a popular crowdfunding model used in the creative industries. It is also one of the latest tools in entrepreneurial finance that could help a creative organization to develop innovative projects with the potential to engage stakeholders’ communities, local businesses and government entities. We hope that our learning activity will be an inspiration to new scholars and educators to research the development of educational experiences that can facilitate the understanding of theoretical perspectives coupled with the simulation of ‘real world ‘experiences.

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Entrepreneurs’ Utilization of Political and Family Ties in Emerging Markets

[We’re pleased to welcome authors Dr. Jianhua Ge of the Renmin University of China, Dr. Michael Carney of the Concordia University, and Dr. Franz Kellermanns of the University of North Carolina at Charlotte and WHU. They recently published an article in Entrepreneurship Theory and Practice entitled “Who Fills Institutional Voids? Entrepreneurs’ Utilization of Political and Family Ties in Emerging Markets,” which is currently free to read for a limited time. Below, Dr. Ge speaks about the motivations, innovations, and impact of this research :]

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What motivated you to pursue this research

Acquiring resources is always challenging for private entrepreneurs, particularly when the market channels are absent or poorly developed, which is common in many emerging markets including China. A possible solution suggested by prior studies is to engage in political networking, and entrepreneurs can pursue and utilize political ties to fill those prevalent institutional voids. But, as also suggested by prior research, to cultivate and maintain political ties is highly costly, and the “grabbing hand” of the political actor can also bring risks and harms. As such, entrepreneurs are not always willing and able to develop the political ties. Then how are they overcoming the resource barriers to start and grow their business? Actually, scholars in family business already mention the functional role of kin or family ties, but the empirical studies are rare and the efforts to bridge these two fields of political and family ties are missing. We are thus motivated to investigate the roles of political ties and family ties in filling institutional voids as entrepreneurs try to acquire resources.

In what ways is your research innovative, and how do you think it will impact the field?

While the fields of political networking and family business are disconnected, we draw on insights from political and family embeddedness and argue that both political ties and family ties can help entrepreneurs acquire resources when facing institutional voids. Our study suggests that when family ties are relatively available, entrepreneurs’ intentions to cultivate political ties to fill institutional voids are weaker. This is because family ties can be alternative sources of resources and, compared to potentially costly political ties, family tie has its own advantages. We further show that to effectively utilize these family ties, considering family members’ motivation to use their resources and the family owner’s mobilization capability are both necessary. These findings enrich and deepen our understanding of entrepreneurs’ networking strategies in acquiring resources. They also shed light on the unique value of family ties, which is largely ignored by the mainstream management but definitely should be considered.

What advice would you give to new scholars and incoming researchers in this particular field of study?

In this project, we integrated sociopolitical and cultural perspectives. As scholars extend key topics or processes in entrepreneurship and family firm research, we suggest linking different theoretical perspectives to generate new insights. Accordingly, we encourage scholars with distinct backgrounds further topics in entrepreneurship and family firm research.

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