Windesheim University of Applied Sciences/media/files/windesheim/research... · Past research has raised many interesting questions regar-ding the effect of family involvement on

Past research has raised many interesting questions regar-

ding the effect of family involvement on businesses. With the

resource-based view as the primary theoretical framework,

this dissertation looks at strategic resources in private firms

and how those resources are influenced by family involve-

ment. Furthermore, the research investigates to what extent

the development of these strategic resources have an impact

on firm performance. The focus is on the development of

tacit knowledge and social capital, as these components of

strategic resources have been identified in the literature as

elements for which family involvement may have a strong,

positive influence.

Ilse A. Matser (1969) works since

1998 as an assistant professor at the

Utrecht School of Economics of

Utrecht University. In 2007 Utrecht

University became the academic

partner of the Dutch Centre for

Family Business and Ilse became

the managing director of this expertise centre for fami-

ly firms. Ilse also has the position as Professor of Family

Business Management at Windesheim University of Applied

Sciences in Zwolle, the Netherlands. Her primary research

interests are in the field of ownership, governance and strate-

gic entrepreneurship in family firms.

Strategic Resources and Family Firm Performance

Ilse Anje Matser

Strategic Resources and Family Firm

Performance Ilse Anje M

atser

z{{{{{|HYZAYA{|{737907|

2203925_Omsl Proefschrift Family FirmDEF.indd 1 05-12-12 11:12


Strategische resources en de prestaties van familiebedrijven (met een samenvatting in het Nederlands)

Proefschrift

ter verkrijging van de graad van doctor aan de Universiteit Utrecht op gezag van de rector magnificus, prof.dr. G.J. van der Zwaan, ingevolge het besluit van het college voor

promoties in het openbaar te verdedigen op vrijdag 18 januari 2013 des middags te 2.30 uur

door

Ilse Anje Matser

geboren op 28 september 1969 te Veenendaal

Promotoren: Prof.dr. A. Buijs Prof.dr. R.H. Flören

Ontwerp omslag: Steven Koelemeijer Realisatie: Kerckebosch Media, Zeist ISBN: 978-90-807379-0-7 © 2012, Ilse A. Matser Alle rechten voorbehouden. Niets uit deze uitgave mag worden verveelvoudigd, opgeslagen in een geautomatiseerd gegevensbestand, of openbaar gemaakt, in enige vorm of op enige wijze, hetzij elektronisch, mechanisch, door fotokopieën, opname of enige andere manier, zonder voorafgaande schriftelijke toestemming van de uitgever. Voor zover het maken van kopieën uit deze uitgave is toegestaan op grond van artikel 16b Auteurswet 1912 juncto het Besluit van 20 juni 1974, Stb. 351, zoals gewijzigd bij Besluit van 23 augustus 1985, Stb. 471 en artikel 17 Auteurswet 1912, dient men de daarvoor wettelijk verschuldigde vergoedingen te voldoen aan de Publicatie- en Reproductierechten Organisatie (Postbus 3060, 2130 KB Hoofddorp). Voor het overnemen van (een) gedeelte(n) uit deze uitgave in bloemlezingen, readers en andere compilatiewerken (artikel 16 Auteurswet 1912) dient men zich tot de uitgever te wenden.

Voor mijn ouders Anje en Piet Matser

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Acknowledgments Welcome to the world of family business! In 2011, the Family Firm Institute (FFI), an international organization for family business advisors and researchers, celebrated its twenty-fifth anniversary. Its short history illustrates the fact that family business research is a relatively new field of research. For many years, the general opinion among scholars has been that family involvement is limited to a temporary phase in the life cycle of a business. In general, it has been assumed that as firms grow, the need for external capital and professional management leads to changes in management and ownership, resulting in a more dispersed group of owners and an external CEO (Flören, 2004). However, the growing number of centers and programs devoted to the study of family business at universities worldwide and the wide variety of international academic conferences on the topic (Astrachan, 2010) attest to the importance of family business as a separate field of research. Other evidence suggests this as well. In 2011, the Family Business Review ranked among the top 20 business journals in Thomas Reuters’ Journal Citation Report (FFI, 2011). Furthermore, the number of submissions to Family Business Review grew from 32 in 2004 to 232 in 2010 (FFI, 2011). In 2010, two new academic journals were launched in this field: the Journal of Family Business Strategy and the Journal of Family Business Management. In addition, Astrachan (2010) identifies a significant increase in the number of articles dealing with family businesses in mainstream journals. Public authorities have also shown an increasing interest in the topic. For instance, the European Commission has formulated in an official statement that family firms differ from SMEs and that they deserve more specific attention (European Commission, 2009). Despite the growing acknowledgement of the importance of family business research, many business management students do not appear to come into contact with the peculiarities of family business management during their studies. When I studied business administration at Vrije Universiteit in the early 1990s, the topic of family businesses was not mentioned at all. As a result, certain courses, such as “strategic management,” “leadership,” and “organizational development” hardly connected with my own experience and background in a second-generation family business active in the designer furniture sector. When I was a child, my family and I lived in an apartment above our store. We often discussed customers at the dinner table and the family business has always been an integral part of our lives, in good and in bad times. I worked for our family company for a short period at the start of my career. Recently, my brother has taken over the business from my parents. My personal background, in fact, has inspired me to initiate the research that has resulted in the dissertation presented here. My position as a lecturer in business management at Utrecht University combined with my experience in the family business led me to the conviction that the topic of family businesses deserves a more prominent place in business curricula. As a visiting professor at Nelson

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Mandela Metropolitan University, South Africa, I became acquainted with Elmarie Venter and Shelley Farrington, both of whom are family business scholars. That exchange stay motivated me to take my first steps towards research with regard to family businesses. When I started reviewing articles and books in this field, I began to notice the plentitude of research topics to explore. What interested me most is the notion that family firms have specific characteristics that can make them very successful in what they do, while other factors can have a negative or even devastating effect on their performance. This is particularly important if the firms’ owner-managers are ignorant of the existence of these positive or negative characteristics, or if they neglect to manage them. I am confident that new insights stemming from an increase in research related to family businesses will prove a welcome contribution to current theoretical and practical understanding of business management. There is a need to increase our understanding of the drivers that influence family firms, which in turn will help owners of family businesses to optimally manage the influence of the family effect. Ideally, the positive effects could be leveraged and the negative effects should be minimized in such a way that the positive effects can dominate. Writing this dissertation has been a challenging journey with many ups and downs. It has brought me into contact with many interesting people and places, I learned a lot about doing research and the subject itself proved to be a source of motivation to continue. The biggest challenge I faced during this journey is the lack of time to perform in my role as the managing director of the Dutch Centre for Family Firms (CFB) and professor at Windesheim, while trying to make my deadlines with regard to this dissertation. The support I received from family, friends and colleagues has been of great help to keep making progress, however small, and make it to the end. First, I wish to thank my supervisors Arie Buijs and Roberto Flören. Arie, since that ‘braai’ at the guest house of the Mountain Zebra National Park in South Africa where we decided that I should write this dissertation you have been a great support for me. Besides being a great supervisor for the past years you gave me the confidence I needed, the most valuable thing to succeed. Roberto, as the expert of family business in the Netherlands, I am very thankful for your guidance, feedback and support. You have the ability to give ‘small notes of advice’ that are very true and very helpful. Second, I am grateful to the members of the reading committee, Tineke Bahlmann, Johan Lambrecht, Sascha Kraus, Enno Masurel and Elmarie Venter, for reading and commenting on this thesis. Third, doing research meant making long hours in my study but also working together with fellow researchers and colleagues. Working together with Lorraine Uhlaner, Marta Berent, Judith van Helvert, Shelley Farrington, Elmarie Venter, Sascha Kraus, Stefan Mark and Coen Rigtering has not only improved the content of this dissertation but we have also had a great deal of fun. I’m looking forward to continue to work together with you.

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I would also like to thank the support I got from the CFB, its board members and its partners. As managing director of a centre that has a mission to increase the knowledge on family firms, the centre has given me a lot of opportunities that were beneficial for this dissertation. I am indebted to many colleagues who supported me during this journey. I am indebted to my colleagues at UCEME in Utrecht during the start of my dissertation and later those at Windesheim in Zwolle. Especially in this final year, my colleagues in Zwolle helped me out so I had more time to finish my dissertation. Thank you for this. Judith van Helvert and Evelyn Groot Bruinderink, thank you for being willing to act as my ‘paranimphs’, assisting me in the defense. Judith at work and Evelyn at home helped me were they could. Evelyn, you contributed also by making sure that there was also time for having fun. Judith, we were colleagues in Utrecht and now at Zwolle and at the centre. It’s always great to work with you, I think we are the best team ever. Finally, I would like to thank my parents, Anje and Piet, my children Louise and Hugo and my husband Steven. Thank you for all your love.

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Table of contents Acknowledgments……………………………………………………………………….. List of Tables……………………………………………………………………………. List of Figures …………………………………………………………………………… 1: Family involvement, strategic resources, and firm performance: An introduction…... 1.1 Introduction.............................................…………………………………………..... 1.2 The three-circle model: family firms as a subgroup of privately owned firms……... 1.3 The family factor’s influence on the business: theoretical concepts………………..

1.3.1 Bivalent characteristics ……………………………………………………. 1.3.2 Familiness…………………………………………………………………. 1.3.3 Management of strategic resources………………………………………..

1.4 Existing research findings…………………………………………………………… 1.5 Research question, framework, definitions and Dutch context……………………..

1.5.1 Research question and research framework………………………………. 1.5.2 Defining the family firm…………………………………………………... 1.5.3 Family firms in the Netherlands………………………………….............. 1.6 Dissertation overview.....................................................................................

2: Ownership social capital in privately held firms: the role of family involvement........ 2.1 Introduction................................................................................................................ 2.2 Background on ownership social capital ................................................................... 2.3 Research framework and hypotheses.........................................................................

2.3.1 Direct relations among components of ownership social capital................ 2.3.2 Complex relations among components of ownership social capital............

2.4 Method........................................................................................................................ 2.5 Results......................................................................................................................... 2.6 Discussion and conclusion.......................................................................................... 3: The relationship between ownership social capital and product innovation: The moderating role of family involvement.............................................................................. 3.1 Introduction.................................................................................................................. 3.2 Background on product innovation and the role of (family) owners........................... 3.3 Research framework and hypotheses........................................................................... 3.4 Method......................................................................................................................... 3.5 Results.......................................................................................................................... 3.6 Discussion and conclusion.......................................................................................... 4: The relationship between spousal social capital in copreneurial firms and firm performance...................................................................................................................... 4.1 Introduction................................................................................................................. 4.2 Spousal social capital: background and hypotheses....................................................

4.2.1 The copreneurial relationship as a strategic resource................................... 4.2.2 Three dimensions of spousal social capital..................................................

4.3 Method........................................................................................................................ 4.3.1 Sample and data collection...........................................................................

i vi vi 1 1 2 4 4 6 8 9

17 17 19 21 23 25 25 27 29 29 32 33 36 44

47 47 48 50 56 57 64 69

69 71 71 72 78 78

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4.3.2 Variables....................................................................................................... 4.4 Results.........................................................................................................................

4.4.1 Factor analysis.............................................................................................. 4.4.2 Descriptive statistics and correlations.......................................................... 4.4.4 Structural model............................................................................................

4.5 Discussion and conclusion........................................................................................... 5: Securing post-succession continuity in family firms through knowledge transfer........ 5.1 Introduction.................................................................................................................. 5.2 Research framework and hypotheses...........................................................................

5.2.1 Post-succession continuity............................................................................ 5.2.2 The knowledge transfer climate.................................................................... 5.2.3 Moderator: Is the successor a family member?............................................

5.3 Method......................................................................................................................... 5.4 Results.......................................................................................................................... 5.5 Discussion and conclusion........................................................................................... 6: Conclusions and implications........................................................................................ 6.1 Research findings......................................................................................................... 6.2 Overall conclusions...................................................................................................... 6.3 Theoretical implications.............................................................................................. 6.4 Limitations and directions for future research............................................................. 6.5 Practical implications................................................................................................... Summary............................................................................................................................. Samenvatting (in Dutch).................................................................................................... References......................................................................................................................... Curriculum Vitae.............................................................................................................

80 82 82 83 84 85 89 89 90 90 92 96 97 99

102 105 105 107 110 114 116 119 125 133 149

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List of Tables

Table 1.1: Social capital research in major management and family business journals…. Table 1.2: Empirical trends in social capital studies of private firms…………………… Table 1.3: Family business in relation to all businesses in the Netherlands…………….. Table 1.4: Representation in business sectors…………………………………………… Table 1.5: Number of owners per business in the Netherlands…………………………. Table 1.6: Dissertation overview………………………………………………………… Table 2.1: Factor analysis of multi-item variables included in the study………………... Table 2.2: Correlations between variables used in the study…………………………….. Table 2.3: Prediction of ownership social capital………………………………………... Table 3.1: Factor analysis of multi-item variables included in the study………………... Table 3.2: Correlations between variables used in the study……………………………. Table 3.3: Prediction of product innovation……………………………………………... Table 4.1: Overview of sample characteristics…………………………………………... Table 4.2: Average variance extracted and shared variance estimates…………………... Table 4.3: Means, standard deviations, and zero-order correlations …………………….. Table 5.1: Possible factors influencing the knowledge-management process…………... Table 5.2: Descriptive statistics and correlation matrix…………………………………. Table 5.3: Predicting profit growth……………………………………………………… Table 6.1: Summary of research findings……………………………………………….

12 13 21 22 22 24 38 39 41 59 60 61 80 83 84 94 99

100 106

List of Figures

Figure 1.1:The three-circle model………………………………………………………. Figure 1.2: Matrix of family and business dimensions…………………………………. Figure 1.3: Möbius strip…………………………………………………………………. Figure 1.4: Research framework………………………………………………………… Figure 2.1: Research framework including direct effects……………………………….. Figure 2.2: Interaction term shared vision and quality of relationships………………… Figure 2.3: Interaction term shared vision and family involvement......………………… Figure 3.1: Model of ownership social capital and product innovation………………… Figure 3.2 Interaction term family involvement and network mobilization ……………. Figure 4.1 Research framework………………………………………………………… Figure 4.2 Structural model…………………………………………………………….. Figure 5.1 Interaction term family succession and knowledge transfer climate……….. Figure 6.1 Research framework………………………………………………………… Figure 6.2 Adjusted research framework………………………………………………..

3 8 9

18 29 42 43 56 62 78 85

101 105 109

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1: Family involvement, strategic resources, and firm performance: An introduction

1.1 Introduction

Past research has raised many interesting questions regarding the effect of family involvement on businesses. With the resource-based view as the primary theoretical framework, this dissertation looks at strategic resources in private firms and how those resources are influenced by family involvement. Furthermore, the research investigates to what extent the development of these strategic resources have an impact on firm performance. The focus is on the development of tacit knowledge and social capital, as these components of strategic resources have been identified in the literature as elements for which family involvement may have a strong, positive influence. In this chapter, the outline of this dissertation and underlying themes are presented. Section 1.2 introduces the distinctive characteristics of family firms, making use of the core concept of family business research: the three-circle model. Section 1.3 explores the distinctive characteristics of family firms using the concept of bivalent characteristics. Resource-based theory is introduced as a theoretical framework that may be appropriate for the dynamics of family businesses. Furthermore, the unique challenge that family businesses face is introduced – the need to manage the interests of the family and the business in such a way that their overlap results in synergies. Section 1.4 highlights several gaps in the existing empirical research. This leads to the main research question and research framework, which are formulated in section 1.5, where the quest for finding suitable definitions for family businesses is explored and an overview of the prevalence of family firms in the Dutch economy is provided. The final section provides an outline of this thesis.

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1.2 The three-circle model: family firms as a subgroup of privately owned

firms

The business landscape in the Netherlands consists of a rich mixture of firms with an emerging focus on entrepreneurship (EIM, 2011). Most companies are privately held: the owner or owners are private persons whose shares are not traded on a public stock exchange. The objectives of privately held firms are to remain viable and healthy, and, if possible, create growth. From the owners’ perspective, the firm’s main priority is to meet the owners’ values, goals, and needs. Key for an understanding of the dynamics of privately owned firms is recognition of the fact that the interests of owners and the firm are not always compatible. When business owners and the managers who run the business are not the same, the two parties might face a conflict of interest (Tutelman & Hause, 2008). However, even if the business is managed by a sole owner, a distinction can be made between interests as an owner and those as a manager. Tutelman and Hause (2008) stress that it is important to balance these various interests to ensure the long-term continuity of the business. Family firms are a subgroup of privately owned firms. Within the entrepreneurship literature there is a growing interest for the unique challenges this subgroup is facing (Kraus, Craig, Dibrell and Märk, 2012). The family system is as relevant as the business and the ownership systems. In family firms, these three systems interact with each other, making the balancing act even more complex. The family firm can be regarded as an open-system model comprising three overlapping, interacting, and interdependent subsystems of owners, family, and managers (Moores, 2008). This view builds on the “systems approach” to organization (Morgan, 1986): The main principle of the system approach is that organizations, like organisms, are open to their environment and in order to survive must achieve an appropriate relation with that environment. A focus of the open-systems approach is that organizations can be defined in terms of interrelated subsystems. The notion of family firms as organizations consisting of three subsystems, was introduced by Tagiuri and Davis in 1982 (reprinted in 1996) and is known as the three-circle model (see Figure 1.1). This view has largely been accepted by the community of family business scholars as the key symbolic generalization of the prevailing family business paradigm (Moores, 2008). In the three-circle model, the overlap of the three systems indicates that individuals have up to three roles simultaneously. A family member who stands at the “core” of the system is a family member, an owner, and a manager of the business. With each role comes different obligations, interests, and goals. As a family member, the prime concern is the welfare and the harmony of the family. As an owner, the focus is on ensuring stable returns on investments and the continuity of the firm. As a manager, the primary interest is the firms “operational effectiveness” (Tagiuri & Davis, 1996). These varying interests explain the potential conflicts among roles in family businesses.

