The impact of the family's role and involvement in management and governance on planning: evidence from Austrian medium-sized and large firms.

• Author: Mitter, Christine

1. INTRODUCTION

   Despite an increasing interest in research concerning family firms and the significant advancements made in this field (Sharma, 2004; Heck, Hoy, Poutziouris and Steier, 2008), there is still a significant lack of research on the state of the art of accounting, especially management accounting, in family firms (Salvato and Moores, 2010; Giovannoni, Maraghini and Ricaboni, 2011). One essential element of management accounting is planning. Planning means that a firm's manager collects data, and reflects on this data; then conceptualizes, models, and constructs alternative scenarios; finally the manager evaluates these scenarios in order to find answers to crucial questions such as the actual and desired positioning of the company (Boyd, 1991; Mazzola, Marchisio and Astrachan, 2008). Planning is an ongoing organizational process that involves several stages. First, corporate strategies or the intended/desired future organizational states ("ends") are formulated, and the resultant targets for markets, products, performance, growth, organization etc. are set; this is the process of strategic planning. Then, the "means", or action plans are defined, through which organizational resources are allocated in order to attain the desired "ends". This, in turn, leads to the setting of periodical capital and operating budgets (operational planning) with ever-increasing specificity and detail (Brews and Hunt, 1999). The process also includes performance targeting and performance appraisal (Mazzola et al., 2008), and their implications for future planning.

   Lack of planning or inadequate planning is often identified as one of the causes of financial distress and firm failure in empirical studies (e.g. Lussier and Pfeifer, 2001; Perry, 2001; Lussier and Halabi, 2010). Management literature highlights the importance of planning for a firm's success (e.g. Ward, 1988; Gruber, 2007; Ghobadian, O'Regan, Thomas and Liu, 2008) and performance (e.g. Boyd, 1991; Schwenk and Schrader, 1993; Rue and Ibrahim, 1998; Brews and Hunt, 1999; Glaister, Dincer, Tatoglu, Demirbag and Zaim, 2008; Brinkmann, Grichnik and Kapsa, 2010; Frezatti, Aguiar, Guerreiro and Gouvea, 2011). Formal planning and control systems are considered helpful to cope with the more complex external environment as well as the challenges of family business continuity (Gnan and Songini, 2003). While interest in the planning process began in the late 1960s, an extensive body of literature has focused on large firms (Ibrahim, Angelidis and Parsa, 2004). Planning in family firms has been represented with relative paucity in the literature (Upton, Teal and Felan, 2001; Ibrahim, Angelidis and Parsa, 2008). Due to certain particularities of family firms such as the reciprocal relationship between family and firm (Stafford, Duncan, Dane and Winter, 1999), the different goals and orientations (Jorissen, Laveren, Martens and Reheul, 2001; Duller, 2010) as well as their specific governance systems (Jaskiewicz and Klein, 2007; Klein, 2009), one can assume there are unique planning features in family firms. The role and involvement of the family in management and governance is expected to further influence the choice of planning mechanisms and the way planning is implemented in family firms. However, planning practices in family firms, as well as the influence a family firm's management, its supervisory and advisory board has on planning are notable examples of subject-matter that have been scarcely researched (Ibrahim et al., 2008). This leads to the following research questions:

   --Are there significant differences between operational planning practices and/or strategic planning in family and non-family firms?

   --Are there significant differences concerning planning between firms with external managers and firms with owner-managers?

   --Does the existence of a board (supervisory board, advisory board) influence planning practices?

   Our study of planning practices in Austrian family firms contributes to extant literature in several ways: First, while the number of studies focusing on planning in small businesses (e.g. Schwenk and Schrader, 1993; Rue and Ibrahim, 1998; Ibrahim et al., 2004) or entrepreneurial ventures (Gruber, 2007; Brinkmann et al., 2010) is increasing, planning in family firms remains--with a few exceptions aside (Rue and Ibrahim, 1996, Jorissen et al., 2001; Upton et al., 2001; Blumentritt, 2006; Mazzola et al., 2008)--an underresearched subject-matter. Therefore, our survey provides a deeper understanding of planning practices in family firms, as suggested by Ibrahim et al. (2008). Secondly, prior research has primarily focused on succession planning and strategic planning (Upton et al., 2001; Blumentritt, 2006; Mazzola et al., 2008). Our study, in contrast, analyzes operational planning in-depth. Moreover, by examining the impact of non-family managers on strategic and operational planning, our paper tackles the relatively neglected subject of non-family executives (Blumentritt, Keyt and Astrachan, 2007; Klein and Bell, 2007). Finally, since investigations of the relationship between boards and planning are scarce (Blumentritt, 2006), our paper addresses this research gap by examining the influence that supervisory as well as advisory boards have on planning practices (third research question).

