Familiness and its relationship with performance in Mexican family firms.

Author:Monroy, Veronica Ilian Banos
Position:Report
 
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INTRODUCTION

What makes the family business unique? How is it different from a non-family business? Specialized literature has identified several unique resources that are frequently referred to as the "familiness" of the firm (Cabrera-Suarez, De Saa-Perez, & Garcia-Almeida, 2001). Since Habbershon and Williams (1999) introduced the concept of familiness, many contributions have been made (e.g. the Resource Based View or the Social Capital approach to familiness) to advance in the understanding of the essence of family businesses. We consider that the understanding of the construct of familiness and its effects on goals, behaviors and performance of family businesses is a prerequisite for theoretical progress in family business research (Hack, 2009).

Familiness does not refer to the general influence of the family on the business but it specifically refers to the answer of the next question: "how family is a family firm?" (Rutherford, Kuratko & Holt, 2008). Habbershon and Williams (1999) define familiness "as the unique bundle of resources a particular firm has because of the systems interactions between the family, its individual members, and the business" (p. 11). Chrisman, Chua, and Litz (2003) later described the concept as "resources and capabilities related to family involvement and interactions" (p. 468). Familiness is proposed as a source of competitive advantage, generating firm wealth a nd value creation. For the purposes of this work, familiness describes the positive influence of family involvement in the firm (Pearson, et al. 2008).

In a relatively short period, familiness has become a widely acknowledged and popular construct with family business researchers (Chrisman, Chua & Steier, 2005; Habbershon and Williams 1999; Moores and Craig 2005; Nordqvist, 2005; Matz and Ireland, 2013). However, the sources and types of familiness are yet to be understood (Chrisman, Chua & Steier, 2005). The construct itself--its dimensions, antecedents, and consequences--has been left unattended in the field (Sharma & Zahra, 2004) and familiness remains a somehow ambiguous concept (Moores, 2009; Zellweger et al., 2010; Pearson et al., 2008; Rutherford et al., 2008).

Sharma (2008) suggests that the fundamental task of evaluating the construct itself--its dimensions, antecedents, and consequences--has been neglected, slowing down the theory-building aspirations of the field (cf., Zahra & Sharma, 2004). Chrisman, Chua and Sharma (2005) called for research that identifies family firms' uniqueness, focusing on how the family's involvement is a root cause of their distinctiveness. Zellweger et al. (2010) sustain that familiness is a multi-dimensional construct that needs to be better understood as it can affect the competitive advantage of family firms.

Full specification of the familiness construct remains an active area of research (Pearson et al.). For our purposes, familiness can be viewed as a continuous concept ranging from firms with very high family involvement having a strong familiness resource set (i.e., many unique family firm resources) to firms with no family involvement and thus having no familiness resources. Characterizing familiness as continuous in nature rather than strictly as a dichotomy between family and nonfamily, captures the variability of familiness as a resource across family firms (Habbershon et al.). Furthermore, this characterization helps capture the overall unique essence of family firms in line with other researchers who have employed similar concepts of family involvement, family influence, and family control (Konig et al., 2013).

It has been suggested that this uniqueness is largely a result of the idiosyncratic resources and capabilities that are generated when the family system and the business system interact and co-exist in union (Basco & Perez-Rodriguez, 2009; Nordqvist & Melin 2010; Pieper & Klein 2007). This idiosyncrasy has been labelled as familiness.

Recently some scholars, considering the dynamics of the overlapping family and business systems, proposed that organizational identity may be a key source of competitive advantage for family firms (Sundaramurthy & Kreiner, 2008: 416). Indeed, adding organizational identity to the components of involvement and essence approaches to explain family firm performance seems warranted given preliminary research by Zellweger and Kellermanns (2008) which shows that identity concerns in family firms explain a significant portion of performance variance in these firms. Moreover, departing from the components of involvement and essence approaches, Eddleston (2009) argued that a family's configuration based on family involvement explains how some family firms are particularly proficient at creating a competitive advantage. Accordingly, we perceive family business as heterogeneous and also we acknowledge that while some families can be assets to their firms and build familiness, other families could be characterized more as liabilities.