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Figure 1.1: The three-circle model

Source: Tagiuri & Davis, 1996 Flören (2004) highlights the difference between family and non-family firms in terms of the openness of the systems. In non-family firms, conflicts at home or at work typically remain in their own environments, while the same is not true for family firms. If, for example, two sisters who co-own and run a family firm argue about the strategic course for the firm, the dispute will have consequences in the family sphere. Such spillover effects can be found in various dimensions of family firms, including finances, work-life balance, and risk perceptions. Another aspect incorporated into the three-circle model is the dynamic nature of the family business system. Individuals’ roles and positions may change during the life cycle stages of the individuals, the family, and the business as a whole (Hoy & Sharma, 2010). One such change could be the spouse of the founder joining the business when the workload increases (Steier, 2007). At a later stage, children may join the family firm, first as employees and later as owners. In the succession phase, parents and their children may work together. Later, when parents retire as managers, they might stay involved in the firm as owners. If this evolutionary succession path is followed, family business systems can become increasingly large and complex in later generations. A family business can evolve, for example, from a founder-managed company to a sibling partnership in the second generation and to a cousin-linked consortium in the third generation (e.g., Gersick, Lansberg, Desjardins & Dunn, 1999). This evolutionary path may prove impossible or undesirable for many family firms, for instance when the business does not have the growth potential to financially support a growing number of family members; undesirable when owners’ visions diverge, family members are uninterested or incompetent, or family members or family branches begin to compete (Lambrecht & Lievens, 2008). These signals can be interpreted as indications that it is time to “prune” the family tree, which ensures that the remaining family owners and managers are the same people, or that the shareholders are concentrated in a single family branch. Lambrecht and Lievens (2008) discuss the principle of keeping the management or ownership of a business within a small group of family members. They argue that pruning the family tree can potentially enhance family business continuity and family harmony. One

Family

Business Ownership

Each individual directly involved in the business can be placed in one of seven sectors: 1- a family member who is neither an owner nor an employee; 2- an employee who is neither a family member nor an owner; 3- an owner who is neither a family member nor an employee; 4- a family member who is also an owner but not an employee; 5- a family member who is also an employee but not an owner; 6- an owner who is also an employee but not a family member; 7- a family member who is also an owner and an employee. 7

5

6

2 3

1

4

4

example of where this process has been successful is the Van Bommel shoe factory, where recently a pruning process has been completed. The ninth generation currently runs the business as a sibling partnership.

1.3 The family factor’s influence on the business: theoretical concepts

The previous section introduced the family firm as a subgroup of privately owned firms with the three-circle model as the key symbolic generalization. In this section, the effects arising from the interrelationships among the family, the business, and its owners are introduced. In this regard, the notion that the family effect on the business can lead to both positive and negative outcomes is highly relevant.

1.3.1 Bivalent characteristics

In order to study family businesses as a stand-alone discipline, it is necessary to identify theoretically founded, empirical evidence of the distinctiveness of family firms. A milestone in this regard is the research done by Anderson and Reeb (2003). The impact of that study is reflected in its high ranking on the frequently cited articles list in family business research (Chrisman, Kellermans, Kam, Chan & Liano, 2010). Anderson and Reeb compare the performance of large, publicly traded family and non-family firms in the United States. They find that family firms outperform non-family firms in specific circumstances, such as when the former have a family member as managing director. This outcome has led to more research focused on the question of why family firms outperform non-family firms. For instance, Miller and Le Breton-Miller (2005) undertook a large qualitative research project to reveal the success factors of 58 large family firms that had been successful for an extended period of time. They identify four factors that drive successful strategies: command, continuity, community, and connections. The findings of this research have been successfully tested using a sample of small, first-generation family firms (Miller, Le Breton-Miller, & Scholnick, 2008). The results of the study done by Miller et al., (2008) reflect the prediction done by Dyer (2006). He argues that within family businesses, the subgroup of clan family firms, ceteris paribus, will have the highest performance. Clan family firms are firms who are owned and managed by family members highly committed to both the success of the firm and the family. Small, first-generation family firms are the stereotype of this subgroup (Dyer, 2006). The four success factors (Miller & Le Breton-Miller, 2005) are in line with the findings presented in other influential articles focusing on the potential positive characteristics of family firms (e.g., Aldrich & Cliff, 2003; Chrisman, Chua & Sharma, 2005; Sharma, 2004). Research into the positive outcomes of family involvement for a business typically adopts a normative approach to the distinctiveness of family firms. However, too much emphasis on the positive aspects may lead to an underestimation of the potential harmful effects of family influence on a business. To fully capture the effect of family involvement on a business, all factors – both positive and negative – count.

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As early as 1982, Tagiuri and Davis (1996) acknowledged that family firms have several unique, inherent attributes, and that each of these key attributes can be a source of benefits and a source of disadvantages. Given their latent positive and negative potential, these attributes are labeled as bivalent attributes. These bivalent attributes are the immediate consequences of the overlap of the family, business, and ownership systems. Jaffe (2007) refers to this notion when he argues that the characteristics of a family business can lead to conflict or difficulties if they become extreme. Tagiuri and Davis (1996) identified seven bivalent attributes of the family firm:

• Simultaneous roles, • A lifelong common history, • Emotional involvement and ambivalence, • A private language, • Mutual awareness and privacy, • A shared identity, and • The meaning of the family company.

The bivalent attributes are mutual related and, in some cases, probably do overlap. For example, the role of the founder reflects attributes two and three – lifelong common history, and emotional involvement and ambivalence, respectively. The founder often plays a crucial role in building a successful firm, but if the founder neglects to train or create sufficient favorable conditions for a new generation to come into play, the whole business may age (Jaffe, 2007). This negative effect can be even worse when the incumbent leader is reluctant to let go and when the business culture is not innovative (“this is the way we do things around here”). The positive effect of a lifelong common history can be a deep tacit knowledge that is transferred to the next generation. In family firms, the simultaneous roles as owner and manager can explain the reduced need for governance mechanisms, as interests are aligned. This absence of significant agency costs, is seen as a competitive advantage for family firms relative to firms with dispersed ownership and external managers (Schulze, Labatkin, Dino & Buchholtz, 2001). A negative effect stemming from role overlap arises when family harmony prevents decision making in the firm. This occurs, for instance, when there is clearly one capable successor but all siblings are installed as new directors because family harmony is prioritized. Schulze et al. (2001) argue in this respect that there are specific agency costs for family firms that should be take into account. For example children in management positions can acts as free riders because they know that their parents will not discipline them. With respect to shared identity and the meaning of the family company, Sharma (2004) suggests that the alignment of goals that different stakeholders are striving to achieve is an important predictor of family firm performance. A mismatch can lead to serious conflicts that can harm the family business. A shared identity helps to align such goals.

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Jaffe (2007) describes the attribute of private language as family members having a special shorthand language – they share information quickly and therefore get things done efficiently. However, this does not imply that families know how to communicate about sensitive issues. Issues that are not discussed can develop into conflicts that can eventually make it impossible to continue to work together. Furthermore, Flören (2004) suggests that taboo subjects exist within families and, by implication, within family businesses. Such topics are left buried in order to avoid disrupting the family harmony. Another aspect relates to the phenomena of mutual awareness and privacy; family members have a keen awareness of each other’s circumstances. This gives them insights into how they can support one another. At the same time, this awareness can stimulate the feeling that one is “living in a fishbowl” – maintaining a private life outside the family business is not easy, which can make family members feel oppressed (Tagiuri & Davis, 1996). This discussion of the bivalent attributes reveals the complexity confronted by stakeholders in a family firm. In the next section, the resource-based view is introduced as a theoretical framework that can be used to analyze the distinct attributes in detail.

1.3.2 Familiness

Tagiuri and Davis (1996) suggest that family firms have unique resources that create positive and negative outcomes for the firm. This notion has more recently been referred to as the “familiness” of the firm (Sirmon & Hitt, 2003). Habbershon and Williams (1999) describe familiness as the unique bundle of resources created by the interaction of family and business that can stimulate competitive advantage. In this thesis, the resource-based view (RBV) is used as the theoretical foundation for understanding the distinctive attributes of a family firm. The theoretical assumptions of the RBV can be specified to fit the family firm context (Habbershon & Williams, 1999). The RBV is one of the most influential theoretical frameworks in the field of strategic management (Barney, Wright & Ketchen, 2001; Newbert, 2007). Wernerfelt (1984) introduced the notion that firms can be analyzed by focusing on their resources rather than their products. A resource is defined by Wernerfelt (1984, p. 172) as “anything which could be thought of as a strength or weakness of a firm.” The key objective of RBV is to establish a causal relationship between resources and a long-term competitive advantage. Barney (1991) argued that resources should have four characteristics to establish a competitive advantage. Such resources, which are labeled “strategic resources,” should be: valuable, rare, difficult to imitate, and non-substitutable. Examples include reputation, patents, and unique knowledge (Barney, 1991; Crook, Ketchen, Combs, & Todd, 2008). Barney based the RBV on two assumptions: resources are heterogeneously distributed among firms and they are imperfectly mobile. These assumptions allow for differences in firm resource endowments to exist and persist over time. Both assumptions therefore allow for resource-based competitive advantages.

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The RBV has proven its value as an appropriate theoretical framework in the field of family business research (Chrisman, Chua & Zahra, 2003). Within this framework, the competitive advantage of a firm can be discussed by referring to the firm’s underlying resources, specific strategies and skills, and thereby allows for differentiation among family firms instead of regarding the family effect as a specific advantage that is common to all family firms. Habbershon and Williams (1999) stipulate that this focus on underlying resources, specific strategies and skills is the appropriate level of analysis for assessments of family firm advantages. This is also acknowledged by Melin and Nordqvist (2007), who state that overemphasizing the similarities between family firms downplays the differences and can lead to an overly simplistic view on family firms. The RBV, therefore, is an appropriate framework for focusing on the distinctive resources of family firms and for analyzing the firms’ unique traits. Various scholars, in turn, discuss possible sources of competitive advantage among family firms (Carney, 2005: Eddleston, Kellermans & Sarathy, 2008; Habbershon & Williams, 1999; Miller & Le Breton-Miller, 2005; Miller et al., 2008; Sirmon & Hitt, 2003). Sirmon and Hitt (2003) discuss five possible family-firm-specific resources and their corresponding positive outcomes:

• Human capital is defined as the acquired knowledge, skills, and capabilities of individuals. The positive attributes related to human capital that stem from family influence include extraordinary commitment, warm relationships and the potential for deep, firm-specific tacit knowledge.

• Social capital is the goodwill or other benefits generated by various social relations (Adler & Kwon, 2002). Social capital in the family firm is based on strong network ties, shared languages and narratives, trust, norms and obligations. All of these components are embedded in the family and can lead to the development of human capital.

• Patient financial capital is capital that is invested for an extended period of time and thus carries little threat of liquidation on short notice. In this regard, the generational outlook of family members creates a focus on a long-time horizon instead of short-term results.

• Survivability capital represents the pooled personal resources that family members are willing to loan, contribute, or share for the benefit of the family business. Such capital can help the firm through poor economic times.

• Governance structure is relevant in that the mutually-shared objectives, trust and family bonds found in family firms reduce more formal governance costs.

However, familiness is not always a positive characteristic. Habbershon and Williams (1999) coins the terms “distinctive familiness” and “constrictive familiness” to differentiate between the positive and negative sides of familiness. “Distinctive familiness” stands for the enhancement of family and business capital stocks that occurs as a consequence of a balanced flow of capital between these systems. On the other hand, “constrictive familiness” reflects the negative outcome caused by an excess flow of capital in one direction. Sharma (2008)

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emphasizes in this respect the need for a balance in the input and output of resources from the family to the business and vice versa. In general, the RBV emphasizes that the availability of appropriate resources is a necessary, but insufficient, condition for achieving a long-term competitive advantage. Resources must be managed in a way that leads to capabilities that make it possible to achieve a competitive advantage (Sirmon & Hitt, 2003). Therefore, the management of these strategic resources is discussed in the next section. 1.3.3 Management of strategic resources

Tagiuri and Davis (1996) suggest that the success of a business will depend on whether the bivalent characteristics are effectively managed. The effective management of these attributes should result in a positive outcome for the business dimension, as well as for the family and ownership dimensions. The idea that long-term prosperity of the family business system requires positive outcomes in both the business dimension and the family dimension is widely acknowledged (e.g., Ward, 1987; Litz, 2008; Sharma, 2004). Sharma (2004) argues that recognition of the intertwinement of family and business leads to the definition of high-performing family firms as organizations that take financial and non-financial goals into account when attempting to meet the expectations of various stakeholders, including the family, the business, and owners. Figure 1.2 depicts the performance of family firms in a matrix. The expression “warm hearts and deep pockets” stands for those family business systems that have achieved high levels of emotional and financial capital, the preferred state a the family firm. Sharma proposes that family firms can overcome low levels in one of the two dimensions in the short term. However, in the long term, family firms need to achieve positive scores in both dimensions.

Figure 1.2: Matrix of family and business dimensions

Family dimension

Bus

ines

s dim

ensi

on

Positive Negative

Posi

tive I

Warm hearts and deep pockets High financial and high emotional capital

II Pained hearts but deep pockets High financial but low emotional capital

Neg

ativ

e III Warm hearts but empty pockets Low financial but high emotional capital

IV Pained hearts and empty pockets Low financial and low emotional capital

Source: Sharma, 2004 Litz (2008) takes a somewhat broader approach by proposing that a family business system can be compared to a Möbius strip, which is a mathematical concept. A Möbius strip can be described as “a band of paper given a 180 degree twist prior to having its two ends

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connected” (see Figure 1.3, based on Litz, 2008, p. 219). In other words, each system’s output becomes another system’s input. This phenomenon occurs in family firms when cross-system transfers occur. Consider, for example, a next-generation member who becomes an employee of the family business. The family’s child and the firm’s wages are transferred across systems to become the other systems’ inputs: workforce for the firm and income for the family. Litz joins Sharma (2004) in arguing that if long-term success is to be possible, there must be synergy within the subsystems (net positive effect of the transfers within each dimension) and symmetry in the overall balance of transfers between the two subsystems. Figure 1.3: Möbius strip

Source: turbosquid.com The viewpoints discussed in this section demonstrate that family business scholars widely acknowledge the idea that family firms have distinctive characteristics that stem from the interaction of the family, business, and ownership subsystems. These characteristics are bivalent, as they carry latent positive and negative potential. Furthermore, when these characteristics have a positive effect (distinctive familiness), they can be regarded as strategic resources that lead to competitive advantage. Before the research questions for this dissertation are presented, it is necessary to understand the implications of the results from previous research on this topic. These research results are discussed in the next section.

