Does family employment enhance MSEs performance?: Integrating socioemotional wealth and family embeddedness perspectives

https://doi.org/10.1016/j.jbusvent.2010.07.002Get rights and content

Abstract

This paper analyzes the effect of family employment on performance in micro and small enterprises (MSEs) by combining two research perspectives that, until now, have been conducted separately: the family embeddedness perspective of entrepreneurship (Aldrich and Cliff, 2003) and the socioemotional wealth (SEW) approach to family business (Gomez-Mejia et al 2007). Our integrated perspective allows us to highlight how the nature of the employment relationships in MSEs enhances the benefits derived from the socioemotional endowment associated with family labor, and reduces the opportunity costs of employing relatives. Moreover, we assert that this relationship is moderated by specific family characteristics that determine the firm's ability to preserve the SEW, while at the same time pursuing financial goals. Our results provide partial support to the enhancing role of family labour on MSEs performance: employing family members increases sales but decreases profitability as measured by ROA. This effect also results in improved performance for women-led firms and for firms that have received family funding, but impairs MSEs performance when the business is the main source of the owner´s household income.

Section snippets

Executive summary

Despite the overwhelming significance of family employment for micro and small enterprises (MSEs), studies trying to untangle its net effect on performance have found inconsistent results (Olson et al., 2003). We argue that part of this controversy reflects the traditional approach that dates to Parson's work (Parsons, 1952) to separate the kinship-oriented family from the profit-driven business. However, this notion that the family is antithetical to the functioning of the business does not

Family employment in MSEs: a family embeddedness perspective

The prevailing view about the impact of family employment on the performance of MSEs is best understood in the context of the “rational thinking” model that has dominated sociology since Parsons (Parsons, 1959, Parsons and Bales, 1955). This view argues that the pre-industrial family, defined as a large-scale kinship unit providing a mix of economic, social and political functions, changed to a more nuclear form in order to meet the functional requirements of the new industrial economy. As a

Kinship ties, SEW and the performance of MSEs

As mentioned above, research on family businesses has long stressed the unique characteristics that accompany family ties in organizations. A common thread in this literature is the notion that family membership provides the firm not only with employment, but also with a set of non-economic utilities that Gómez-Mejia et al. (Gómez-Mejia et al., 2007) label “socioemotional wealth.” Recent empirical research explains how this set of non-economic utilities affects the strategic outcomes of family

The moderator effect of the nature of family embeddedness

In the previous section we combined the family embeddedness perspective with the SEW approach to argue that family employment has an overall positive impact on the performance of MSEs. By emphasizing the SEW attached to the networks that link relatives, our framework shows the advantages of kinship ties in the context of MSEs.

The framework developed so far does not allow us, however, to investigate how these kinship ties interact with the specificities of each family system to derive

Sample and methodology

Data for our study are drawn from a national survey on SMEs conducted via personal interviews in the Dominican Republic. Originally developed through a grant from the U. S. Agency for International Development and continued with funding from multiple institutions, including the Inter-American Development Bank and the World Bank, this survey constitutes one of the most important efforts to examine the effects of MSEs on the Dominican economy. The survey was first conducted in 1992, and the data

Results

Table 1 shows descriptive and bivariate correlations between the main variables of the study. As is typical for studies on micro enterprises (Chell and Baines, 1998) and in line with previous research on MSEs in the Dominican Republic (Espinal and Grasmuck, 1997), firms in our study are managed in general by adults in their 40s with low levels of formal education. The economic importance of the micro enterprise sector is confirmed by the fact that, despite their small size (almost three

Discussion and conclusions

Research on family involvement in businesses appears to be caught in a jungle of competing theories about the relationship between family involvement and firm performance (Rutherford et al., 2008). The involvement of family members as employees offers a good illustration of this theoretical conversation because it has been depicted as both detrimental and beneficial for firm success.

In order to reconcile both views, our paper adopts an integrated framework that combines the family embeddedness

Acknowledgments

Financial support from the Spanish Ministry of Science and Innovation (grant # ECO2008-05384-E and grant # ECO2009-10891/ECON) is gratefully acknowledged.

References (152)

  • M. Lerner et al.

    Israeli women entrepreneurs: an examination of factors affecting performance

    Journal of Business Venturing

    (1997)
  • L.G. Love et al.

    Explicitly articulated strategy and firm performance under alternative levels of centralization

    Journal of Management

    (2002)
  • P.D. Olson et al.

    The impact of the family and the business on family business sustainability

    Journal of Business Venturing

    (2003)
  • L. Adkins

    Gendered Work

    (1995)
  • H. Aldrich et al.

    Even dwarfs started small

    Research in Organizational Behavior

    (1986)
  • H.E. Aldrich et al.

    Human resource management and organizational life cycles

  • R.C. Anderson et al.

    Founding-family ownership, corporate diversification, and firm leverage

    The Journal of Law and Economics

    (2003)
  • J.-L. Arregle et al.

    The development of organizational social capital: attributes of family firms

    Journal of Management Studies

    (2007)
  • B.E. Ashforth et al.

