The Growth Behavior of Family Firms

Firm growth has long been a topic of special interest to the research community in organization theory and strategy literature (Davidsson & Wiklund, 2013; Greve, 2008; Shepherd & Wiklund, 2009; Stenholm, 2011). But what exactly is meant by the construct of firm growth? According to Combs et al. (2005), growth constitutes one of the dimensions of organizational performance. More explicitly, they claim that a firm’s performance can be “dimensionalized into accounting returns, stock market, and growth measures” (Combs et al., 2005, p. 259).

Attempting to explain the observed variations in family firm growth, I aim to first develop a general understanding of the potential origins of variations in firm growth (both among FBs and between FBs and NFBs). To do so, a closer examination of the complex relationship between family ownership and firm growth is required. Building on the suggestions of Carney and associates, I consider a firm’s strategic choices to be a central factor mediating this relationship. Since the vital influence of this kind of choices on growth performance is also confirmed by the general management literature, they form the central focus of this investigation. In a first step, based on these insights, a dedicated conceptual framework that centers on the processes that underlie the formation of strategic growth decisions was developed. Combining the relevant insights and components of two well established and renowned theories in the field of growth research, the upper echelon theory (UET) and the theory of planned behavior (TPB), it constitutes: a model of individual growth intentions and their respective influence on strategic choices concerning firm growth. Through its explicit focus on chief executive officers (CEOs) as the central unit of analysis, this model represents a general theoretical framework that indicates how the strategic growth decisions of organizations are shaped by their respective chief executives. In a subsequent step, this framework was applied to the specific context of FBs (i.e., FBs versus other FBs and versus NFBs). Overall, the propositions developed in this regard indicate that depending on the idiosyncrasies of the respective CEO in charge – more precisely his individual growth intentions and degree of managerial discretion – there might be variations in the strategic choices regarding firm growth, both among FBs, and between FBs and NFBs. The theoretical contributions of this first part of my dissertation and avenues for future research are discussed.

Before moving on to the empirical part of this dissertation, this chapter outlines the process of data collection that was employed for constructing the data sample that serves as a basis for the two empirical investigations presented in chapters 4 and 5 (Sect. 3.1). Additionally, as both of the empirical investigations are most suitably analyzed by utilizing the statistical method of structural equation modeling (SEM), this approach and its justification in the present context are described in Sect. 3.2.

To date, no conclusive picture has been established with regard to the direction of the influence of family ownership on firm growth. This study uses the phenomenon of FB heterogeneity to explain the variations in family firms’ growth performance found across studies in the field of FB research. Specifically, it seeks to examine how top executives’ membership in the FB owner-family, as a key source of FB heterogeneity, influences FB growth. For this purpose, the conceptual framework developed in chapter 2 was adapted to incorporate executives’ family membership as the main independent and firm growth as the main dependent variable, and empirically tested on a sample of 401 top executives in German FBs. The results show that heterogeneity factors, such as executives’ family membership, have a significant impact on family firm growth and thus contribute to explaining the variations in growth among FBs. In line with the two base theories of the final empirical model, the upper echelon theory (UET) and the theory of planned behavior (TPB), this impact is of an indirect nature, because it is transmitted via the executive’s growth intentions and their underlying determinants. In particular, executives’ family membership has a negative effect on his subjective norms and a positive effect on his perceived behavioral control concerning the family firm’s growth. The final impact on an executive’s growth intentions and hence the family firm’s actual growth performance, however, is slightly negative. Implications of these findings and avenues for future research are discussed.

Despite the advances made in the previous chapters of this work, additional research is needed to better understand the variability in firm growth among FBs. Building on the insights generated by the preceding empirical investigation, this final study explicitly focuses on the highly influential group of family members that hold a position in the firm’s management and/or supervisory board, and their motivational differences concerning the organization’s growth. Specifically, it aims to examine how the varying level of family involvement inherent in a particular family firm (i.e., the FB’s heterogeneity), influences the immediate determinants of family decision makers’ growth intentions, and hence causes the firm’s growth performance to tend in a certain direction. The impact of the two heterogeneity factors that have been chosen to represent the owner-family’s involvement (i.e., the family’s respective degree of power via their extent of ownership, management and governance involvement, and the FB’s generational stage), and the one heterogeneity factor that was selected to represent the family decision maker’s personal level of involvement (i.e., his personal share holdings in the FB), was empirically tested on a sample of 352 family decision makers in German FBs. For this purpose, the empirical framework developed in chapter 4, was slightly modified concerning its independent variable components. Overall, the results indicate that the FB’s heterogeneity emerging from the respective extent and mode of family involvement in the firm has a significant impact on its growth performance. In line with the preceding theoretical elaborations and empirical findings of this dissertation, this influence was confirmed to be of an indirect nature, transmitted via the decision maker’s growth intentions and their immediate determinants. While the influence is negative for both of the owner-family involvement components, it is positive for the personal involvement component. In total, the present findings imply that the summed impact of family involvement on family decision makers’ growth intentions, and hence the family firm’s actual growth performance, is predominantly negative. Implications of these outcomes and avenues for future research are discussed.

This final chapter concludes the present dissertation. For this purpose, it offers a concluding discussion that summarizes the findings of the theoretical and empirical elaborations of this work (Sect. 6.1) and highlights their theoretical (Sect. 6.2) and practical implications (Sect. 6.3). Finally, the limitations of these elaborations are discussed and avenues for future research are outlined (Sect. 6.4).