1.4 Existing research findings

Relatively little empirical research has focused on the concept of familiness (Astrachan, 2010). Astrachan notes in this respect that “the sources from which these strategic resources emerge, the ways in which they can change over time, and the means through which they can be nurtured and preserved, are not well explored” (2010, p.8). Sirmon and Hitt (2003) identify human, social, survivability, and patient capital, as well as governance structures as possible family-firm-specific strategic resources (see section 1.3.2). More specifically, social capital and tacit knowledge, as elements of human capital, are regarded as key strategic resources for which family involvement plays an important role (e.g., Arregle, Hitt, Sirmon & Very, 2007; Cabrera-Suárez, De Saá-Pérez & Garcia-Almeida, 2001; Pearson, Carr & Shaw, 2008; Royer, Simons, Boyd & Rafferty, 2008; Sharma, 2008; Sirmon & Hitt, 2003). In

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additional, social capital theory is viewed as a promising theory for further development of the “familiness” construct (Arregle et al., 2007; Pearson et al., 2008). In order to analyze whether these proposition hold, the findings of previous empirical research on the topics of social capital and tacit knowledge are reviewed in this section. This review also helps to identify the gaps in the existing knowledge on these topics and highlights areas in need of additional research. As social capital is the core construct considered in Chapters 2, 3, and 4, the empirical findings related to social capital are bundled and discussed in this section. The empirical findings from previous research on tacit knowledge are discussed in Chapter 5. Tacit knowledge Tacit knowledge differs from explicit knowledge in that it is knowledge stored in routines, values, norms, etc., rather than in handbooks (Grant, 1991). Furthermore, actors need skills to apply tacit knowledge, which are gained through experience (Chirico, 2008), and tacit knowledge is difficult to transfer (Cabrera-Suárez et al., 2001). Therefore, Hoy and Sharma (2010) identified not only the specific knowledge of a firm but also the transferability of that knowledge as key strategic resources to manage. Research on possible hurdles in the knowledge management process reveals three main categories of barriers in the knowledge transfer process: trust; conflicts and rivalry; and social structure and networks (see Chapter 5). These findings reveal a strong link between tacit knowledge, as a component of human capital, and social capital. The transfer of tacit knowledge appears to be one of the potential positive outcomes of social capital (Zahra, Hayton, Neubaum, Dibrell & Craig, 2008). Furthermore, the transfer of tacit knowledge during business transfer is a topic attracting considerable interest (Zahra, Neubaum & Larranetta, 2007). The theoretical construct of the tacit knowledge climate (Cabrera-Suárez et al., 2001) therefore seems to be an appropriate construct to test among family and non-family firms. Social capital Social capital is a concept that can be studied at multiple levels. In this dissertation, the focus is on the group level: owner groups in private firms and copreneurs. Lee’s review (2009) and Payne, Moore, Griffis, and Autry’s (2010) systematic analysis of social capital in the management domain are the starting points of this review. Payne et al. (2010) analyze social capital research in 14 major management journals. These journals were selected because they had previously been used in similar management reviews. As the focus of this dissertation is on private firms, especially family firms, Payne et al.’s (2010) analysis is extended to include key journals within the field of family business research that are not among the selected management journals. This is done on the basis of the list of journals used by Debicki, Matherne III, Kellermans, and Chrisman (2009) in their analysis of the contributions in the family business research field. This leads to the inclusion of eight additional journals that featured three or more family business articles between 2001

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and 2007 (the review period used by Debicki et al., 2009). The Journal of Family Business Strategy, a journal launched in 2010 with a specific focus on family business research, is also included. Payne et al. (2011) distinguish between conceptual and empirical papers. They also use a typology to distinguish between the individual or collective level and an internal or an external focus. This framework leads to a two by two matrix. Every article is labeled using these criteria. In this dissertation, the focus is on the empirical findings at the group level. Therefore, the articles included are those labeled as “collective” and “empirical” in Payne et al.’s (2011) gross list. These articles are covered in column two of Table 1.1. Payne’s time frame ranges from 1989 to 2008. Therefore, this review extends the time frame to include 2009, 2010, and 2011. For these years, the selected journals were searched for articles in which social capital was the core construct. The results were limited to articles in which “social capital” was used as a key work or in the abstract. The numbers of articles that were found in this manner in the various journals are given in column four of Table 1.1. The same procedure was followed for the nine additional journals. For this group, the search covered the period from 1998 to 2011. These results are shown in column four in the lower part of the table. The next step was to filter these findings based on the criteria that reflected the focus of this dissertation: empirical research with a quantitative approach, a context of private firms in a for-profit sector, and the group level as the level of analysis. The numbers of articles that met these criteria are given in columns three and five. Column three covers the articles in Payne et al.’s (2011) review that met these criteria, while column five covers the articles published in the additional years by the journals reviewed by Payne et al. and those published in the additional journals from 1998 to 2011.

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Table 1.1: Social capital research in major management and family business journals, 1998-2011 Journals reviewed by Payne et al. (2011) Review period 1998-2008 Met criteria 2009-2011 Met criteria Academy of Management Journal 11 3 0 0 Academy of Management Review 0 0 0 0 Administrative Science Quarterly 3 1 0 0 Entrepreneurship Theory & Practice 0 0 11 2 Journal of Business Venturing 1 0 7 1 Journal of Management 0 0 2 0 Journal of Management Studies 4 1 1 0 Journal of Organizational Behavior 2 0 1 0 Management Science 2 0 2 0 Organization Science 4 0 3 0 Strategic Management Journal 8 2 3 1 Journal of Applied Psychology 0 0 3 0 Personnel Psychology 0 0 0 0 Organizational Behavior & Human Decision Processes 0 0 0 0 Total number of articles from Payne’s et al. review 35 7 33 4 Additional journals based on review by Debicki et al. (2009) Review period 1998-2011 Met criteria Corporate Governance 9 0 Family Business Review 4 2 International Small Business Journal 10 3 Journal of Business Research 10 1 Journal of Small Business Management 9 3 Organization Studies 7 1 Small Business Economics 18 3 New family business journal launched in 2010 Journal of Family Business Strategy 4 1 Total number of articles from additional journals 71 22 The analysis of Payne et al.’s (2011) review highlights the Academy of Management Journal and Strategic Management Journal as key contributors with roughly half of the total empirical articles on social capital. In 2009-2011, Entrepreneurship Theory & Practice paid a lot of attention to social capital (11 articles). From 2009 to 2011, 33 articles were published on this topic in comparison to a total of 35 articles in the previous ten years. These figures indicate that the construct of social capital and, more specifically, empirical studies of this construct at a collective level are viewed as increasingly relevant. The relatively large number of articles from the additional journal list can be viewed as a signal that the social capital theory is seen as relevant within the fields of family businesses, and small and medium sized enterprises. A comparison of the figures from column three and five to the total for all selected articles shows that only one-fifth of all articles met the specific criteria of quantitative research within private firms at the group level. Overall, while the figures in Table 1.1 reflect the growing interest in social capital theory, they also emphasize that relatively little attention has been paid to quantitative research at the group level. The key findings from the individual papers are discussed in Table 1.2.

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Table 1.2: Empirical trends in social capital studies of private firms Study Journal1

Sample Key constructs of social capital Key findings on social capital

Aartsad et al. (2010) ETP

Hydroelectric micro-power start-ups (Norway)

Dyadic social capital measured with network structure

Results indicate that firms lacking social capital can enhance performance through cohesion with firms rich in social capital. Entrepreneurs can benefit by mimicking the networking patterns of successful colleagues.

Acquaah (2007) SMJ

CEOs of medium and large firms (Ghana)

Three types of networking: firms, government, and community; firms: buyers, suppliers, and competitors

Social capital developed from managerial networking and social relationships with top managers at other firms, government officials (political leaders and bureaucratic officials), and community leaders enhances organizational performance.

Audretsch et al. (2011) ISBJ

Participants in a new venture workshop, (US)

Mobilization of contacts (structural dimension)

Positive relationships are found for groups with pre-existing professional interactions for founding a firm after the workshop (= accelerator).

Berent-Braun & Uhlaner (2012) SBE

Non-random group of FB (18 countries)

Owner focus on shared wealth Owner focus on shared wealth acts as a mediating variable for the relationship between family governance practices and the financial performance of the family business.

Bamford et al. (2006) JSBM

New ventures in bank sector (US)

Size of top management team (TMT), exit of founder/ CEO

The exit of the founder/CEO has negative impact on performance. The size of the top management team has a moderating effect.

Brewton et al. (2010) JFBS

Small and medium-sized family firms (US)

Adjustment strategies, family-to-business intermingling, way of life

The set of social capital variables contributes significantly to the explanation of firm resilience for rural, but not urban, firms. Of note is the negative relationship between firm resilience and the crossover of family and firm tasks for rural firms. The lone significant social capital variable for urban businesses was the meaning of the firm for the business owner.

Carr et al. (2011) ETP

Small family businesses (US)

Collective/internal social capital stemming from family members; split into structural, cognitive, and relational dimensions

Scales are developed and tested to measure internal social capital in family firms. A positive association is found with knowledge sharing, cohesion, work satisfaction, and family satisfaction, while a weak link is found with firm performance.

Chua et al. (2011) JBV

New ventures with varying levels family involvement (US)

Family involvement: ownership, governance, and management

Family involvement increases the ability to borrow family social capital. Family involvement has a positive influence on new venture debt financing.

1 AMJ = Academy of Management Journal, ETP = Entrepreneurship Theory & Practice, FBR = Family Business Review, ISBJ = International Small Business Journal, JFBS = Journal of Family Business Strategy, JBV = Journal of Business Venturing, JMS = Journal of Management Sciences, JSBM = Journal of Small Business Management, SMJ = Strategic Management Journal, SBE = Small Business Economics.

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Study Journal2

Sample Key constructs of social capital Key findings on social capital

Danes et al. (2009) FBR

Small and medium-sized family firms (US)

Family social capital (FSC): djustment strategies, family functioning, family-to-business intermingling, way of life, generation, and family/firm congruity

FSC has no short-term effect, but it has a long-term significant effect on gross revenue variance and owners’ success perceptions. Adjustment strategies have a positive effect.

Fang et al. (2010) ISBJ

CEOs or Top management team tenants of incubator program (Taiwan)

Tenant-incubator social capital: relationship, shared cognition, and incubator’s referral position

Tenants of incubation programs uniquely leverage their social capital with their incubator and, in turn, enhance their own interorganizational learning and performance.

Fitzgerald et al. (2010) JSBM

Copreneurs (US) FSC: receptivity of the family to the community, family functional integrity, and community support

Business owners’ engagement in at least one socially responsible activity is positively associated with a positive attitude about the community and a well-functioning family.

Maurer et al. (2011) OS

Project leaders in firms in machine engineering industry (Germany)

Intra-organizational social capital structural: the number of intra-organizational ties; relational: strength of ties and trust

No association is found between the structural dimension of social capital and intra-organizational knowledge transfer. There is a positive association for tie strength, while the relation between intra-organizational trust and intra-organizational knowledge transfer is insignificant.

Miller et al. (2007) ISBJ

Small business owners (family and non-family) (US)

Membership in network: years, personal friendship, activities, shared vision, continuance, resource sharing

A shared vision and high risk resource sharing among network members significantly benefit members’ businesses. Strategic networking (cooperation) has a positive impact.

Molina-Morales & Martinez - Fernández (2009) SMJ

Key-informant SMEs (Spain)

Social interaction and trust The impact of social capital decreases beyond a certain point of development. In fact, the effect of social interactions and trust on firm value creation follows an inverted U-shaped curve.

Pennings et al. (1998) AMJ

Accounting firms 1880-1990 (Netherlands)

Social capital proxy of professionals' ties to potential clients

Human and social capital strongly predict firm dissolution (source of competitive advantage). Effects depend on specificity (uniqueness) and non-appropriability (the ownership status of the capital).

Pérez-Luno et al. (2011) JBR

R&D managers in medium-firms (Spain)

Relational side of external social capital

Social capital per se exerts a weak influence on radical innovations. Social capital and the tacitness of knowledge have a positive join effect on radical innovations (SC as moderator) but no moderation with knowledge complexity.


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Study Journal3

Sample Key constructs of social capital

Key findings on social capital

Reagans et al. (2003) ASQ

Project teams of medium-sized firms

Network status: internal density and external range

Social network variables have positive effects on team performance. The use of these network criteria to build teams would improve their performance.

Samuelsson & Davidson (2009) SBE

New venture longitudinal (Sweden)

Instrumental social capital of all team members and social reinforcement

SC is relatively successful in explaining progress in the creation process for a minority of innovative ventures, but has limited success for the imitative majority. The building up of instrumental social capital is important for making progress in both types of ventures.

Sorenson et al. (2009) FBR

Small family firms (US)

Collaborative dialogue and ethical norms

Collaborative dialogue and ethical norms cultivates family social capital (FSC). FSC is positively related to firm performance.

Stam & Elfring (2008) AMJ

Founding teams, ICT sector (Netherlands)

Network centrality and bridging ties

High network centrality and extensive bridging ties strengthen the link between entrepreneurial orientation and performance. Support is found for interactive effects between internal and external social capital.

Oh et al. (2004) AMJ

Members of work groups in SMEs (Korea)

Group closure, intergroup horizontal bridging, and intergroup vertical bridging

U-shaped curvilinear relationship is found between group closure and group effectiveness. Positive relations are found with intergroup vertical bridging but not with horizontal bridging.

Uhlaner et al. (2007) SBE

Private family and non-family firms (Netherlands)

Ownership commitment, collective norms, and shared goals

The results indicate a positive association between family ownership and collective norms and goals, a positive relationship between collective norms and goals and owner commitment, and a positive relationship between owner commitment and firm performance.

Werbel & Danes (2010) JSBM

New small family businesses (US)

Spousal work-family conflict (WFC) and spousal commitment

When the spouse experiences WFC, then the spouse is likely to be a resource constraint. Spousal commitment to a new venture exacerbates this relationship.

Wu (2008) JMS

Hong Kong-based Chinese family-owned SMEs, manufacturing sector

Network ties, repeated transactions, and trust, with information sharing as mediating variable

Strong indications that the information benefit is one of the key benefits of social capital, that information sharing contributes to firm performance, and that different dimensions of social capital have different levels of influence on firm performance. Some dimensions of social capital may be necessary but insufficient for competitiveness improvement.

Yli-Renko et al. (2001) SMJ

Young firms in five high-technology sectors (UK)

Relation with major client: social interaction, customer network ties, and relationship quality

Social interaction and network ties are positively related to knowledge acquisition, but the quality of that relationship is negatively related to knowledge acquisition.

The papers included in the table reflect the variety of ways in which social capital can be measured. On the basis of the internal-external focus of social capital (Adler & Kwon, 2002),


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the papers can be divided into four categories: focus solely on the internal dimension of social capital (e.g., Bamford, Bruton & Hinson, 2006; Molina-Morales & Martinez-Perez, 2009); focus on the external dimension (e.g., Audretsch, Aldridge & Sanders, 2011, Yli-Renko, Autio & Sapienza, 2001); combination of internal and external focuses (e.g., Oh, Chung & Labianca, 2004; Wu, 2008); and focus solely on the family dimension (e.g., Danes, Stafford, Haynes & Amaraputkar, 2009; Sorenson, Goodpaster, Hedberg & Yu, 2009). The last category is ambiguous, as the family dimension is partly external and partly internal depending on the role of family members within the firm. The consequence of these different viewpoints is that the variety of key constructs to measure social capital is even greater. The empirical research that has been carried out to date has been based on constructs ranging from ethical norms, adjustment strategies, social reinforcement, and network memberships to network positions and bridging ties. Most of these constructs can be labeled as external or internal elements of social capital. Although this variety makes it difficult to draw general conclusions, some tentative propositions can be made. The majority of the papers show that social capital has a positive influence on the dependent variable, such as firm performance. However, the link between social capital and firm performance is mixed, with different papers indicating positive (Sorenson et al., 2009; Uhlaner, Flören, Geerlings, 2007), weak (Carr, Cole, Ring & Blettner, 2011), or insignificant results (Danes et al., 2009). There is also evidence that the relation with the performance variable is U-shaped curvilinear (Molina-Morales & Martinez-Perez, 2009; Oh et al., 2004). Furthermore, social capital can act as a moderator (e.g., Peréz-Luno et al., 2011) or a mediator (e.g., Berent-Braun & Uhlaner, 2012), and there is evidence that social capital is only effective in combination with other variables, such as knowledge sharing (Yli-Renko et al., 2001) or human capital (Pennings, Lee & Van Witteloostuijn, 1998). Overall, there is evidence of the potential positive effects of social capital. However, more rigorous research is needed to develop a clear picture on the impact of social capital in the context of private firms for several reasons. First, the focus on the group of owners has largely been neglected. Such a focus seems relevant, especially when the relational and cognitive aspects of social capital are investigated. Uhlaner et al.’s (2007) finding that the commitment of owners has a positive impact on firm performance can be taken as a starting point in this respect. To achieve this focus, it would be helpful to make the roles of the respondents more transparent. In some studies covered here, it is unclear whether the CEO is also a shareholder of the firm (e.g., Acquaah, 2007). Second, the influence of the family on the development of social capital needs more attention. For instance, in what specific roles do family members influence the development of social capital? Is this process different from those involving non-family owners? A third aspect that has largely been ignored is the potential value of exploring the diverse links among attributes of various dimension of social capital. Stam and Elfring (2008) find an interaction effect between internal and external social capital, which seems to offer an interesting path for exploration. Lee (2009) makes a similar statement, recommending that

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research include the structural, relational, and cognitive dimensions of social capital, and focus on how these various dimensions interact and influence each other. The review presented in this section demonstrates the need for more empirical research in the field of social capital and tacit knowledge within the context of private firms. Furthermore, it reveals specific topics of interest. With these findings in mind, the research questions for this dissertation are formulated in the next section.

1.5 Research question, framework, definitions and the Dutch context

The gaps in the extant research identified in the previous section lead to the research question for this dissertation, which is formulated in section 1.5.1. As part of this introduction to the family business research field, family businesses definition issues are discussed in section 1.5.2. The research done in this dissertation takes place in the context of Dutch private firms, with a specific focus on family firms. Therefore, some key figures on family firms in the Netherlands are presented in section 1.5.3.

1.5.1 Research question and research framework

Problem statement In the previous section, social capital and tacit knowledge were identified as key strategic resources for family firms. The review of available research results reveals many interesting questions regarding the development of these strategic resources. Against the background of the dominance of family firms in the economic landscape it seems important to gain a better understanding of how these strategic resources influence family firms. For example, do these resources stem from family involvement or are they merely influenced by family involvement? How and when do these strategic resources translate into competitive advantages? Research objectives The primary aim of this dissertation is to contribute to the understanding of how and when family involvement stimulates the development of strategic resources in privately held firms. The research focuses on social capital and on tacit knowledge as element of human capital. As stated earlier, the literature suggests that these components are potential key strategic resources for family firms. The secondary objective of this research is to understand the extent to which these strategic resources affect the added value realized by the business.

Research question

How does family involvement influence the development of components of social capital and tacit knowledge in privately held firms, and to what extent does the development of these strategic resources have an impact on firm performance?

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In order to answer the research question, the following issues must be addressed:

1. What specific components of social capital and tacit knowledge are positively or negatively influenced by family involvement?

2. Which contingency factors other than family involvement influence the development of components of social capital and tacit knowledge in privately held firms?

