Three essays on family firms

Resumen

This dissertation consists of three chapters that contribute to the literature on family firms by examining different aspects of socioemotional wealth (SEW), ethical decision-making, and gender diversity on boards in the context of family firms. It provides insights into various aspects of family firms and contributes to the understanding of their unique dynamics and challenges. Family firms represent a significant phenomenon globally, with practical and theoretical relevance (La Porta et al., 1999). They constitute nearly half the largest firms in developed and emerging economies (Berrone et al., 2022). The family business literature posits that family firms accumulate socioemotional wealth (SEW), which refers to "the non-financial aspects of the firm that meet the family's specific needs, such as identity, the ability to exercise influence, and the perpetuation of the family dynasty" (Gómez-Mejía et al., 2007, p. 106). This orientation influences family firms' decision-making processes, determining their reference points for gains or losses. Chapter one of this thesis adds to the ongoing debate on how family firms balance SEW and financial concerns, their priority in pursuing these utility forms, and the performance consequences of their strategic choices (Kim et al., 2019). More specifically, the pursuit of SEW raises a crucial question: What is the relationship between SEW and family firm performance? Some scholars argue that SEW comes at the expense of financial wealth (Chrisman & Patel, 2012; Miller & LeBreton-Miller, 2020). Conversely, others posit that SEW positively relates to financial outcomes (Cennamo et al., 2012). Therefore, chapter 1 addresses three related research questions: (1) Is SEW positively or negatively related to family firm performance? (2) What are the mediating mechanisms through which SEW affects firm performance? (3) How do various SEW dimensions moderate the SEW-firm performance relationship? To answer these questions, the study employs a Hedges and Olkin meta-analysis (HOMA) and meta-analytical structural equation modeling (MASEM) using a combined sample of 2,959,720 firm-year observations from 25,542 effect sizes gathered from the 350 primary empirical studies in the SEW literature during 2007-2020. The study builds on existing research by exploring the main effect of SEW on firm performance and contextual factors that influence that relationship, establishing the balance of evidence concerning SEW's core hypotheses (Zhong et al., 2017), and testing complex hypotheses to assess in a single-primary study (Post et al., 2020). This chapter contributes to the literature by providing insights into the SEW-family firm financial performance relationship and the mediating mechanisms affecting that relationship. The findings help build consensus about SEW's role in family firm performance, which has been largely missing in prior studies and reviews (Williams, 2018). Additionally, the study identifies the most critical mediating mechanisms that explain the relationship between SEW and firm performance, such as family firms' strategic choices, corporate governance, and orientation toward non-family stakeholders (Gómez-Mejía et al., 2011). The study finds that SEW-family firm performance is overall positive, a comforting result given that some studies have focused on SEW's ¿dark side¿ (Kellermanns et al., 2012). At the same time, the effect size is small, suggesting that the SEW-performance link is complex. It is proposed that SEW preservation can have a differential association with firm performance through several critical managerial decisions. In other words, the SEW-family firm's financial performance is not uniform and may vary according to the type of decision at hand. Finally, the study sheds new light on how various SEW aspects affect family firms¿ behavior and performance outcomes (Miller & Le Breton-Miller, 2014). The meta-analysis suggests that SEW dimensions do not always work in concert and may have to be examined individually regarding their relation to financial results. Finally, the findings guide future SEW-family firm performance research, deepening the current knowledge on SEW and suggesting avenues for future research opportunities. Chapter two of this dissertation combines socioemotional wealth insights and ethical business literature to examine how family firms¿ pension underfunding differs from non-family firms and the boundary conditions on which that difference is contingent, including financial distress, which drives firms to risk-shifting behavior (Anantharaman & Lee, 2014), the generation that controls the firm, which shapes family members' relative importance to their SEW (Berrone at al., 2010), and the eponymous firm name, that pushes firms to care more about the firm¿s reputation and the ethical aspects of their decisions. Pension plan solvency is recognized as a systemic issue (Anantharaman et al., 2022). Thus, decision-making related to pension funding has become a crucial theoretical subject (Cumbo et al., 2020). Yet, the study of antecedents to pension underfunding ¿ and the related ethical consequences ¿ remains nascent and, therefore, poorly understood. This gap is problematic when the multi-stakeholder consequences of firm decision-making are in the spotlight (Harrison et al., 2020). A critical driver of ethical decision-making is the role of the dominant owner, with family ownership receiving much attention in recent years (Blodgett et al., 2011). In this regard, pension funding decisions are argued to have an ethical dimension, as inadequate pension funding can result in employees not having sufficient funds for retirement (Martin et al., 2019). For a family firm, this means that if pensions are underfunded, the family firm can be perceived as unfairly transferring risk to employees. Previous research has found that unethical behavior will be penalized by customers and society (Perez & Del Bosque, 2015), suggesting that family SEW will be damaged by pension underfunding. Ethical decision-making by family owners in the context of pension underfunding is studied as it directly impacts the well-being of employees and has ethical implications (Harjoto & Laksmana, 2020). Defined benefit (DB) pension plans, solely managed by employers, are particularly relevant in this context. Lower funding levels for pensions increase the risk that employees may not receive their entitled pensions in the future, which can be perceived as unethical (Rauh, 2006). This ethical context threatens family owners¿ reputation ¿ a dimension of the family¿s socioemotional wealth or SEW (Berrone et al., 2012, 2020). The findings suggest that family firms make less use of pension underfunding. However, supporting the hypothesis that family firm SEW preservation drives lower pension underfunding, family firms controlled by later generations are less likely to differ from non-family firms in underfunding pensions, and eponymous family firms are more likely to avoid pension underfunding. The position being taken by family firms on pension underfunding is also not being moved by higher levels of financial distress, suggesting that, on average, the SEW preservation motive (as manifested in pension underfunding) is impervious to financial distress. These results provide important implications for theory and practice. The