    All in a day's work: boundaries and micro role transitions

    The Academy of Management Review

    (2000)
  • J.H. Astrachan et al.

    A neglected factor explaining family business success: human resource practices

    Family Business Review

    (1994)
  • S. Baines et al.

    Reinventing traditional solutions: job creation, gender and the microbusiness household

    Work, Employment & Society

    (1998)
  • M.F. Belenky et al.

    Women's ways of knowing: The development of self, voice, and mind

    (1986)
  • A. Berle et al.

    The Modern Corporation and Private Property

    (1932)
  • P. Berrone et al.

    Socioemotional wealth and organizational response to institutional pressures: do family controlled firms pollute less?

    Administrative Science Quarterly

    (2010)
  • D. Besanko et al.

    The Economics of Strategy

    (1996)
  • P. Blau

    A formal theory of differentiation in organizations

    American Sociological Review

    (1970)
  • P.M. Blau et al.

    Formal Organizations

    (1962)
  • J.S. Boles

    Influences of work–family conflict on job satisfaction, life satisfaction and quitting intentions among business owners: the case of family-operated businesses

    Family Business Review

    (1996)
  • J. Brüderl et al.

    Survival chances of newly founded business organizations

    American Sociological Review

    (1992)
  • R. Chaganti

    Management in women-owned enterprises

    Journal of Small Business Management

    (1986)
  • R. Chaganti et al.

    A study of the impacts of gender on business performance and management patterns in small businesses

    Entrepreneurship Theory & Practice

    (1996)
  • E. Chell et al.

    Does gender affect business ‘performance’? A study of microbusinesses in business services in the UK

    Entrepreneurship & Regional Development

    (1998)
  • N.C. Churchill et al.

    The five stages of small business growth

    Harvard Business Review

    (1983)
  • J.E. Cliff et al.

    Walking the Talk? Gendered Rhetoric vs. Action in Small firms

    Organization Studies

    (2005)
  • Coleman, J. S. (1988). American Journal of Sociology. Social capital in the creation of human capital, Special...
  • J.S. Coleman

    Foundations of Social Theory

    (1990)
  • A. Cooper et al.

    Survival and Failure: A Longitudinal Study

  • C. Cruz et al.

    Perceptions of benevolence and the design of agency contracts: CEO–TMT relationships in family firms

    Academy of Management Journal

    (2010)
  • J. Curran et al.

    Employment and Employment Relations in the Small Service Sector Enterprise

    (1993)
  • S.M. Danes et al.

    Women's role involvement in family business, business tensions and business success

    Family Business Review

    (2003)
  • S.M. Danes et al.

    Cash flow problems within family businesses

  • P.S. Davis et al.

    The phenomenon of substantive conflict in the family firm: a cross generational study

    Journal of Small Business Management

    (2001)
  • G.G. Dess et al.

    Measuring organizational performance in the absence of objective measures: the case of the privately-held firm and conglomerate business unit

    Strategic Management Journal

    (1984)
  • I.D.R. Dreux

    Financing family businesses: alternatives to selling out or going public

    Family Business Review

    (1990)
  • J.W.G. Dyer et al.

    Entrepreneurship and family business: exploring the connections

    Entrepreneurship: Theory & Practice

    (1994)
  • C.J. Edlund

    Humanizing organizational systems: learning from leadership styles

    (1992)
  • R. Espinal et al.

    Gender, households and informal entrepreneurship in the Dominican Republic

    Journal of Comparative Family Studies

    (1997)
  • E.F. Fama et al.

    Separation of ownership and control

    Journal of Law and Economics

    (1983)
  • A.C. Folker

    Family dynamics in women owned firms: a qualitative study

  • C. Galve-Górriz et al.

    Ownership structure and firm performance: Some empirical evidence from Spain

    Managerial and Decision Economics

    (1996)
  • Cited by (246)

    • Exploring different configurations of entrepreneurial orientation in small artisan family firms: A multi-case study

      2023, Journal of Family Business Strategy
      Citation Excerpt :

      Strong family ties, for example, produce effects on family firms’ EO by influencing access to financial resources (Sieger & Minola, 2017), generating nonfinancial obligations (Arregle et al., 2015), such as reciprocity, a sense of duty and moral burden (Kohli & Kuenemund, 2003), and individual entrepreneurial intentions (Hahn et al., 2021; Matthews, Hechavarria, & Schenkel, 2012). At the same time, the nature of family embeddedness determines the likelihood and degree of conflict (Le Breton-Miller & Miller, 2009), such as between protecting socioemotional wealth and attaining financial goals (Cruz, Justo et al., 2012). Moreover, family embeddedness puts the family at the core of the analysis, jointly considering the family lifecycle, family roles, family values, socially-generated expectations deriving from social and family norms, EO, and entrepreneurship (Aldrich, Brumana, Campopiano, & Minola, 2021).

    View all citing articles on Scopus
    1

    Tel.: + 34 917452415; fax: + 34 917454769.

    View full text