3. Do components of social capital and tacit knowledge have a positive impact on firm performance?

Figure 1.4 illustrates the research framework for the study of strategic resources in privately held firms on which this dissertation is based. This framework is based on the theoretical outline of a resource-based framework for assessing the strategic advantage of family firms (Habbershon & Williams, 1999). Habbershon and Williams’ framework identifies the organizational resources of family businesses and determines under which conditions they meet the criteria for creating a sustainable competitive advantage. Following this logic, resources have to result in capabilities, which in turn have to lead to competitive advantage and should result in higher performance.

Figure 1.4: Research framework

Firm characteristics, ownership characteristics, business cycle

STRATEGIC RESOURCES

SOCIAL CAPITALBonding ownership social capitalBridging ownership social capital

Spousal social capital

HUMAN CAPITALTacit knowledge transfer climate

CONTINGENCY FACTORS RELATED TO FAMILY CONTEXTFamily involvement, family successor

FIRM PERFORMANCE

Product innovation

Financial performance

Post succession continuity

CONTINGENCY FACTORS RELATED TO BUSINESS CONTEXT

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1.5.2 Defining the family firm

The three-circle model discussed in section 1.2 has become the key symbolic generalization of a family business (Moores, 2008). However, rigorous family business research also requires a clear definition. Unfortunately, this definition is still subject to an on-going debate. A consequence of this debate is that there is not one definition that is accepted by all family business scholars. It seems that it is not the distinction between a family firm and a firm that is clearly not a family firm that is difficult, the problem is more in defining the ‘grey area’ in between (Kraus, Harms & Fink, 2011). Family business scholars take different approaches in their efforts to overcome this definition dilemma. As several approaches are used to define family firms in this dissertation, it is necessary to understand the positive and negative aspects of each approach. Major definition streams among researchers include: The components-of-involvement approach: Chrisman et al. (2005) argue that family involvement in ownership, governance, and management is what makes a firm a family firm. This is consistent with the three-circle model and implies that a sound definition has to reflect these components. An example of such a definition is that formulated by Flören (2002), which has been used in various studies in the Netherlands. Firms are defined as family firms when two out of three criteria (ownership, board membership, and strategic decision making) are met. Recently, the GEEF (European Group of Owner Managed and Family Enterprises) definition has been recommended by the European Commission (2009). In order to be categorized as a “family business” according to this definition, a firm must meet the following criteria: 1) the majority of ownership (directly or indirectly) rests in the hands of a natural person and/or family; and 2) at least one representative of the family or kin is involved in the management or administration of the firm. The essence approach: Rather than capturing the components of family involvement, the core argument of this approach is that family involvement per se is not enough. Family involvement must lead to behavior that produces certain distinctiveness (Chrisman et al., 2005). Litz’s (1995) definition of family businesses is formulated in this manner. To the criterion of family influence in ownership and management, Litz (1995) adds the intentions of the family with regards to intra-organizational family-based relatedness (the intention of achieving intra-generational succession). This leads to subcategories of potential family businesses and potential non-family businesses, which reflect the dynamic element of this definition. Early attempts in this approach focused mainly on defining family firms in such a way that they could be distinguished from non-family firms. More recent attempts acknowledge that this dichotomous categorization does not reflect the variation in the degrees of family involvement (Sharma, 2004). The significant variation among family firms in the “real world”– ranging from small “mom-and-pop” shops in retail business to very large multinationals – makes it difficult to cover all of them with one definition. Chrisman et al. (2007) state that an acknowledgement of the differences within families and how these

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differences influence firm behavior can contribute to the ability to explain variations within the subgroup of family firms. Categorization in family firm typologies: Family firms can be divided into subgroups based on different characteristics. For example, Sharma’s (2002) typology identifies 72 distinct categories based on the extent of family involvement in terms of ownership and management. A less complex categorization can be based on family relationships among the owners: one owner-manager, husband and wife teams (copreneurs), sibling partnerships, and cousin consortiums. To acquire more in-depth knowledge about the family effect on the business, it seems fruitful to focus research on specific types of family firms, as such a focus makes it possible to analyze specific dynamics within each subgroup. Scales of family involvement: Shanker and Astrachan (1996) use a three-tier categorization ranging from broad (little family involvement) to middle (some family involvement) to narrow (a lot of family involvement). Another way of dealing with the varying degrees of family involvement is to work with a continuous scale, rather than a binary attribute, to assess the involvement of the family in the businesses. Such a scale makes it possible to include questions that relate to the components of the family involvement and to the essence of that involvement. They may cover family relationships between owners of the firm, whether the family has considerable influence on the business strategy, and whether the business could be described as a family business. In this dissertation, family firms are defined in various ways given the different research methods that are used in the various studies. For each study, the most appropriate definitions are chosen. In Chapter 2 and 3, family involvement is measured on a continuous scale. The scale is based on the Guttman family influence scale, which was developed by Uhlaner (2005). The use of a continuous scale instead of a binary attribute allows for a more in-depth understanding of how family involvement impacts the business. Chapter 4 is dedicated to copreneurs, an example of a specific type of family firm. In Chapter 5, the approach is to distinguish between succession of family or non-family members in family and non-family firms. The definition developed by Flören (2002) is used to distinguish between family and non-family firms, as this definition is widely used and accepted in the Netherlands. The decisions to use the various definitions and consequences for each approach are discussed in the research methods section of each study. Clearly, a consequence of the use of more than one definition is that the various outcomes are more difficult to compare. This is one of the limitations of this dissertation, as discussed in Chapter 6. However, it also leads to opportunities to compare the results with current research findings of other family business research projects.

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1.5.3 Family firms in the Netherlands

The empirical data used in this dissertation cover Dutch privately held firms. This section, therefore, provides a demographic overview of family businesses in the Netherlands. The focus on the Netherlands is welcome when the limited extant data on family business is considered (Expertgroep Familiebedrijven, 2007).4 The need for more research on family firms was one recommendation given in a report that emphasized the vital role of family businesses in the Dutch economy (Expertgroep Familiebedrijven, 2007). As a follow up to that report, the Dutch Minister of Economic Affairs initiated a research project in 2008. This study, which was undertaken by Nyenrode Business Universiteit (Flören, Uhlaner & Berent-Braun, 2010), highlights the prevalence of family firms in the Netherlands. The collected data indicate that approximately 260,000 businesses in the Netherlands can be labeled as family firms (according to the GEEF definition), which is about 69% of all businesses (excluding the self-employed). Table 1.3 provides the distribution of family businesses by company size. Table 1.3: Family businesses in relation to all incorporated businesses in the Netherlands (excluding self-employed) Employees (including director)

Companies Family businesses, % Family businesses (estimated)

2-9 304,418 72.9 221,921 10-49 58,046 56.0 32,506 50-99 6,939 49.7 3,449 100-199 3,047 44.8 1,526 200 or more 2,348 27.6 648 Total 375,158 69.3 260,050 Source: Flören et al. (2010) Notably, the idea that family businesses are only small “mom and pop shops” does not hold. Among firms with more than 50 employees, there is still a significant proportion of family businesses. Flören et al.’s (2010) study reveals some key characteristics of Dutch family firms. Some of these were discussed in Flören et al. (2010), while others could be retrieved from additional analyses of the data. Business sectors The data reveal the dominance of family firms in most business sectors with one exception: the financial services sector. The notion that almost all agricultural businesses are family business holds: 87% can be described as family firms.

4 This report was written by the Expert Group on Family Business, a group established by the Dutch National Chamber of Commerce.

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Table 1.4: Representation in business sectors Business sector Family businesses, % Agriculture/fishing 87% Manufacturing 65% Construction 69% Wholesale/retail 79% Hospitality 76% Transport and communication 77% Financial services 43% Business services 55% Other services5 86% Source: Flören et al. (2010) Firm age and generation There is no difference between the average age of the family businesses and non-family businesses. On average, the businesses included in the study have been in existence for 41 years. The data reveal that 73.4% of the family firms are in the hands of the first generation, 16.4% are run by the second generation, and 10.2% are held by the third generation or later. Number of owners and their family relations Owners play a crucial role in privately owned firms. The majority of firms can be labeled as multiple-owner private firms. The data reveal that the number of owners of family businesses is significant lower than that of non-family businesses. Almost 90% of family firms have one or two owners, while the corresponding figure for non-family firms is only 62%. Furthermore, the percentage of firms with more than 100 owners is significantly higher in non-family firms. Table 1.5: Number of owners per business in the Netherlands (excluding self-employed) Number of owners Family businesses, % Non-family businesses, % 1 47.2 20.6 2 41.9 41.4 3-10 9.2 24.4 11-50 0.6 2.3 51-100 0.5 0.1 More than 100 1.6 11.1 Source: Flören et al. (2010) Respondents were asked to describe their family business as a reflection of the family relations among owners. The typologies used stem from the evolutionary path family firms can follow (e.g., Gersick et al., 1999) and reflect the family relations between the owners. The majority (56%) describe their businesses as single-owner-managed firms. Within the 5 Other services sectors include: temporary work agencies, advertising agencies, architectural services, engineering services, law offices, economic services, detective and investigative services, and research and computer-service agencies.

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group of business-owning families, three subgroups are roughly equally present: copreneurial firms (15.7%), parents and their children (10.9%), and sibling partnerships (11.8%). Cousin consortiums are a relatively small subgroup with a proportion of only 3.4%.

1.6 Dissertation overview

The research questions are addressed in Chapters 2 to 5. In Chapter 2, family involvement is tested as an antecedent of ownership social capital to analyze whether it matters if owners also have blood ties. In Chapter 3, the relation between social capital and product innovation is theoretically and empirically explored. Chapters 2 and 3 contribute to the literature by exploring the antecedents and effects of ownership social capital. Chapters 4 and 5 take two specific situations into account. In Chapter 4, the specific context of copreneurs as an important subgroup of family firms is considered. In this group, the three circles have a relatively large overlap. The chapter investigates the meaning of this overlap for the creation of social capital and the effects of spousal social capital on the performance of copreneurs. In Chapter 5, the dynamics of the three-circle model during the succession phase are explored, as is the question of whether it matters if the family stays involved in the business after succession. The transfer of tacit knowledge between successor and incumbent, and its effect on post-succession continuity are tested. Chapter 6 presents the overall conclusions. The limitations of the research are also discussed and suggestions for future research directions are presented. Finally, implications for governments, business owners, and advisors are provided. Table 1.6 presents an overview of this dissertation.

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Table 1.6: Dissertation overview Ch Topic Research

issues Key construct Sampling method Methods of

analysis

1 Introduction

2 Antecedents of bonding and bridging ownership social capital and the influence of family involvement

1 and 3 Ownership social capital

Random stratified sample of private firms

Multiple regression analysis

3 Bonding and bridging ownership social capital and relation with product innovation

2 and 3 Ownership social capital

Random stratified sample of private firms


4 Copreneurial bonding and bridging social capital and relation with firm performance

1,2, and 3 Spousal social capital

Snowball sample of copreneurs

Structural equation modeling

5 Influence of knowledge transfer climate during succession and relation with post-succession continuity

1,2, and 3 Tacit knowledge transfer

Non-random sample of private firms


6 Conclusions, implications, limitations, and recommendations for future research

This table concludes the introduction of this dissertation. In the next chapter the first research that was undertaken to find answers for the research questions formulated in this introduction will be discussed.

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2: Ownership social capital in privately held firms: the role of family involvement6

2.1 Introduction

This study focuses on ownership social capital and how it may be influenced by the degree of family involvement in a business. Family involvement is a central topic in family business research (Chrisman et al., 2005), while social capital is included in discussions of a wide range of topics at several levels of analysis: national and regional (e.g., Putnam, 1993; Fukuyama, 1995), organizational (Leana & Van Buren, 1999), individual (Burt, 1992), and group (Oh et al., 2004). The latter includes the special case of the owning group (Berent-Braun, 2010). Regardless of the level of analysis, social capital definitions suggest that social relationships generate benefits (Adler & Kwon, 2002) and that such relationships can act as levers for other types of capital, including human, financial, emotional, and physical capital (Arregle et al., 2007a; Montemerlo & Sharma, 2010; Steier, 2007). In addition, social capital is identified as a type of asset that is firm specific but generic in its application (Gedajlovic & Carney, 2010). This implies that social capital is broadly applicable and that its effectiveness is similar for a variety of purposes. For instance, ties within a business group can provide information on business opportunities, and they can also serve as a source of financial capital and as a way of lowering transaction costs. Researchers have identified various positive consequences of social capital. For example, a direct benefit of social capital is that it offers access to information for the individual or group (Adler & Kwon, 2002). A recent meta-analysis by Westlund and Adam (2010) concludes that social capital is positively linked to the economic performance of the firm, a finding that is consistent with past research (Lee, 2009; Sorenson et al., 2009). However, empirical research that explores the possible antecedents of social capital (such as family involvement) remains limited (Sharma, 2008). The aim of this paper, therefore, is to explore such relationships, especially in the context of the owning group. The primary research question is the following: “Do differences in family involvement across private firms explain differences in the levels of ownership social capital associated with such firms?” This approach makes it possible to distinguish between family and ownership social capital. Recently, family social capital has received attention from family business scholars (Arregle et al., 2007a; Carr et al., 2011; Pearson et al., 2008; Sorenson et al., 2009). These studies identify the family social network and the interrelationships among family members as antecedents of the creation of organizational social capital that have positive outcomes for firm performance. As this research focuses on family as a source of social capital and tests these propositions only in family businesses, scholars do not allow for the possibility that it is not family per se but rather the owning group that serves as the source of social capital. This 6 This chapter is based on the paper by Matser, Uhlaner, Berent-Braun, and Flören (2011), which was presented at the 7th Workshop on Family Business Management, May 2011, Witten, Germany. Winner of the best paper award.

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study fills this gap by separating the role of owners from the role of family in creating social capital within the context of private firms. Scholars identify two types of social capital (Adler & Kwon, 2002; Lin, 1999). Bonding social capital focuses on internal ties within a collective, while bridging social capital refers to direct and indirect external links with actors beyond the immediate collective (Sharma, 2008). The present research examines the relationship between family involvement and both the bonding and bridging forms of social capital. The hypotheses are tested using data from a large-scale quantitative research study of Dutch private firms carried out in 2009. The sample used for the current study encompasses 708 privately held small and medium-sized firms with multiple owners. This chapter makes three key contributions to the literature. First, it enhances the general understanding of the concept of ownership social capital and its possible antecedents, especially family involvement, as well as other characteristics of company and ownership structures. Second, the focus on owners makes it possible to distinguish between ownership and family as the source of social capital. This helps improve the understanding of the concept of social capital not only within the family business context but also for the wider field of private firms held by a group of owners. Third, it provides insights into the interrelationships between bonding and bridging social capital in the context of the owning group, as well as some information on whether these interrelationships serve as potential sources of synergy or have a negative overall effect. Therefore, this paper contributes not only to the field of family business research but also to the wider field of research on social capital. The next section provides a short overview of the relevant literature on social capital and a more detailed explanation of the concept of ownership social capital. It is followed by a presentation of the framework and the rationale for the hypotheses. The method section describes the sample, data collection, variables, and data analysis, while the final sections present the results, discussion, and conclusions.

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2.2 Background on ownership social capital

Business owners are a social group distinguished from other social entities in the firm by their possession of ownership rights in the company (Berent-Braun & Uhlaner, 2010). As an ownership group is a set of two or more business owners, ownership social capital (e.g., Berent-Braun, 2010) can be seen as a type of group social capital. Given the general definition of social capital proposed by Nahapiet and Ghoshal (1998), ownership social capital can be defined as the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by the business owners. Although some aspects of ownership social capital are rooted in earlier research on organizational social capital (Leana & Van Buren, 1999), group social capital (Oh et al., 2004), family social capital (Arregle et al., 2007; Danes et al., 2009), and relational governance (Mustakallio, Autio & Zahra, 2002), the notion of ownership social capital was first introduced by Uhlaner (2008) and further elaborated upon by Berent-Braun (2010). Social capital scholars have repeatedly noted that when social capital is being considered, both bonding and bridging aspects are important (e.g., Adler & Kwon, 2002; Lin, 1999; Payne et al., 2011; Sharma, 2008). Yet, the vast majority of the extant empirical research examines either the role of bridging social capital or the role of bonding social capital in isolation. The bridging aspects of social capital include networking with external partners to access information and resources (e.g., Elfring & Hulsink, 2007; Uzzi, 1997). In contrast, bonding social capital maintains and preserves the group, and is defined and/or measured as trust, collective goal orientation, or stewardship (Davis, Schoorman, & Donaldson, 1997) in the organizational (Leana & Van Buren, 1999) and family social capital literature (e.g., Arregle et al., 2007a). Nahapiet and Ghoshal (1998) highlighted three distinct dimensions within social capital that are now widely accepted (e.g., Carr et al., 2011; Maurer, Bartsch & Ebers, 2011; Pearson et al., 2008): the structural, relational, and cognitive dimensions. The structural dimension of social capital reflects the configuration of networks that link a social unit’s members to each other (internal network) or to outside individuals and units (external network) (Nahapiet & Ghoshal,1998). The structural dimension includes such facets as network ties, configuration, and appropriable organization (Nahapiet & Ghoshal, 1998). An important feature of the network is “appropriable social organization” (Coleman, 1988; Hazleton & Kennan, 2000), which is the ability of networks or organizations that are formed for one purpose to be utilized for other purposes (Hazleton & Kennan, 2000). This aspect is emphasized in the family business literature. Sorenson et al. (2009) indicate “collaborative dialogue” and “ethical norms” as inputs from the family sphere that lead to the development of family social capital. Arregle et al. (2007a) discuss the building of organizational social capital through family social capital. In this study, family involvement is the focal element of the structural dimension of social capital because family involvement influences the nature and type of relationships among members of the business owning group.

