What Makes a Family Firm Innovative? CEO Risk-Taking Propensity and the Organizational Context of Family Firms

Investigating the new product portfolio innovativeness of family firms connects two important topics that have recently received considerable attention in innovation and family firm research. First, new product portfolio innovativeness has been identified as a critical determinant of firm performance. Second, research on family firms has focused on the questions of if and why family firms are more or less innovative than other organizational forms. Research investigating the innovativeness of family firms has often applied a risk-oriented perspective by identifying socioemotional wealth (SEW) as the main reference that determines firm behavior. Thus, prior research has mainly focused on the organizational context to predict innovation-related family firm behavior and neglected the impact of preferences and the behavior of the chief executive officer (CEO), which have both been shown to affect firm outcomes. Hence, this study aims to extend the previous research by introducing the CEO's disposition to organizational context variables to explain the new product portfolio innovativeness of small and medium-sized family firms. Specifically, this study explores how the organizational context (i.e., ownership by top management team [TMT] family members and generation in charge of the family firm) of family firms interacts with CEO risk-taking propensity to affect new product portfolio innovativeness. Using a sample of 114 German CEOs of small and medium-sized family firms operating in manufacturing industries, the results show that CEO risk-taking propensity has a positive effect on new product portfolio innovativeness. Moreover, the analyses show that the organizational context of family firms impacts the relationship between CEO risk-taking propensity and new product portfolio innovativeness. Specifically, the relationship between CEO risk-taking propensity and new product portfolio innovativeness is weaker if levels of ownership by TMT family members are high (high SEW). Additionally, the effect of CEO risk-taking propensity on new product portfolio innovativeness is stronger in family firms at earlier generational stages (high SEW). This result suggests that if SEW is a strong reference, family firm-specific characteristics can affect individual dispositions and, in turn, the behaviors of executives. Therefore, this study helps extend the knowledge on the determinants of new product portfolio innovativeness of family firms by considering an individual CEO preference and the organizational context variables of family firms simultaneously.

Innovations in Small and Medium-Sized Family Firms

Small and medium-sized firms are a prevalent organizational form in Germany. Their importance for the German economy is indisputable. Most of them are global market leaders in their niches and are considered to be a force for innovation in the German economy. The ability to be innovative in niche markets has been identified as the antecedent of their strong, or even dominant, competitive positions in their industries. The driver of this innovation success may well be the family, which distinguishes family firms from non-family firms. Nils Kraiczy analyzes if a family influences innovation in a family firm and if this influence has only positive effects. The dissertation focuses on the impact of top management teams on innovations interacting with family firm-specific characteristics. The author shows the complexity of family influence by presenting different effects of each investigated family firm-specific characteristic on the relationship between top management team behavior and innovation.

How Much am I Expected to Pay for my Parents‘ Firm? An Institutional Logics Perspective on Family Discounts

Recent evidence suggests that successors do not simply inherit their parents’ firm, but have to pay a certain price. Building on institutional logics literature, we explore successors’ family discount expectations, defined as the rebate expected from parents in comparison to nonfamily buyers when assuming control of the firm. We find that family cohesion increases discount expectations, while successors’ fear of failure and family equity stake in the firm decrease discount expectations. Higher education in business or economics weakens These effects. On average, in our study comprised of 16 countries, successors expect a 57% family discount.

The Family’s Financial Support as a “Poisoned Gift”: A Family Embeddedness Perspective on Entrepreneurial Intentions

We argue that greater availability of financial support by the family for creating a new venture entails stronger financial and non-financial obligations. Cognizant of these obligations, potential founders anticipate negative performance implications for the planned firm and threats to the family system in the case of their non-fulfillment. We thus postulate that the formation of actual entrepreneurial intentions is less likely the greater the available financial support. We confirm this by studying a sample of 23,304 respondents from 19 countries and find the negative relationship to be dependent on family cohesion and on individual entrepreneurial self-efficacy.

Value Creation in Family Firms: A Model of Fit

We propose a framework describing how family ownership can create or destroy value depending on the goals, resources, and governance of the family firm, which are each influenced by the family owners. Taking a contingency perspective, we suggest that a fit is required for all three elements – family- influenced goals, resources, and governance – for the family firm to flourish over generations. We conclude with a suggested research agenda indicating research opportunities at the nexus of these identified elements. Further we provide some guiding questions for practitioners that might stimulate fruitful discussions among family firm owners and managers about how to realize ‘‘fit.’’

Crisis Coming Home? Firm Performance During the Economic Crisis and Managers‘ Work-Family Conflict

The economic crisis over the past years has challenged managers in many ways. In our longitudinal study during the global recession, we examine how perceived firm performance interacts with sources of supervisor support and stress to affect managers’ work-family conflict. First, we draw from Conservation of Resources theory to analyze how sources of supervisor support and stress relate to managers’ work-family conflict. Second, we explore how perceived firm performance modifies the relationships between these factors and work-family conflict. Our surveys of 182 managers before and during the crisis reveal that perceived firm performance significantly alters the effectiveness of sources of supervisor support in relieving work-family conflict. Additionally, perceived poor firm performance was found to intensify the negative effect of stressors on work-family conflict. Our results highlight the need to consider an organization’s perceived health when studying managers’ attitudes and career outcomes.

Socioemotional Wealth, Ambidexterity, and Family Firm Performance: An Empirical Study

While family business literature agrees that family firms are driven by both non-economic and financial motives, it is unclear how the prioritization of socioemotional wealth (SEW) over financial considerations affects family firms' financial performance. Based on a sample of 343 family firm owners from German-speaking Europe, this study reveals a significant and positive relationship between the firm owners' SEW considerations and their family businesses' financial performance. This relationship, in turn, is found to be mediated by organizational ambidexterity. A fine-grained analysis of the different SEW dimensions indicates that this pattern may be driven by two elements of socioemotional wealth only (family members' identification with the firm and emotional attachment). Our findings demonstrate that business families do not necessarily face a trade-off when prioritizing the preservation of their SEW over stabilizing or improving the financial performance of their business. The study enriches several streams of literature and opens up numerous avenues for future research.

The Performance of Swiss and German Family Firms: Investigating Strategies, Orientations and SEW as Determinants

In this chapter we center our attention on the performance drivers of family firms in Switzerland and Germany and compare the corresponding results with the findings generated in the US. Investigating family firms is justified as this organizational form not only constitutes the majority of all firms globally (Sharma and Carney, 2012), but in particular in Switzerland and Germany. In fact, more than 88 percent of all firms in Switzerland are defined as family firms (Frey, Halter, Klein, and Zellweger, 2004), and numbers for Germany are similar (Klein, 2000). While more than 99 percent of all companies in Switzerland are small and medium-sized (Frey et al., 2004), the share of family firms varies with firm size; more specifically, the share of family firms decreases with increasing firm size, which is in line with findings from Germany (Klein, 2000). The social and economic impact of family firms is remarkable. In Germany for instance, family controlled firms provide 60 percent of all jobs and account for 51 percent of the total sales of the German economy (cf. www.familienunternehmen.de). Even though the interest of both academics and practitioners in family firms has been rising significantly in recent years, the existing body of knowledge in the field is still rather fragmented (Sharma, 2004; Sharma and Carney, 2012).