   The remainder of the paper proceeds as follows. In the second part an overview is provided of various theories of family firms that form our theoretical framework. Based on these theories, hypotheses are formulated with regard to differences in planning between family and non-family firms as well as the influence of non-family managers and boards on planning practices in family businesses. Part three describes the sample and methodologies used. Next, the results of our empirical study are presented and discussed. The paper concludes with a summary of our findings, the contributions and limitations of our study and possible avenues for future research.

2. THEORETICAL BACKGROUND AND HYPOTHESES DEVELOPMENT

   2.1 Theoretical perspectives

   In order to analyze planning practices in family firms and the impact of non-family executives, supervisory and advisory boards on planning, several theoretical perspectives can be used. In the following, three theories that serve as our primary theoretical frameworks will be presented briefly as well as our justification for choosing these theories. How these theories lead to our hypotheses and are linked to the research gaps we are addressing will be shown in chapter 2.2.

   Contingency theory (e.g. Burns and Stalker, 1961; Lawrence and Lorsch, 1967), which explores the effect of several contingency factors on a target variable, serves as the primary theoretical basis for our study as it has a long tradition in the study of management accounting systems (Luft and Shields, 2003; Chenhall, 2007). In our study we control for manager affiliation (family or non-family member), existence of a supervisory and advisory board, size of the firm, and whether it is a family firm or not, using these variables as contingency factors.

   However, recent international research on contingency theory, e.g. the study conducted by Chenhall in 2003, regards it as having limited relevance for explaining management accounting questions, and instead demands an approach consisting of integrated theories. Therefore, to further explore the family influence on planning, agency theory and stewardship theory are used as applicable frameworks, as these two theoretical perspectives provide a broader and complementary framework to explore family firm ownership and management (Lee and O'Neill, 2003; Salvato and Moores, 2010).

   Analyses of corporate governance are often based on agency theory (Jensen and Meckling, 1976; Shleifer and Vishny, 1997). This theory rests on the homo oeconomicus view of man, which postulates that the goal of all people is the short-term opportunistic maximization of their own utility. Agency theory analyzes interactions between at least two contract partners, the principal and the agent, in which the agent performs actions which are delegated by the principal, and assumes that the principal's access to information is limited, and that the principal cannot monitor the agent's actions completely and without cost. Owing to this information asymmetry and the divergent interests of the principle and agent, agency costs arise. Extant literature is inconclusive on whether agency costs in family firms are lower due to a certain degree of overlap between the family and the business (Anderson and Reeb, 2003; Le Breton-Miller and Miller, 2009) or whether they are even higher because of family conflict (between active and passive family members, between majority and minority owners and between the various generations) and due to the difficulties in the implementation of relational contracts (Gomez-Mejia and Nickel-Nunez, 2001; Schulze, Lubatkin, Dino and Buchholtz, 2001; Lubatkin, Schulze, Ling and Dino, 2005).

   The stewardship theory (Davis, Schoorman and Donaldson, 1997) assumes a conception of man diametrically opposed to that of the homo oeconomicus. The steward is motivated to adopt the goals of the principal as his or her own and to act accordingly. Here the relationship between both actors is built on trust as opposed to the interactions between agent and principal characterized by distrust. It is assumed that such altruistic, cooperative and selfless behaviour as well as trusted relationships can be found in family firms (Schulze, Lubatkin and Dino, 2003; Le Breton-Miller and Miller, 2009; Vallejo, 2009).

   2.2 Hypotheses development

   2.2.1 Degree of formalization and detailedness of planning

   As ownership and control in non-family businesses are separated, and due to the divergent interests and the asymmetrical information between owners and managers, shareholders are forced to protect themselves from the opportunistic behavior of managers...