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Most studies on social capital in the family business literature focus on bonding aspects of social capital (e.g., Mustakallio et al., 2002; Montemerlo & Sharma, 2011; Uhlaner et al., 2007). In particular, the relational and cognitive dimensions of bonding social capital are the elements on which family factors are expected to have a potential positive effect. The relational dimension refers to those assets created and leveraged through relationships. Key aspects are trust and trustworthiness, norms and sanctions, obligations and expectations, and identity and identification (Nahapiet & Ghoshal, 1998). The cognitive dimension refers to those resources providing shared representations, interpretations, and systems of meaning among a collective (Nahapiet & Ghoshal, 1998). In line with studies of organizational social capital (Leana & Van Buren, 1999) and family social capital (Mustakallio et al., 2002), as well as more recent research on ownership social capital (Berent-Braun, 2010), the cognitive and relational dimensions of bonding ownership social capital are included in this study as the shared vision (or collective goal orientation of the owners), and the quality of relationships among the members of the owning group (reflected in such elements as trust, cooperation, cohesiveness, and team spirit). Gedajlovic and Carney (2010) argue that family firms have a relatively good starting position from which to develop, sustain, and appropriate value from bridging social capital. Therefore, elements of bridging ownership social capital are also included in the research framework. Bridging ownership social capital refers to the relationships owning group members have with external networks and other resources that can benefit the owning group as well as the company. To investigate how bonding ownership social capital and bridging ownership social capital interact, Lin’s (1999) model of social capital is useful. Lin’s model highlights the causal sequence from investments in social capital towards returns on social capital. A crucial step in the process of realizing a positive return is the mobilization of the accessible components of social capital. In this study, the focus in relation to bridging ownership social capital is on precisely this aspect namely, network mobilization. In line with Lin’s model (1999) the various elements of ownership social capital are depicted in Figure 2.1. The hypothesized relationships are discussed in the next section.

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Figure 2.1: Research framework including direct effects

Quality of relationshipsamong owning group

Shared visionamong owning group

Network mobilization

of owning group

Bonding ownership social capital Bridging ownership social capital

Family involvement

H1

H2 H3

H4

H5

H6

H7

H8

Control variablesCompany size, sector , age of business, expansion, number of owners, ownership-management overlap, board of directors

2.3 Research framework and hypotheses

2.3.1 Direct relations among components of ownership social capital

Family involvement as an antecedent of elements of ownership social capital

The first two hypotheses suggest that family involvement and cognitive and relational elements of bonding ownership social capital are positively associated with each other. In this regard, scholars have described the potential positive influence of the family on the development of organizational social capital (Arregle et al., 2007a; Gedaljovic & Carney, 2010; Montemerlo & Sharma, 2011; Pearson et al., 2008; Salvato & Melin, 2008; Sharma, 2008; Sorenson et al., 2009). For example, the overlap between the family system and the business system creates an opportunity to build a strong organizational identity. A shared organizational identity, in turn, will have a positive influence on the development of organizational social capital (Arregle et al., 2007a). In addition, the related concept of ownership commitment has frequently been cited as a strength of the family-owned firm (Uhlaner et al., 2007). Uhlaner et al. (2007) use social identity theory to argue that owner commitment and shared collective norms may be stronger in a family owning group. This commitment is not necessarily attributable to altruistic motives, as implied by stewardship

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theory, but results from a stronger need to be affiliated with the “in” group associated with the owning group, on the one hand, and the family on the other. Membership within the “in” group leads to greater sense of self-worth and social esteem (Ellemers, 2001; Uhlaner et al., 2007). In a mixed sample of family and non-family firms, Uhlaner et al. (2007) find that family ownership strongly predicts the presence of collective goals relative to individual goals. The current study examines a specific aspect of collective goals that focuses inward toward the firm—a shared vision of the firm’s objectives. All else equal, the mechanisms of social identity and the drive to be accepted by the “in” group may be expected to lead to a higher level of shared vision among members of a family owning group. A key aspect of the relational dimension of bonding ownership social capital refers to developing a high level of trust within the owning group. Pearson et al. (2008) argue that the family context helps in the development of high-quality relationships. Their argument is based on the fact that owners have obligations to both the family and the business, and that this creates an environment that stimulates collective action. Similarly, Carr et al. (2011, p. 1211) state that “the relational dimension of internal social capital represents the norms of obligations, trust and a level of family and firm identity that can exist within family firms and that are not easily developed in non-family firm situations.” Therefore, greater cooperation and cohesiveness is expected in owning groups when there is a family linkage among the business owning group. In sum, the proposition is that family involvement has a positive effect on the development of elements of bonding ownership social capital. More specifically: Hypothesis 1: Family involvement is positively associated with the quality of relationships among members of the owning group. Hypothesis 2: Family involvement is positively associated with a shared vision among members of the owning group. The rationale for the relationship between family involvement in the business and bridging ownership social capital contrasts with the rationale for the relationship between family involvement and bonding elements of ownership social capital. Bridging requires the development and mobilization of resources outside the owning group. In this regard, past research proposes that family firms are typically introverted rather than extroverted (De Lema & Durendez, 2007). This suggests that family members often look inward, rather than outward, when searching for social contacts beneficial to the firm. Arregle et al. (2007a) argue that the self-sufficiency that often characterizes family firms increases their dependency on (internal) family members and simultaneously reduces their dependency on external resources. For instance, the decision to keep the business in the family can lead owners to favor family members and, as a consequence, fail to retain competent employees or to attract competent people from outside the firm. Therefore, the closeness of a family, which stimulates the development of bonding social capital, may have the opposite effect on bridging capital, leading to an inward-looking attitude among the business owners. Along

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these lines, McFayden and Cannella Jr. (2004) suggest that given the maintenance costs of social capital, bridging and bonding social capital are mutually exclusive to some extent. Thus, if family business owners rely heavily on “their own people,” they might begin to believe that they do not need help, information, or advice from “outsiders.” As a result, they may miss valuable resources that reside in those outside contacts. Strong solidarity within the family, which increases bonding social capital, may lead to over-embeddedness within the ownership group, resulting in group think and passivity (Adler & Kwon, 2002; Zahra, 2010). These observations lead us to suggest: Hypothesis 3: Family involvement is negatively associated with the owning group’s network mobilization.

Relationships between elements of bonding ownership social capital and bridging ownership

social capital

As mentioned in the introduction, most empirical studies on social capital focus specifically on either bridging social capital or bonding social capital. By combining external and internal aspects of social capital, this study offers some insights into how these distinct aspects interact. These insights, in turn, shed light on the complexity of the social capital concept. Hypotheses 4 and 5 suggest that elements of bonding ownership social capital influence the mobilization of bridging ownership social capital. Lin’s (1999) model of social capital and Adler and Kwon‘s (2002) opportunity-motivation-ability framework are useful for exploring this possible relationship. Lin’s (1999) model of social capital contains building blocks highlighting the causal sequence from investments to returns on social capital. A crucial step in the realization of social capital is the process of social capital mobilization – the way an individual is enabled or disabled to mobilize such capital. Lin’s (1999) model emphasizes that individuals take action to enhance the mobilization of resources. Shared vision and good relations among the members of a business-owning group can act as a catalyst for the mobilization of potential social capital. This relates to the opportunity-motivation-ability framework developed by Adler and Kwon (2002), which states that aspects of both bonding and bridging social capital must be present for social capital to be activated. In terms of the business-owning group, this implies that although weak ties (Granovetter, 1992) can be a valuable resource, owners must be motivated to use their networks to help the firm. Adler and Kwon (2002) argue that such motivation stems from bonding social capital, as it reflects deeply internalized norms and a feeling of a shared destiny. In line with Lin (1999) and Adler and Kwon (2002), components of bonding social capital are argued to be a condition for the mobilization of bridging social capital. When there is a shared vision and trust within a group, the individuals within that group will be inclined to mobilize and use their resources for the benefit of the company. Furthermore, because bonding social capital maintains the closeness of the group, it ensures that any resources

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owners bring in from the outside will be utilized within the context of the firm. To summarize: Hypothesis 4: The quality of relationships is positively associated with the mobilization of the owners’ network. Hypothesis 5: A shared vision is positively associated with the mobilization of the owners’ network.

2.3.2 Complex relations among components of ownership social capital

Whereas McFayden and Cannella Jr. (2004) argue that bridging and bonding social capital are mutually exclusive to some extent, other scholars suggest the opposite (e.g., Miller, Besser & Malshe, 2007; Reagans & McEvily, 2003; Stam & Elfring, 2008). Even within bonding and bridging dimensions of social capital, various components could potentially interact with each other. For instance, how does a shared vision among owners affect the quality of the relationships among those owners? Thus far, little empirical research has centered on the interactions among the structural, cognitive, and relational dimensions of social capital (Lee, 2009). Long’s (2011) theoretical framework on family social capital development can serve as a starting point for a more in-depth investigation of the potential interactions. Long (2011) applies social exchange theory to the development of social capital, which leads to a multilevel, iterative model. The starting point is the “relations which are ontologically prior to structure and shared cognition and necessary for the development of the latter” (Long, 2011, p. 1231). Repeated exchanges among group members contribute to the development of a shared vision and group cohesion. These developments also serve as a reference for future exchanges among group members, making the development of social capital a multi-loop event. In line with this argumentation, good relationships among owners, in combination with a shared vision, can be expected to provide an extra stimulus for the mobilization of bridging ownership social capital. Therefore: Hypothesis 6: The positive relationship between the shared vision among owners and the mobilization of the owners’ network will be stronger in firms with a higher quality of relationship among owners. In this study, the potential moderating effects of family involvement on the relationship between bonding elements and bridging social capital is investigated further. The level of family involvement is viewed as a key element of the structural dimension of social capital. The direct effects of family involvement on bonding and bridging elements of ownership social capital are hypothesized as mixed, with a positive effect on bonding and a negative effect on bridging. Arregle et al. (2007a) propose that the development conditions in families (such as closure and interdependency), in combination with the overlap of the family and business systems, lead to a potential to develop social capital in the firm that stems from

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social capital within the family. This proposition, which is supported by empirical findings presented by Carr et al. (2011), Danes et al., (2009) and Sorenson et al. (2009), relates to the aspect of “appropriable social organization” (the ability to utilize a network for another purpose than its original intention; Hazleton & Kennan, 2000) discussed earlier in this chapter. Here the proposition is that the network that is formed within the family will be used for the benefit of the firm. Therefore, family involvement in a business should have a positive effect on the relation between bonding and bridging elements of ownership social capital. These observations lead to the following: Hypothesis 7: The relationship between the quality of relationships among owners and the mobilization of the owners’ network is stronger for firms with high family involvement than for firms with low family involvement. Hypothesis 8: The relationship between a shared vision among owners and the mobilization of the owners’ network is stronger for firms with high family involvement than for firms with low family involvement.

2.4 Method

Sample and data collection

The empirical analysis was conducted using a random sample of Dutch private businesses (excluding self-employed) registered with the Dutch Chamber of Commerce. The sample was stratified according to sector and size. The sample represents all sectors of the Dutch economy in correct proportions to the entire population of Dutch businesses. The size classes were based on the number of employees (including the director) as follows: 2-9, 10-49, 50-99, 100-199, and 200 or more. In order to ensure an appropriate number of companies in each size class, the larger companies were overrepresented relative to the distribution within the general population. In addition, 31 firms that were members of the Family Business Network Netherlands were approached in order to collect data from family firms with larger groups of family owners. The data was collected in May and June 2009 by means of telephone interviews with the primary directors of the companies in question. In each case, a key informant approach was adopted, which is an accepted approach for such studies (Kumar, Stern & Anderson, 1993; Uhlaner et al., 2007). Of the 3,563 firms originally contacted, 1,500 agreed to participate, resulting in a response rate of 42.1%. Of these 1,500 firms, 937 reported having two or more individual owners and were thus administered the more detailed survey7, which included questions on ownership social capital. As the study focuses on social capital within a group of owners, the sample was restricted to firms with between 2 and 20 owners. Firms with more than 20 owners might be viewed as firms with a more dispersed ownership and thus the respondent may have less knowledge of how the owners function as a group. Another 7 The Dutch questionnaire is available from the author upon request ([email protected]).

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restriction was made with regard to the size of the firm. In the present analysis, only firms with less than 500 employees were included. This was done to make the sample more homogeneous by leaving out the large firms. The 500 employee cut-off is chosen because it is a measurement used to define small and medium-sized enterprises8. 781 of the 937 firms met the parameters of 2 to 20 owners, and up to 500 employees. Due to missing data for some of these questions, a final data set of 708 cases was used for the analyses.

Variables

Unless otherwise stated, all variables were measured as the mean score of the responses to the statements. The individual items were measured on a five-point Likert scale where 1 = strongly disagree and 5 = strongly agree (unless otherwise indicated). Components of bonding ownership social capital were measured using three variables: family involvement (reflecting the relevant structural dimension of ownership social capital, as the focus is on potential family influence), shared vision of the owners (representing the cognitive dimension of ownership social capital), and quality of relationships among the owners (representing the relational dimension of ownership social capital). Unfortunately, there is no consensus among scholars regarding how best to operationalize family involvement (e.g., Chrisman et al., 2005; O’Boyle Jr., Pollack & Rutherford, 2012). In this study, family involvement was measured on a continuous scale instead of dichotomizing the sample into family and non-family groups. The development of this variable is in line with the approach used in recent studies (Klein, Astrachan, & Smyrnios, 2005; Uhlaner, 2005) and stems from the idea that family firms are not homogenous. Shanker and Astrachan (1996) argue that family firms can be categorized from broad to narrow, with narrow subsets fitting within broader subsets. Such a cumulative scale can be produced using the Guttman scaling technique tested by Uhlaner (2005). The items used by Uhlaner (2005) are utilized, to some extent, in this study, although some adjustments had to be made because the items in the current survey did not perfectly match the items used by Uhlaner (2005). Family involvement (Cronbach’s alpha = .70) was measured by asking the respondents to indicate whether there was a family relation among the owners of the company, whether one family had considerable influence on the business strategy, and whether the business had been owned by the same family for two or more generations. All of these questions were measured as binary variables, where 1 = yes and 0 = no. The final question related to the number of directors that were related to the owners. All answers indicating two or more directors were coded 1, while all other answers were coded 0. The variable was measured as the sum of the answers to all four questions. The score reflects family involvement and can vary from 0 (no family involvement) to 4 (highest family involvement).

8 The US Small Business Administration defines small and medium sized firms (SME) as firms with fewer than 500 employees. This is a broader definition than de European SME definition which defines firms with fewer than 250 employees as a SME. Since it is expected that especially in larger medium sized firms there will be firms with more than one owner, the decision has been made to use the US SME definition.

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Shared vision (Cronbach’s alpha = .70) was measured by asking respondents about the extent to which they agreed or disagreed with the following statements: “The owners share the same vision about the business,” “The owners try to pull this company in opposite directions” (reverse scored), “The owners agree about the key objectives of the business,” and “The owners are committed to managing wealth as a group rather than as individuals.” The first three items are based on Mustakallio et al.’s (2002) shared vision scale. The last item was added to test the extent of a shared ownership strategy among the group of owners and was created for this study. Quality of relationships (Cronbach’s alpha = .93) was measured by asking respondents about the extent to which they agreed or disagreed with the following statements: “The owners of this business tend to trust one another,” “The owners are open and honest with one another,” “The owners have good cooperative relationships,” and “The owners work together as a team.” The items are taken from Morris and Williams’ (1996) study and adapted to the context of the ownership group as a whole rather than just family members. Network mobilization (Cronbach’s alpha = .80) was measured by asking respondents to indicate the extent to which they agreed or disagreed with the following statements: “The owners of this business speak enthusiastically about the business with people outside the business” (adjusted from Allen and Meyer, 1990), “The owners help to expand the business’s network by making outside contacts,” and “The owners help to seek out or create new opportunities for the firm” (adjusted from Vilaseca, 2002). The control variables used in this study include a range of variables characterizing both the business and the ownership structure. Company size was measured as the number of employees in the firm. Company age was measured as the number of years between the establishment of the business and 2009. As the distributions of company age and company size were skewed, the variables were calculated as the natural logarithms of the original values. Expansion, which reflects the stage of the business lifecycle, was measured as a dummy variable where 1 = expansion and 0 = other stages of the lifecycle, including start-up, maturity, or decline. Sector was the final variable used to characterize the business. All companies included in the sample were classified in one of five sectors depending on their industrial classification code: manufacturing, construction, retail, agriculture, or services (including hospitality, transport, financial services, business services, and other services), with a dummy variable created for each category (1 = yes, 0 = no). Ownership structure characteristics were measured using three variables. In order to measure the number of owners, respondents were asked to state the number of individual owners. To offset the skewed distribution, each value was converted into the natural logarithm. Board of directors9 was a dummy variable coded 1 given the presence of a board and 0 otherwise.

9 The Netherlands has a two-tiered governance structure, which means that many firms have a board of directors in addition to the top management team. The board plays a supervisory role. However, as a board of directors is

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Finally, ownership-management overlap was measured as the percentage of managers that were also owners.