study contributes to the business ethics literature and the family firm literature in particular by advancing knowledge regarding ethical decision-making by family owners (e.g., Long & Mathews, 2011). First, it offers the insight that family owners¿ attempts at SEW preservation can lead to decision-making that is considered more ethical relative to non-family firms. Thus, there appears to be an alignment between the interests of two crucial family firm stakeholders: the family principals and their employees (in the context of pension underfunding). The family firm advances employee interests ¿ thereby preserving SEW derived from family reputation and social ties ¿ despite the financial cost it creates (borrowing more from higher-cost external creditors). In doing so, it challenges the view that family firms prioritize financial goals when SEW and financial goals are in tension (cf. Chrisman & Patel, 2012). Second, the study theoretically disaggregates the role of various SEW dimensions in influencing ethical decision-making. Berrone and colleagues (2012) outlined five dimensions of SEW that family principals are argued to attempt to preserve: family control and influence (concern with ownership), family member's identification with the firm (concern for image), binding social ties (concern for relationships with the community), emotional attachment of family members to the firm and the need for dynastic succession (renewal of family bonds). The findings suggest that family owners prioritize the SEW dimensions of family reputation and social capital, potentially at the cost of dynastic succession (another SEW dimension). This is because lower pension underfunding implies greater reliance on external debt, which increases bankruptcy risk, reducing the probability that the firm survives long enough to pass the firm to the next generation. Hence, the findings suggest that family firms are weighing the costs and benefits of SEW's different dimensions when making decisions that have ethical implications. The moderating hypotheses also allow continuing to advance nascent literature that has explored family firm heterogeneity and how different types of family firms make different choices ¿ in this case, in the context of decisions that reveal the ethical choices of family owners. Chapter three of the thesis investigates the potential link between female presence on the board and workforce reductions (e.g., Matsa & Miller, 2013), a standard practice for most firms to meet financial goals (Trevor & Piyanontalee, 2020). In addition, the study considers how the dominant owner¿s role in the company (in particular, the family owner¿s role) affects the relationship between women on boards and workforce reductions. Past studies have devoted attention to examining how the presence of women on boards impacts several corporate outcomes, including firm performance, firm value, or dividend payouts. Nonetheless, much less is known about the potential link between female presence on the board and workforce reductions (e.g., Chen & Kao, 2022), especially in family firms. The results, based on a sample of publicly listed firms (including family firms and non-family firms) in the US from 2008 to 2017, show that the participation of women on boards positively affects headcount reductions. Even though female directors may wish to protect employees¿ well-being, respect their contracts, and fulfill moral considerations towards these stakeholders, eliminating jobs may be necessary so that the board secures the organization¿s financial health in line with shareholders¿ interests. On the other hand, it is found that family ownership mitigates the positive association between female presence employment reduction at the board level and job cuts. In other words, female directors¿ impact on enacting employment reduction practices depends on the interests of the dominant owner of the firm (family owner), who appoint them to the board. Women will likely be motivated to pursue goals that fulfill their roles within meaningful relationships (Cross et al., 2011). Therefore, they are expected to build a close relationship with family owners. Females on boards are therefore found to promote caring behavior toward employees and avoid harsh measures such as dismissals to be congruent with the family owners¿ goal to preserve affective endowment. The study makes several contributions to family business literature and, more broadly, to corporate governance literature. First, the analysis offers new insights regarding why the presence of women on corporate boards may affect workforce reductions. Despite promising findings about the relationship between board gender diversity and different strategic choices such as internationalization (Ossorio, 2017) or innovation (Torchia et al., 2018), literature has not paid enough attention to examine the effect that board gender diversity may have on employment policies, which represents a strategic action markedly distinct from those explored in extant literature. This paper, therefore, extends the scope of prior research to advance the understanding of this question. Second, the study enriches the understanding of the link between female presence on boards and job cuts by including a distinct driver, namely family ownership. Although directorship is one of the highest corporate leadership positions (Adams, 2016), and previous studies have called for firms to break the glass ceiling and increase the presence of women on boards (Knippen et al., 2019), few works have attempted to explore the effects of female representation on boards in family firms (e.g., Campopiano et al., 2017). This omission in the literature must be considered in light of the fact that female directors today appear to play a much more visible role in making strategic decisions in family firms than they did some years ago (e.g., Eddleston & Sabil, 2019). In this respect, prior research has addressed the role of women directors in family firms in relation to risk-taking decisions (e.g., innovation, indebtedness) (Lopez-Delgado & Dieguez-Soto, 2020;), corporate social responsibility and social issues (Cruz et al., 2019), and financial performance (Chadwick & Dawson, 2018), among others. Nevertheless, differences in job cuts for firms with different goals are still under investigation. The results show that women on boards are more likely to enforce employment policies that protect workers in family firms in comparison to their non-family counterparts. Third, this study also contributes to research on employment decisions in family firms, whose findings are mixed (Amato et al., 2021; Sanchez-Bueno et al., 2020). While the studies noted above, generally place family ownership at the center stage in the debate on whether they are good or bad employers (Neckebrouck et al., 2018), which is taken as an invitation to offer an alternative view. Family firms frame strategic choices based on their impact on the financial and non-financial utility the owning family expects to derive from the business. The study thus argues that family ownership raises female directors¿ awareness of the dilemma surrounding labor adjustments. Employment security is, therefore, greater in family firms than in non-family firms, given the same presence of female board members, in line with the family firm¿s direction focused on non-economic goals.