In order to understand familiness we need to identify the core dimensions that constitute the construct, otherwise it risks remaining a wide concept that lacks conceptual clarity (Lambrecht, Korainen & Sharma, 2008). Therefore, the purpose of this paper is to provide conceptual clarity by identifying the main dimensions of this family business resource.

In this article, we review the effects of familiness in the firm's performance and then we focus on three approaches to familiness. The first one is the involvement perspective mainly discussed by Zellweger, Eddleston and Kellermanns (2010). The second one is the Resource Based View, which was used to explain theoretically the distinctive competitive advantage that results from familiness. The third one is the resource dimensions that constitute the familiness construct from the Social Capital Theory. In doing so, we extend the familiness from a conceptual construct into a more measurable dimensions. Afterwards, we outline the method adopted for our research design. We next report the results and present a discussion of their implications. Finally, we conclude with limitations and suggestions for future research.

THEORETICAL BACKGROUND AND HYPOTHESIS DEVELOPMENT

Effects of Familiness in Performance

Rutherford, Kuratko and Holt (2008) documented in their meta-analysis 23 studies examining the link between performance and familiness; almost all of them published after 2000. Nine of those studies demonstrated support for a positive relationship between family involvement and firm performance, only one paper (Lauterbach & Vaninsky, 1999) found a negative relationship between "familiness" and firm performance; nine studies demonstrated neutrality. Four studies of the same sample indicated partial support for a positive relationship. Galve and Salas (1996), for example, found no difference in profitability between a sample of family and nonfamily firms, but did find that family firms are more efficient than non-family business.

Several relevant results are documented in literature, for example, Schulze et al. (2001) found that the longer the permanence of the CEO in his position, the lower the firm performance. Zahra (2003) examined the impact of "familiness" on firm performance in the international arena, and found that "familiness" was associated with significantly higher performance, measured by percentage of international sales. Olson et al. (2003) looked at 673 family businesses and found partial support for "familiness" and performance. They also found that multigeneration family businesses are associated with more revenues. Lee (2004) looked at a sample of 63 firms from the largest 150 family businesses in the United States, and found that family firms had a lower profit margin, but a higher ROA. Rutherford et al. (2006) on a sample of 934 family firms found that multigeneration family firms were associated with greater performance and also found that tension (represented by divorce rate) is associated with lower firm performance.

As we observed, the level of rigorous empirical study has greatly increased in the last ten years and the relationship between familiness and performance is gaining more relevance, even though that the familiness construct is simply not clear enough and further study of this important construct is in order. "The fact that research has not yet produced a dominant theory or conclusive evidence about how and why "familiness" is so ubiquitous and dominant, makes this field of family business interesting and exciting" (Rutherford, Kuratko & Holt, 2008: 1106).

To understand the effect of family involvement on business performance, we used in our research perceived financial performance, which was measured with a six-item scale. Participants reported the extent to which they were satisfied with three financial performance indicators; return on investment (ROI), profits and sales; and we also used three non-financial indicators: customer satisfaction, employee's satisfaction and general results.

To explain familiness we found on the reviewed literature different approaches, explaining from a very distinctive point of view the concept: the involvement approach, the Resource Based View Theory, and the Social Capital Theory. In next sections, we describe the most cited theories and at the end, we state the way we directed our research: we proposed a mix between the RBV and Social Capital to determine the main components of familiness.

Familiness: Components of Involvemet Approach

This approach considers the family's involvement in three different dimensions: ownership, management and control (Chrisman et al, 2005). This approach supports the theory in which family involvement in the three dimensions is a sufficient condition that can classify any business as a family business and therefore assume the existence of familiness (Pearson et al., 2008). Supporters of this theory also believe that the mere existence of a family within...

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