Data Analysis

When creating the scales, several standard statistical analyses were used, including factor analysis, inter-item correlations, and reliability tests. To ensure that common method bias was not a problem, a Harman’s single-factor test was applied (Podsakoff & Organ, 1986) and the factor loadings for multi-item scales within the same factor analysis were reviewed. Variance inflation factors (VIF) were controlled to check for multicollinearity among the predictor variables. The hypotheses were tested using hierarchical multiple regression analyses. The direct effects of the independent variables were tested by assessing the two-tailed significance of their contributions to explaining the dependent variable. A bootstrap test was used to estimate the mediation effect (Preacher & Hayes, 2008). This procedure, which involves repeatedly sampling from the dataset to estimate the indirect effects and building an empirical approximation of the sampling distribution, is more exact and has more statistical power than those based on a normal distribution (e.g., Sobel test) (Holiday Wayne & Casper, 2012). The analyses were performed using SPSS with Preacher and Hayes’s INDIRECT.SPS Macro (www.quantpsy.com).

2.5 Results

Development of Scales

Table 2.1 presents the results of the principal component factor analysis with orthogonal rotation for the ownership social capital and family involvement variables. All items clearly load on one of four distinct factors with the relevant factor loading surpassing .62 in each instance. The unintended factor loadings, which are not shown in the table, are not higher than .41. The largest factor in the unrotated factor analysis explains 35.73% of the variance, which allows us to conclude that the variables are independent and that common method bias is not a concern in the present study. The Cronbach alphas are also satisfactory, ranging from .70 to .93 (see Table 2.1).

Descriptive Statistics and Bivariate Statistics

Table 2.2 reports the bivariate Pearson product-moment correlation coefficients as well as descriptive statistics, including means and standard deviations. As shown in the table, the firms included in the study had an average of 77 employees. The mean of the business age was 40 years and the businesses had, on average, 3 owners.

not compulsory for most firms (depending on size and some additional criteria), firms can voluntarily implement a board or choose not to do so.

37

Results of Hypothesis Testing

Table 2.3 presents the results of the multiple regression analysis. The VIF scores for Models 1-4 are not higher than 1.73. On the basis of currently accepted standards, these results indicate that the variables are free from multicollinearity. Models 5 and 6 test for moderating effects, mathematically leading to high VIF scores.

38

Tab

le 2

.1: F

acto

r an

alys

is o

f mul

ti-ite

m v

aria

bles

incl

uded

in th

e st

udya

O

wne

rshi

p so

cial

cap

ital

B

ondi

ng

Brid

ging

Q

ualit

y of

re

latio

nshi

ps

Shar

ed v

isio

n Fa

mily

in

volv

emen

t N

etw

ork

mob

iliza

tion

Ow

ners

tend

to tr

ust o

ne a

noth

er.

.87

.20

.05

.19

Ow

ners

are

ope

n an

d ho

nest

with

one

ano

ther

. .8

7 .2

3 .0

4 .1

6 O

wne

rs h

ave

good

coo

pera

tive

rela

tions

hips

. .8

8 .2

2 .0

3 .1

9 O

wne

rs w

ork

toge

ther

as a

team

. .8

2 .2

6 .1

1 .2

1 O

wne

rs tr

y to

pul

l the

com

pany

in o

ppos

ite d

irect

ions

(sca

le re

vers

ed).

.12

.62

.00

-.02

Ow

ners

are

com

mitt

ed to

man

agin

g w

ealth

as a

gro

up ra

ther

than

as i

ndiv

idua

ls.

.17

.69

.03

.18

Ow

ners

shar

e th

e sa

me

visi

on a

bout

the

busi

ness

. .3

6 .6

9 -.0

3 .2

2 O

wne

rs a

gree

abo

ut th

e ke

y ob

ject

ives

of t

he b

usin

ess.

.41

.64

-.03

.33

Ow

ners

spea

k en

thus

iast

ical

ly a

bout

the

busi

ness

with

peo

ple

outs

ide

the

busi

ness

. .2

2 .0

8 -.0

5 .7

0 O

wne

rs h

elp

to e

xpan

d th

e bu

sine

ss’s

net

wor

k by

mak

ing

outs

ide

cont

acts

. .1

5 .1

9 -.0

4 .8

7 O

wne

rs h

elp

to se

ek o

ut o

r cre

ate

new

opp

ortu

nitie

s for

the

firm

. .2

0 .2

0 .0

4 .8

5 Fa

mily

rela

tions

exi

st b

etw

een

the

owne

rs.

.08

.01

.87

-.08

The

fam

ily h

as c

onsi

dera

ble

influ

ence

on

the

busi

ness

stra

tegy

. .0

5 .0

3 .7

3 -.0

1 Tw

o or

mor

e di

rect

ors a

re re

late

d to

the

owne

rs.

.12

-.19

.67

.06

The

busi

ness

has

bee

n ow

ned

by th

e sa

me

fam

ily fo

r tw

o or

mor

e ge

nera

tions

. -.0

8 .1

6 .6

3 -.0

2 C

ronb

ach

alph

a

.93

.7

0 .

70

.80

Pe

rcen

tage

var

ianc

e ex

plai

ned

35.7

3 7.

11

9.04

14

.67

a Pr

inci

pal c

ompo

nent

ana

lysi

s with

var

imax

rota

tion;

four

com

pone

nts e

xtra

cted

.

39

Tab

le 2

.2: C

orre

latio

ns b

etw

een

vari

able

s use

d in

the

stud

y

1 2

3 4

5 6

7 8

9 10

11

12

13

14

15

1.

Net

wor

k m

obili

zatio

n

2. Q

ualit

y of

rela

tions

hips

.4

5b

3.

Sha

red

visi

on

.45b

.58b

4.

Fam

ily in

volv

emen

t -.0

1 .1

2b .0

2

5.

Com

pany

size

(ln)

.0

0 -.0

9a -.0

1 -.0

6

6. E

xpan

sion

.0

2 -.0

2 -.0

1 -.1

8b .0

1

7.

Com

pany

age

(ln)

-.0

8a -.0

2 -.0

1 .3

3b .3

5b -.2

6b

8. S

ervi

ce

.06

-.03

-.06

-.17b

-.07

.08 a

-.3

0b

9.

Agr

icul

ture

-.0

6 .0

4 .0

5 .1

0a -.1

1a .0

3 .0

4 -.1

4b

10. M

anuf

actu

ring

-.06

-.04

.04

.02

.17b

-.05

.22b

-.40b

-.08a

11. C

onst

ruct

ion

.02

.01

.02

.13

-.05

-.11b

.14b

-.33b

-.07

-.19b

12

. Ret

ail a

nd tr

ade

.00

.05

.00

.13b

-.07

.03

.01

-.47b

-.10 a

-.2

7b -.2

2b

13

. Num

ber o

wne

rs (l

n)

-.09a

-.22b

-.09 a

-.1

6b .3

0b .0

2 .0

8a .1

0b .0

3 -.0

2 -.0

6 -.0

8a

14. B

oard

of d

irect

ors

-.12b

-.15b

-.07

-.06

.26b

-.02

.16b

-.13b

-.03

.15b

-.02

.01

.12b

15. O

wne

rshi

p-m

anag

emen

t ov

erla

p .1

9b .2

1b .1

3b .2

3b -.3

0b -.0

4 -.1

1b .0

6 .0

2 -.1

4b .0

2 .0

3 -.3

7b -.2

8b

Mea

nc 4.

41

4.44

4.

25

1.71

77

.2

8 40

.4

1 .0

3 .1

9 .1

3 .2

4 3

1.16

63

.64

SDc

.61

.58

.51

1.40

89

.4

5 36

.80

.49

.17

.39

.34

.43

1.99

.3

7 38

.99

Pear

son

corr

elat

ion

coef

ficie

nt, t

wo-

taile

d: a : p

< 0

.05;

b : p <

0.0

1; N

= 7

08.

c Fo

r the

var

iabl

es c

ompa

ny si

ze, c

ompa

ny a

ge, a

nd n

umbe

r of o

wne

rs, t

he m

eans

and

stan

dard

dev

iatio

ns a

re re

porte

d fo

r the

orig

inal

val

ues.

40

The results related to Hypothesis 1, which predicts a positive relationship between family involvement and shared vision, are presented in Model 1, Table 2.3. As no significant results are found for family involvement (β = -.06, ns), they offer no support for Hypothesis 1. Model 2 in Table 2.3 shows the results for Hypothesis 2, which suggests family involvement as a predictor of the quality of relationships among owners. The results are not significant (β = -.02, ns) in this case as well, indicating no support for Hypothesis 2. Hypothesis 3 predicts a negative relationship between family involvement and network mobilization. The results are presented in Model 3 but are not significant (β = -.06, ns) and thus offer no support for Hypothesis 3. The results concerning the prediction of network mobilization are presented in Models 3-6, Table 2.3. Models 3 and 4 show strong support for Hypotheses 4 and 5, respectively. Hypothesis 4 predicts a positive association between the quality of the relationship and network mobilization. The results show a positive relationship between the dependent variable and network mobilization (β = .44, p < .001) and thus offer support for Hypothesis 4. In Model 4, shared vision is added to the regression model and the relationship with network mobilization is significant (β = .28, p < .001), lending support to Hypotheses 5. A stepwise regression analysis shows shared vision as the stronger variable in terms of predicting network mobilization. A bootstrap test is used to estimate the mediation effect (Preacher & Hayes, 2008). 5,000 bootstrapping resamples were run with listwise deletion of missing data. The analyses examine the direct relationship of the quality of relationships to the dependent variable (network mobilization), as well as the indirect relationship through the mediator (shared vision) while controlling for the control variables. The total effect of the quality of relationships on network mobilization (.46) is significant (t = 12.81, SE = .04, p < .001) and the direct effect (.29) is still significant (t = 6.84, SE = .04, p < .001). After including shared vision as mediator, the path coefficient is substantially reduced, suggesting partial mediation. Furthermore, the bootstrapping technique shows a bias-corrected 99% confidence interval of 0.0998 to 0.2447 for this indirect effect, with the lower and upper limits above zero. Taken together, the bootstrap test reveals a significant partial mediation effect of shared vision on the relation between quality of relationships and network mobilization.

41

Table 2.3: Prediction of ownership social capital Dependent variable Bonding

ownership social capital

Bridging ownership social capital

Quality relation-ships

Shared vision

Network mobilization

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Explanatory variables

β valued β valued β valued

β valued

β valued β valued β valued

Company size (ln) .03 .05 .10 a .09 a .09 a .09 a .07

Expansion .00 -.01 .00 .00 .00 .00 .02 Age (ln) -.02 -.03 -.05 -.05 -.05 -.05 -.04

Service -.04 -.05 .04 .04 .04 .05 .04 Agriculture .02 .05 -.06 -.07 -.07 a -.07 -.06 a

Manufacturing -.03 .05 -.01 -.03 -.03 -.03 -.03 Construction -.02 .01 .02 .02 .02 .02 .02 Number of owners (ln)

-.16 c -.05 .02 .01 .01 .01 .01

Board of directors -.10 b -.05 -.03 -.03 -.03 -.03 -.03 Ownership-management overlap

.12b .12b .13c .12b .11b .12 b .12b

Family involvement -.06 -.02 -.06 -.04 -.03 .06 -1.18 c

Quality relationships

.44c .28c -.10 .29 c .26c

Shared vision .28c -.10 .28 c .17c

Moderator QR x SV .69 b

Moderator FI x QR -.10

Moderator FI x SV 1.17c

∆R square .18 c .05 c .03 c .00 .01 b R square .08 c .03a .24c .29c .29 c .29 c .34c

Adj. R square .07 .02 .23 .27 .28 .28 .29 F statistic 5.77 1.97 18.08 22.74 20.83 20.17 22.65 DF (df1, df2) (11, 696) (11, 696) (12, 695) (13, 694) (14, 693) (14, 693) (14, 693)

N = 708. a: p < 0.05; b: p < 0.01; c: p < 0.001. d: β values represent standardized regression coefficients in the multiple regression analysis.

42

Hypotheses 6, 7, and 8 propose complex relations among components of ownership social capital. Hypothesis 6 proposes that the quality of the relationships among the owners will have a positive moderating effect on the association of shared vision with network mobilization. The results are presented in Model 5. The results show a positive interaction term for quality of relationships and shared vision in the model predicting network mobilization (β = .69, p < .01). These results support Hypothesis 6. The nature of the interaction effect is depicted in Figure 2.2. Figure 2.2: Interaction term shared vision and quality of relationships

Both lines in Figure 2.2 are positive, reflecting the positive relation between the shared vision among owners and the mobilization of the owners’ network. The dashed line lays above the dense line, which highlights the proposition that good relationships among owners together with a shared vision of the business will lend extra stimulus to the mobilization of bridging ownership social capital. Hypotheses 7 and 8 propose that family involvement moderates the relationship between the two elements of bonding ownership social capital and network mobilization. The results of the moderating effect of family involvement on the association between the quality of relationships and network mobilization are not significant (β = -.10, ns). This leads to a rejection of Hypothesis 7 (Model 6). Model 7 shows the results for Hypothesis 8. The results indicate a significant positive moderating effect of family involvement on the relationship between shared vision and network mobilization (β = 1.17, p < .001). This lends support to Hypothesis 8. The nature of this interaction effect is depicted in Figure 2.3.

1

1,5

2

2,5

3

3,5

4

4,5

5

Low Shared vision High Shared vision

Net

wor

k m

obili

zatio

n

Low Quality of relationship

High Quality of relationship

43

Figure 2.3: Interaction term shared vision and family involvement

The dashed line in Figure 2.3 is steeper than the solid line. This indicates that an increase in the level of shared vision among owning group members in combination with high family involvement will lead to a faster improvement in the mobilization of the owners’ network. In firms with low family involvement, the positive effect from a shared vision on network mobilization almost completely disappears. The slopes in Figure 2.3 confirm the proposition that the family firm context is a fruitful environment in which to mobilize and use the potential network resources, especially when owners agree on the vision for the firm. While family involvement has no direct positive effect on the development of bridging or bonding ownership social capital, this proposed moderating effect is confirmed by the data. Other Results Company size is positively related to network mobilization (β = .09, p < .05). The overlap between ownership and management is positively related to all three dependent variables: shared vision (β = .12, p < .01), quality of relationships (β = .12, p < .05), and network mobilization (β = .12, p < .01). Furthermore, the quality of relationships is predicted by the number of owners (β = -.16, p < .001) and the presence of a board of directors (β = -.10, p < .01). Finally, network mobilization is negatively related to the agricultural sector (β = -.07, p < .05). In terms of the prediction of all components of ownership social capital tested in this study, owner-management overlap is found to have a positive effect. This suggests that owner-management groups with greater overlap are more likely to have a stronger shared vision, higher quality of relationships, and greater mobilization of network resources. This finding is

1

1,5

2

2,5

3

3,5

4

4,5

5

Low Shared vision High Shared vision

Net

wor

k m

obili

zatio

n

Low Family involvement

High Family involvement

44

in line with the expectation that owners will report a higher level of agreement and commitment on business-related issues when the roles of owners and managers overlap. The results for the quality of relationships among owners indicate a negative association with the number of owners, suggesting that the larger the group, the less cohesive it will be, which is consistent with social psychology research on groups (Baron & Kerr, 2004; Shani & Lau, 2000). The negative effect of the presence of a board of directors on the quality of relationships when controlling for company size may suggest that a board of directors somehow reduces the need for the owning group to learn to work together.

2.6 Discussion and conclusion

Theoretical and practical implications

One aim of this study was to improve the understanding of the effect of family involvement on the development of ownership social capital in privately held firms. The hypotheses that family involvement has a direct positive effect on bonding social capital and a negative effect on bridging social capital were not confirmed by the data. Overall, the findings suggest that family involvement per se may not have an effect on ownership social capital. Rather, the results indicate that the interaction of family involvement with a shared vision among owners predicts the outcome. This is in line with scholars who propose that the “family system” itself is not a source of advantage but that its interactions with other organizational systems create value (e.g., Gersick et al., 1997; Zahra et al., 2008). The findings of the present study highlight the importance of gaining more insight into how family involvement affects private firms. This study shows that although a shared vision and the quality of relations among owners are important factors, these factors are not limited to family owners. This is in line with O’Boyle et al. (2012), whose meta-analysis of the relation between family involvement and a firm’s financial performance showed no significant results. Furthermore, the results indicate that the development of bridging social capital is positively influenced by owner groups with a shared vision and good relationships. Family ties among these owners and family involvement in the business only partially influence this outcome. Therefore, scholars should be careful when measuring family social capital in the context of family firms. In cases where only family firms are in focus, social capital can be misinterpreted as a resource stemming from the family sphere whereas it may, in fact, arise from the owning group even when there are no family ties. The findings of this study also enhance the understanding of the concept of ownership social capital. The analyses show that a shared vision and good relations among owners (i.e., high levels of trust, cooperation, and cohesiveness) are important for the development of bridging social capital. Furthermore, in contrast to the view set forth by McFayden and Cannella Jr. (2004), bonding and bridging social capital do not appear to be mutually exclusive resources. The findings suggest that the bonding aspects of ownership social capital are associated with

45

mobilization of bridging ownership social capital. These findings are in line with the qualitative study undertaken by Salvato and Melin (2008), who emphasized that family businesses need to invest in both external and internal social capital. This finding also lends support to the argument made by some scholars that it is necessary to consider both bonding and bridging social capital at the same level of analysis in order to build a more complementary view of social capital (Lin, 1999; Payne et al., 2011; Zheng, 2010). From a managerial perspective, this study emphasizes the importance of good relations and a shared vision among owners. The owning group should be aware of these elements. Time and effort spent on building an effective team will probably have a positive effect on the development of ownership social capital. For example, a yearly review of how the owners function as a group might be a beneficial activity. Another issue to be aware of is the positive association between the overlap between management and ownership, and the bonding and bridging components of ownership social capital. If, during the life cycle of the firm, the overlap between owners and managers diminishes, the change might have a negative effect on the shared vision, the quality of relationships, and the mobilization of network resources.

Research limitations and implications for future research

This research suffers from several limitations. First, this study tries to cover the construct of social capital using two scales for bonding social capital and one scale for bridging social capital. The scales were tested and found reliable for the data set. However, as there is no clear consensus with regard to the precise definition of the concept of social capital (Adler & Kwon, 2002), scholars use a range of scales to measure it. For instance, bridging social capital is often measured as the number of ties and the level of centrality in the network (e.g., Kim & Canella, 2008). In this study, the focal element is the mobilization of the embedded resources (Lin, 1999). More empirical testing of the diverse scales would help in the development of a clearer theory and measurements of social capital. Second, the effects of social capital on firm outcomes, such as financial performance or innovation, are not investigated in this study. In particular, the link between bridging social capital and product innovation seems to offer a promising avenue for future research. Several scholars have shown, for instance, that bridging social capital (measured as the number of network contacts) is an important organizational resource for the development of innovative capabilities (e.g., Subramaniam & Youndt, 2005). Another research avenue could be to include other types of capital in order to develop a complete picture and to better understand how interactions among these different resources affect the firm (Sharma, 2008). For example, human capital seems to interact with social capital (e.g., Florin, Lubatkin, & Schulze, 2003) and financial capital could be taken into account.

46

Conclusions

The aim of this paper was to explore whether family involvement shapes the level of ownership social capital. The results of the empirical study conducted on a large, random sample of privately held Dutch firms, all with two or more individual owners, confirm the assumption that family involvement affects the development of ownership social capital. However, this is not a direct effect. Family involvement works as a moderator, strengthening the relation between the shared vision among the owners and the mobilization of bridging ownership social capital. Furthermore, the data show that both a shared vision and the quality of relations among owners have positive effects on the mobilization of the owning group’s network resources. In this regard, the study supports the model proposed by Lin (1999), which highlights the sequence of events in the development of social capital. In future research, these factors should be examined in greater detail.

47

3: The relationship between ownership social capital and product innovation: The moderating role of family involvement10

3.1 Introduction

A recent global survey undertaken by McKinsey & Company highlights the importance of innovation to business. In the survey, 84 percent of 2,240 executives indicated that innovation was extremely or very important to their companies’ growth strategies (McKinsey, 2010). These practical findings are in line with Schumpeter’s (1934) seminal work on economic development. In the economic and business literature, scholars are convinced that innovation is important for value creation (e.g., Hitt, Hoskisson, Johnson & Moesel, 1996). Product innovation is often seen as pivotal for the long-term competitive advantage of the firm (Sharma & Salvato, 2011). To innovate, firms need to reallocate resources, combine new resources, or combine existing resources in new ways (Tsai & Ghoshal, 1998). Social capital – the goodwill or other benefits generated by various social relations (Adler & Kwon, 2002) – is a recent, yet significant, addition to the list of innovation-inducing factors (Zheng, 2010). Subramaniam and Youndt (2005) specifically identify social capital as an important organizational resource for fostering innovation: “Social capital appears to be the bedrock of innovative capabilities” (Subramaniam & Youndt, 2005, p. 459). Privately-held firms play a significant role in the economy, and can be divided into family and non-family firms. Recently, the focus of family business research has shifted from family businesses as a whole towards role of the business-owning family (Nordqvist & Melin, 2010). The entrepreneurial mindset of the owning family has been identified as a key element in the creation of new streams of value within and across generations (Uhlaner, Kellermanns, Eddleston & Hoy, 2012; Berent-Braun & Uhlaner, 2012; Habbershon, Nordqvist & Zellweger, 2010). In general, however, the role of ownership in private firms is a topic that has received little attention until recently (Uhlaner, 2008; Berent-Braun, 2010; Hall, Helin, Brundin & Melin, 2012). Past research on ownership has focused on “having” shares rather than adopting a more dynamic approach that looks at owners “acting” and “doing” ownership (Hall et al., 2012). The latter, more dynamic approach is specifically interesting when examining private firms where the shares are in the hands of an owning group. Data provided by The Global Entrepreneurship Monitor 2002 estimates that almost half of all established firms are owned by groups (Uhlaner, 2008, p. 8). The purpose of the present study is to apply this dynamic approach in an investigation of the relationship between ownership social capital and product innovation. The group of owners is the focal level of analysis and the research question concerns whether the social capital of the

10 This chapter is based on a paper by Matser, Uhlaner, Berent-Braun, and Flören (2012) that was presented at the IFERA conference in June 2012 in Bordeaux, France. An earlier version of this chapter was presented at the XXV RENT Conference in November 2011 in Bodo, Norway.

48

owning group adds value to the product innovation process in privately held Dutch firms. More specifically, this paper examines the following research question: Does ownership social capital predict product innovation in privately held firms? The focus is primarily on the direct effects of bonding (shared vision, trust, and cohesiveness of the ownership group) and bridging (networking of owners with outsiders) social capital. Furthermore, the moderating role of family involvement on the relationship between the different dimensions of social capital and product innovation is investigated. An attempt is made to distinguish between a “family” effect and an “ownership” effect through this approach. This chapter makes three main contributions to the literature. First, it empirically tests the relationship between social capital and innovation. This is important because there is not enough empirical evidence to allow for a systematic analysis of the relationship between the two constructs (Zheng, 2010). Second, this research is unique in its focus on ownership social capital in relation to product innovation. The business-owning group as a level of analysis seems promising for studies of social capital. Uhlaner (2008) argues that an effective owning group can be an important source of competitive advantage, while an ineffective group can undermine or even destroy a firm. This study combines the internal and external dimensions of ownership social capital, which helps to create a complete picture of the concept. Third, this chapter investigates the moderating role of family involvement. In line with the concept of bivalent attributes of family firms, a dual effect is expected (Tagiuri & Davis, 1996). Family firms have several unique attributes that can be sources of both benefits and disadvantages (Tagiuri & Davis, 1996). The chapter is structured as follows. The next section provides a short overview of the relevant literature on product innovation and social capital, as well as an explanation of the concept of ownership social capital. It is followed by a presentation of the framework and the hypotheses. The method section describes the sample, data collection, variables, and data analysis, while the final sections present the results, discussion, and conclusions.

3.2 Background on product innovation and the role of (family) owners

Innovation studies span a broad range of topics and adopt various levels of analysis. Scholars distinguish between innovation diffusion, innovation adoption, innovativeness, and innovating (Damanpour, 1991). The domains studied vary from technology, products, services, and processes, to administrative systems (Zheng, 2010). For the current research, the distinction between types of innovations – incremental, progressive, and radical – is relevant (Bergfeld & Weber, 2011). “Incremental” innovations use existing established technologies and/or markets. “Progressive” innovations use adjacent technologies and/or markets. “Radical” innovations, in contrast, use entirely new technologies and/or markets. Incremental and progressive innovations focus on the full exploitation of existing opportunities, while radical innovations strive for exploration of new opportunities. Sharma and Salvato (2011) argue that dependence on exploitation alone is unlikely to lead to competitive performance advantages in the long term, as better services and products will

49

always appear in the market at some point. Therefore, stages of radical innovation are necessary to ensure long-term competitive advantage. Such stages can be followed by periods of exploitation. Sharma and Salvato (2011) refer specifically to family firms but it seems logical that this premise should hold for all private firms. Therefore, this study not only focuses on the realization of new products and services but it also combines this with the distinction between “new to the world” and/or “new for the firm.” Through this approach, a scale is created that measures progressively more radical innovation. The McKinsey study (2010) reveals that the core barriers to successful innovation remain a challenge for the modern firm. This is reflected in the corporate entrepreneurship literature, where a dominant theme is the identification of the characteristics and circumstances that make firms entrepreneurial (Nordqvist and Melin, 2010). Miller (1983, p.771) defines an entrepreneurial firm as “a firm that engages in product innovation, undertakes somewhat risky ventures, and is first to come up with ‘proactive’ innovations, beating competitors to the punch.” A sub-stream within the corporate entrepreneurship literature investigates entrepreneurship in the context of the family business. An important initiative in this area is the Global STEP Project (Nordqvist & Zellweger, 2010), which focuses on transgenerational entrepreneurship—the maintenance of the entrepreneurial spirit through succeeding generations. One preliminary outcome of the project is the introduction of the family as the unit of analysis. The proposition is that the family should be regarded as the actor that undertakes entrepreneurial activities, including innovation (Nordqvist & Melin, 2010). Habbershon et al. (2010, p. 10) state that there is “increasing evidence that the families who are in control of these firms need to be considered as drivers and enablers of new entrepreneurial activity in their regional and national context.” Bergfeld and Weber (2011) also focus on the role of the family within the innovation process in their investigation of “dynasties of innovation.” In this qualitative study of old, successful German family firms, the authors identify a crucial role of owning families as stimulators of radical innovation and corporate renewal. Their research reveals that a successful strategy for the owning family is to focus on maintaining long-term innovativeness rather than becoming overly involved in incremental innovation challenges. The ultimate goal is to ensure the continuity of the firm. Therefore, owning families should set the strategic imperatives, and support radical and progressive moves. They can mainly do so via their positions on the firm’s supervisory board. In Bergfeld and Weber’s (2011) study, family owners are viewed as strategic resources for the firm. In line with Berent-Braun (2010), the current study identifies business owners as a distinct, important group within the privately held firm. Bergfeld and Weber (2011) see family owners as guardians of a radical innovative climate. Although their findings are promising (Sharma & Salvato, 2011), they are limited to “old” successful firms and qualitative results. To overcome the shortcomings of Bergfeld and Weber’s study (2011), this chapter adopts a quantitative approach and uses a sample that includes firms of all ages. Furthermore, non-family firms are included (Miller et al., 2007) in order to distinguish

50

between “owner” effects and “family” effects, and to capture the potential influence of family owners. Nordqvist and Melin (2010) stress the need to investigate the role of social capital with regard to entrepreneurship and innovation within family firms. Social capital is the goodwill and other benefits generated by various social relations (Adler & Kwon, 2002). Recently, social capital has become the subject of an increasing amount of attention in the business literature in general (Lee, 2009) and in family business literature in particular (e.g., Arregle et al., 2007a; Pearson at al., 2008). Nordqvist and Melin’s (2010) argument stems from the fact that social capital has been identified as a likely source of competitive advantage for family businesses (Carney, 2005; Arregle et al., 2007a; Pearson at al., 2008). Furthermore, social capital is seen as a key resource in innovation (Subramaniam & Youndt, 2005), due to the fact that innovation is often a collaborative effort. In fact, social capital is often believed to play a central role in both incremental and radical innovation (Hargadon & Sutton, 1997). Therefore, the focus in this study is on the role of owners in creating social capital and on how this social capital influences product innovation. “Ownership social capital” is defined as the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by the business owners. This definition follows the general definition of social capital proposed by Nahapiet and Ghoshal (1998). In line with Adler and Kwon (2002), a distinction is made between bonding aspects of ownership social capital (internal) and bridging aspects of ownership social capital (external). Furthermore, in line with Kellermans, Eddleston, Sararthy, and Murphy (2012), this study investigates the influence of family involvement on the relationship between the role of the owners and the level of new product development in private firms. The dimensions of ownership social capital, and their expected direct and indirect relationships with product innovation are more fully discussed in the next section.


Bridging ownership social capital and product innovation

Bridging social capital relates to linking and/or brokering processes that occur between unrelated groups and people (Gedaljovic & Carney, 2010). Scholars focus on the potential benefits of bridging social capital, especially in the entrepreneurship literature on new venture creation (De Carolis & Saparito; 2006; Liao & Welsch, 2005; Pirolo & Presutti, 2010; Steier, 2007). Consistent with a network view, these research perspectives regard innovation as the outcome of the interactions and exchanges of knowledge across a diverse range of actors in various situations rather than as product of isolated inventors (Zheng, 2010). Zheng’s literature review (2010) concludes that bridging social capital has a significant positive impact on innovation. The argument that bridging social capital adds value is closely related to network theory (e.g., Ramos-Rodríguez, Medina-Garrido, Lorenzo-Gómez & Ruiz-Navarro, 2010). A key concept in network theory is that of structural

51

embeddedness. “Structural embeddedness” reflects the configuration of an individual/group/organization’s network (Granovetter, 1992), while “network configuration” describes the pattern of linkages by measuring the density, connectivity, and hierarchy (Nahapiet & Ghoshal, 1998) of an individual or organizational network. Structural embeddedness creates economic opportunities that are difficult to replicate via contracts, markets, or vertical integration (Uzzi, 1997). One assumption made in network theory is that the more ties an actor maintains, the more opportunities that actor has to be exposed to external information, ideas, and knowledge (Maurer et al., 2011; Zheng, 2010). Bridging ties act as a “scanning device” that allows firms to detect new trends and asymmetries in the market faster than firms lacking such connections (Stam & Elfring, 2008). In addition to knowledge acquisition, such contacts also enable greater knowledge sharing (Zheng, 2010). In this respect, Zahra (2010) emphasizes the importance of established family firms connecting with new ventures in order to incorporate new developments and radical change. Subramaniam and Youndt (2005) stress the brokering aspect of bridging social capital, where “brokering” is defined as the combination of previously unconnected ideas. This aspect of social capital refers to the connection of diverse ideas and thoughts that leads to unforeseen and unusual combinations with the potential to create radical breakthroughs. In this study, the group of owners of a private firm is in focus. Based on the arguments mentioned above, the network of the individual owners can be expected to hold valuable resources for the firm in its efforts to realize product innovation. Taken together, these arguments lead to the following hypothesis: Hypothesis 1: The mobilization of the owning group’s network is positively associated with product innovation.

Bonding ownership social capital and product innovation

Bonding social capital focuses on the internal structure of the group—“the linkages among individuals or groups within the collective and, specifically, in those features that give the collective cohesiveness and thereby facilitate the pursuit of collective goals” (Adler & Kwon, 2002, p. 21). The distinction between the relational dimension and the cognitive dimension is relevant with regard to the discussion on ownership social capital. The relational dimension of social capital draws from Granovetter’s (1973) relational embeddedness argument, which refers to the quality of the relationships within a network. The relational dimension of social capital encompasses assets that are created and leveraged through these relationships, such as trust and trustworthiness, norms, obligations, identity, and identification (Tsai & Ghoshal, 1998). Social ties serve as channels for information and resource flows (Tsai & Ghoshal, 1998). When these social ties can be characterized as high on the relational dimension, information and resources can be expected to flow more smoothly. Communication, the fluid diffusion of information, and the sharing and assimilation of information are vital elements of innovative

52

capabilities (Subramaniam & Youndt, 2005). Tsai and Ghosal (1998) confirm that informal social relations and tacit social arrangements within a firm encourage business units to combine and exchange resources across formal organizational lines and levels. This exchange and combination of resources is positively associated with product innovation. One benefit of trust among members of a group or collective is that it works as a governing mechanism (Uzzi, 1997): “actors that trust and are trusted by others give and receive information and knowledge resources freely without fear of being cheated or misled” (Molina-Morales & Martinez-Fernandez, 2010, p. 264). Molina-Morales and Martinez-Fernandez (2010) find a positive association between trust in an external social network and innovation. Taken together, these observations lead to the following hypothesis: Hypothesis 2a: The quality of relationships among members of the owning group is positively associated with product innovation. The cognitive dimension of social capital refers to those resources providing shared representations, interpretations, and systems of meaning among parties (Nahapiet & Ghoshal, 1998). This dimension of social capital “comprises the groups’ shared vision and purpose, as well as unique language, stories and culture of a collective that are commonly known and understood, yet deeply embedded” (Pearson et al., 2008, p. 957). Shared vision and purpose are constructs that seem particularly relevant to link with innovation: A shared vision among the owners about the future of the firm and a common purpose in terms of organizational goals are expected to positively influence the development of new products and services. Zheng’s review of research on social capital and innovation (2010) shows that research in the area of shared vision and innovation is fragmented and scarce. However, the available findings confirm that shared vision is positively linked to innovation. Therefore, the following hypothesis is presented: Hypothesis 2b: A shared vision among the owning group is positively associated with product innovation.

Bridging ownership social capital as a mediating variable

The relationship between bonding ownership social capital and product innovation may be mediated by bridging ownership social capital. Zheng’s (2010) literature review reveals that most empirical studies on social capital take either bridging or bonding social capital into account, but not both. A combination of the bonding and bridging aspects of social capital provides insights into how these distinct aspects interact with each other. Zheng (2010) emphasizes the importance of taking an integrative view on social capital based on the fact that the structural part of a network cannot exist independent of the relational part, while the relational part cannot exist without the structural part. This relates to another aspect of the complexity of the social capital construct – the difference between potential and realized social capital (Montemerlo & Sharma, 2010).

53

To realize the positive effect of bridging ownership social capital on product innovation, owners must actively mobilize their network for the benefit of the firm. A possible mediation effect is explored on the basis of Lin’s model of social capital development (1999). Lin (1999) argues that a crucial step in the development of social capital is the process of social capital mobilization, in which individuals act to enhance the mobilization of resources. In this study, bonding social capital is expected to primarily act as a condition for the realization of bridging social capital. It is assumed that when there is a shared vision among owners and high-quality relationships, the owning group will be inclined to mobilize and use its potential external resources for the benefit of the company. Furthermore, as bonding social capital maintains the closeness of the network, it ensures that if owners do bring in outside resources and network contacts, those resources and contacts will benefit the firm. Therefore, the third set of hypotheses is the following: Hypothesis 3a: The quality of relationships among members of the owning group is indirectly positively associated with product innovation through the network mobilization of the owning group. Hypothesis 3b: A shared vision among the owning group is indirectly positively associated with product innovation through the network mobilization of the owning group.

Family involvement as a moderating variable

Given the complex nature of the relation between ownership social capital and product innovation, it seems reasonable to expect complementary effects between certain ownership characteristics and product innovation outcomes. Recent studies in the field of entrepreneurship and innovation incorporate the structure of the firm’s ownership and management as a moderator (e.g., Casillas & Moreno, 2010; Classen, Van Gils, Bammens & Carree, 2012; Zhara, 2010). In the present study, family involvement is expected to moderate the relation between ownership social capital and product innovation. Miller and Friesen (1982) find that product innovation differs considerably between “entrepreneurial” and “conservative” firms. In their research, conservative firms differ from entrepreneurial firms in that the former have relatively low organizational differentiation, market homogeneity, low market hostility, and unconscious strategies. Such conservatism can plague family firms. Reliance on family members, the exclusion of outsiders, loyalty to traditions, and insular strategic thinking are factors that lead to conservatism in family firms (Zahra, 2010). However, family firms are not homogeneous (Westhead & Howorth, 2007) and they tend to become conservative over time (Zahra, 2012). Many of the concerns about a lack of innovativeness in family firms have to do with life-cycle effects, a suggestion that is empirically supported by Miller et al. (2007), who found that first-generation family firms outperform family firms led by later generations as well as non-family firms. Other factors mentioned in the literature in relation to the lack of innovation in family firms include less

54

risk taking, an inability to react to change, slowness in decision making, and a reluctance to grow (Kraus, Pohjola & Koponen, 2012). Despite these arguments, the empirical evidence concerning the statement that family firms are less innovative is equivocal (Llach & Nordqvist, 2010). On the one hand, Morck, Stangeland, and Yeung (2000) show that Canadian family firms are less active in research and development activities than non-family firms comparable in age, size, and sector. On the other hand, Llach and Nordqvist (2010) show that Spanish family firms are more innovative than their non-family counterparts. In line with Subramaniam and Youndt (2005) and Zheng (2010), Llach and Nordqvist’s (2010) findings highlight social capital as an important strategic resource that supports innovation. Zahra (2012) explores the influence of family ownership on organizational learning. Organizational learning is a capability that stimulates innovation, as it enables the firm to recognize changing market conditions and opportunities to be exploited (Zahra, 2012). Zahra (2012) identifies opposing effects of family ownership on organizational learning: a positive effect on the breadth and speed of learning, and a negative effect on the depth of learning. In this paper, these opposing effects are also expected, with the role of family involvement acting as a mediator between ownership social capital and product innovation. Critical voices, viewpoints from outsiders, and fresh opinions are necessary for deep learning. However, these qualities are often lacking in the family firm context (Zahra, 2012). Especially when there is an orientation towards traditional fundamental values, family businesses can cling to obsolete products on basis of a belief that former success proves the appropriateness of the current strategy (Roessl, Fink & Kraus, 2010). The inward orientation of many family firms can be explained by the closure of the social network, which is particularly common among family firms (Arregle et al., 2007a). Closure is a necessary condition for the creation of bonding social capital (Pearson et al., 2008) but it can be harmful to the development of an external network. This relates to network theory, which distinguishes between strong and weak ties. The importance of weak ties is suggested by Granovetter (1973) and follows the notion that weak ties, in particular, can act as a “bridge” to valuable, new information. Actors with an extensive network of weak ties – that is, contacts who are not connected to each other – will have a high level of bridging social capital (Moran, 2005). Pirolo and Presutti (2010) confirm the added value of weak ties, showing that weak ties act as “local bridges” to distant contacts possessing unique information. Furthermore, a lack of a tight link to a business partner seems to be a condition for the achieving level of autonomy necessary to spot new, profitable opportunities (Uzzi & Gillespie, 2002). Taken together, these observations lead to the following hypothesis: Hypothesis 4a: The relationship between the mobilization of the owning group’s network and product innovation is weaker for firms with high family involvement than for firms with low family involvement.

55

The closeness of the family is an important ingredient in Zahra’s (2012) explanation of the positive effect of family ownership and family cohesion on the breadth and speed of organizational learning. A combination of high family ownership and high family cohesion will lead to a motivation to learn broadly, and a willingness to exchange and share information, which will help to speed up organizational learning (Zahra, 2012). The same mechanism is expected to work within the context of bonding ownership social capital and product innovation. A reliance on family members and an inward orientation are beneficial for the development of bonding ownership social capital, and these elements will enhance the positive effect of bonding ownership social capital on product innovation. Therefore: Hypothesis 4b: The relationship between the quality of relationships among members of the owning group and product innovation is stronger for firms with high family involvement than for firms with low family involvement. Hypothesis 4c: The relationship between the shared vision among the owning group and product innovation is stronger for firms with high family involvement than for firms with low family involvement. The hypothesized relationships are depicted in Figure 3.1.

56

Figure 3.1: Model of ownership social capital and product innovation

3.4 Method


The research is conducted using a random sample of Dutch private businesses. This is the same sample as is used in Chapter 2. Therefore, the discussion of the data set can be found in section 2.4.

Variables

The discussion of the variables family involvement (reflecting the relevant structural dimension of ownership social capital, as the focus is on potential family influence), shared vision of the owners (representing the cognitive dimension of ownership social capital), quality of relationships among the owners and the owners group network mobilization, can also be found in section 2.4. The same holds for the control variables, company size, company age, sector, expansion, number of owners, board of directors and ownership-management overlap.

57

Product innovation (Cronbach’s alpha = .67) (not included in Chapter 2) was measured using three items. First, respondents were asked to indicate the percentage of total sales that could be attributed to new products or services in the previous fiscal year. Second, respondents were asked to describe whether the new products or services were new to the world, or only new for the company or the industry (coded: 1 = no innovations, 2 = new to firm or industry, 3 = new to the world). Finally, respondents were asked to indicate on a five-point Likert scale whether the business objective was to be the first on the market with new products or services. Items were converted to standardized scores and then a mean score of the non-missing values was calculated to produce the product innovation index.

Data analysis

The first step in the data analysis was to verify the proposed scales for shared vision, quality of relationships, bridging social capital, product innovation, and family involvement. A confirmatory factor analysis with varimax rotation was used for this step. To check whether common method bias was a problem, a Harman’s single-factor test was applied (Podsakoff & Organ, 1986) and factor loadings for multi-item scales within the same factor analysis were reviewed. To ensure that multicollinearity among the independent variables was not a problem, variance inflation factors (VIF) were calculated. To test the reliability of the scales, Cronbach’s alpha scores were calculated for each scale. The hypotheses were tested using hierarchical multiple regression analyses. The direct effects of the independent variables were tested by entering the variables alone after the controls and in the full model that included all of the variables. The effect of each variable was assessed in terms of the two-tailed significance of its contribution to explaining the dependent variable. The potential mediation effects were tested applying bootstrap tests following the method suggested by Preacher and Hayes (2008). The analyses were performed using SPSS with Preacher and Hayes’s INDIRECT.SPS Macro (www.quantpsy.com). This procedure, which involves repeatedly sampling from the dataset to estimate the indirect effects and building an empirical approximation of the sampling distribution, is more exact and has more statistical power than those based on the normal distributions (e.g., the Sobel test) (Holiday Wayne & Casper, 2012). 3.5 Results

Development of scales, bivariate relationships, and descriptive statistics

A principal component factor analysis with varimax rotation is used to develop the scales. Table 3.1 presents the results of the factor analyses for network mobilization, shared vision, quality of relationships, product innovation, and family involvement. All items clearly load on one of five distinct factors, with the relevant factor loading surpassing .64 in each instance. The unintended factor loadings are no higher than .41. The largest factor in the unrotated factor analysis, quality of relationships, explains 29.80% of the variance, which

58

allows us to conclude that the variables are independent and that common method bias is not a concern. The Cronbach’s alphas are also satisfactory, ranging from .67 to .93 (see Table 3.1).

Descriptive and bivariate statistics

Table 3.2 shows the bivariate Pearson product-moment correlation coefficients as well as the means and standard deviations of all variables. On average, the firms included in the sample are 40 years old, and have 77 employees and 3 owners.

Results of hypothesis testing

The results of the multiple regression analysis are presented in Table 3.3. The VIF scores for Models 1-3 range from 1.09 to 1.719. On the basis of currently accepted standards, these results do not indicate a problem of multicollinearity between the independent variables. Model 5 shows higher VIF scores but these are the result of the inclusion of interaction effects in the model. The full model (Model 4) explains 14.6% of the variance in the dependent variable (p < 0.001). The results related to Hypothesis 1, which predicts a positive relationship between network mobilization and product innovation, are presented in Model 3, Table 3.3. As the results show a significant relation (β= .14, p < 0.001), they support Hypothesis 1. Model 1, Table 3.3, shows the results for Hypothesis 2a, which suggests that the quality of relationships is a predictor of the level of product innovation in a particular firm. The results indicate that the quality of relationships is positively related to product innovation (β = .09, p < .05), which lends support for Hypothesis 2a. Model 2 shows the results for Hypothesis 2b, which predicts a positive relationship between shared vision and the level of product innovation in a firm. As the relationship between shared vision and product innovation is not statistically significant (β = .04, ns), Hypothesis 2b is not supported. The results concerning network mobilization as a mediating variable are presented in Model 4. When shared vision and the quality of relationships are added after the control variables, the quality of relationships significantly relates to product innovation (Models 1 and 2, Table 3.3). However, when entered together with network mobilization in a single model, the explanatory power of quality of relationships decreases and becomes non-significant (β = .09, p < .05 to β = .05, ns) (Model 4, Table 3.3). The explanatory power of network mobilization remains significant (β = .14, p < .01, ∆R2 = 0.013).

59

Tab

le 3

.1: F

acto

r an

alys

is o

f mul

ti-ite

m v

aria

bles

incl

uded

in th

e st

udya

Net

wor

k m

obili

zatio

n Q

ualit

y of

re

latio

nshi

ps

Shar

ed v

isio

n Pr

oduc

t in

nova

tion

Fam

ily

invo

lvem

ent

Ow

ners

spe

ak e

nthu

sias

tical

ly a

bout

the

bus

ines

s w

ith p

eopl

e ou

tsid

e th

e bu

sine

ss.

.69

.21

.10

.10

-.04

Ow

ners

hel

p to

exp

and

the

busi

ness

’s n

etw

ork

by m

akin

g ou

tsid

e co

ntac

ts.

.87

.18

.14

.03

-.04

Ow

ners

hel

p to

seek

out

or c

reat

e ne

w o

ppor

tuni

ties f

or th

e fir

m.

.85

.21

.19

.03

.04

Ow

ners

tend

to tr

ust o

ne a

noth

er.

.19

.87

.20

.01

.04

Ow

ners

are

ope

n an

d ho

nest

with

one

ano

ther

. .1

6 .8

6 .2

5 -.0

2 .0

3 O

wne

rs h

ave

good

coo

pera

tive

rela

tions

hips

. .1

9 .8

8 .2

2 .0

1 .0

2 O

wne

rs w

ork

toge

ther

as a

team

. .2

1 .8

1 .2

6 .0

0 .1

0 O

wne

rs

are

com

mitt

ed

to

man

agin

g w

ealth

as

a

grou

p ra

ther

th

an

as

indi

vidu

als.

.17

.15

.69

-.00

.03

Ow

ners

shar

e th

e sa

me

visi

on a

bout

the

busi

ness

. .2

3 .3

5 .6

9 .0

3 .0

3 O

wne

rs tr

y to

pul

l thi

s com

pany

in o

ppos

ite d

irect

ions

. (sc

ale

reve

rsed

) -.0

2 .1

6 .7

0 -.0

1 .0

1 O

wne

rs a

gree

abo

ut th

e ke

y ob

ject

ives

of t

he b

usin

ess.

.33

.41

.64

.02

-.03

Prod

ucts

are

new

to th

e co

mpa

ny a

nd in

dust

ry, o

r new

to th

e w

orld

. .0

3 .0

1 .0

3 .8

3 -.1

1 Pe

rcen

tage

of s

ales

in p

revi

ous y

ear s

tem

min

g fr

om n

ew p

rodu

cts.

.02

.02

.01

.75

-.06

Firs

t on

the

mar

ket w

ith n

ew p

rodu

cts.

.08

-.03

-.03

.71

.03

Two

or m

ore

dire

ctor

s are

rela

ted

to th

e ow

ners

. .0

9 .0

9 -.2

1 -.0

8 .6

6 B

usin

ess o

wne

d by

the

sam

e fa

mily

for t

wo

or m

ore

gene

ratio

ns.

-.04

-.04

21

-.02

.64

Fam

ily re

latio

ns e

xist

bet

wee

n th

e ow

ners

. -.0

6 -.0

6 .0

1 -.0

9 .8

7 Th

e fa

mily

has

a c

onsi

dera

ble

influ

ence

on

the

busi

ness

stra

tegy

. -.0

2 .1

7 .0

1 .0

4 .7

3

C

ronb

ach’

s alp

ha

.80

.93

.70

.67

.70

Perc

enta

ge v

aria

nce

expl

aine

d 13

.00

29.8

0 7.

35

5.96

9.

35

a Pr

inci

pal c

ompo

nent

ana

lysi

s with

var

imax

rota

tion;

four

com

pone

nts e

xtra

cted

.

60

Tab

le 3

.2: C

orre

latio

ns b

etw

een

vari

able

s use

d in

the

stud

y

1 2

3 4

5 6

7 8

9 10

11

12

13

14

15

16

1.

Net

wor

k m

obili

zatio

n

2.

Qua

lity

of re

latio

nshi

ps

.45 b

3. S

hare

d vi

sion

.4

5 b

.58 b

4.

Pro

duct

inno

vatio

n .1

2 b

.03b

.04

5.

Fam

ily in

volv

emen

t .0

1 .1

2 b

.04

-.10 b

6.

Com

pany

size

(ln)

-.0

0 -.0

9 a

-.01

.22 a

-.0

6

7. E

xpan

sion

.0

2 -.0

2 -.0

1 .1

6 b

.18 b

.0

2

8.

Com

pany

age

(ln)

-.0

8 a

-.02

-.01

-.06

.33 b

.3

5 b

-.26 b

9. S

ervi

ce

.06

-.03

-.06

-.05

-.17 b

-.0

7 .0

8 a

-.30 b

10

. Agr

icul

ture

-.0

6 .0

4 -.0

5 -.0

3 .1

0 a

-.11 b

.0

3 .0

4 -.1

4 b

11

. Man

ufac

turin

g -.0

6 -.0

6 .0

4 .1

5 b

.01

.17 b

- .0

5 .2

2 b

- .40b

- .08 a

12

. Con

stru

ctio

n .0

2 .0

0 -.0

2 -.0

8 a

.02

.05

-.11 b

.1

4 b

-.33 b

-.0

7 -.1

8 b

13

. Ret

ail a

nd tr

ade

.00

.05

.00

.00

.13 b

-.0

7 .0

3 -.0

8 -.4

7 b

-.10 a

-.2

7 b

-.22 b

14

. Num

ber o

wne

rs (l

n)

-.09 a

-.2

2 b

-.09 a

.1

3 b

-.16 b

.3

0 b

.02

.08 a

-.1

0 b

-.03

-.02

-.06

-.08 a

15. B

oard

of d

irect

ors

-.12 b

-.1

5 b

-.10 b

.1

0 b

-.06

.26 b

-.0

2 .1

6 b

-.13 b

-.0

3 .1

5 b

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Table 3.3: Prediction of product innovation Dependent variable Product

innovation Product

innovation Product

innovation Product

innovation Product

innovation

Model 1 Model 2 Model 3 Model 4 Model 5 Explanatory variables β valued β valued β valued β valued β valued Controls

Company size (ln) .22c .22c .20c .20c .20c Expansion .12c .12c .12c .12c .12c Age (ln) -.14c -.14c -.13c -.13c -.14c Construction .01 -.02 -.01 -.01 .00 Retail .06 .06 .06 .06 .06 Manufacturing .15c .15c .16c .16c .16c Agriculture .02 -.02 -.03 -.01 .03 Number of owners (ln) .07 .06a .06 .03a .07 Board of directors .04 .03 .03 .05 .04 Ownership-management overlap -.04 -.03 -.05 -.05 -.06

Family involvement -.02 -.02 -.01 -.02 .49 Ownership social capital

Quality of relationships .09a .05 .07 Shared vision .04 -.04 -.09 Network mobilization .14c .14b .25c Moderator family involvement

Interaction effect Family involvement x network mobilization Family involvement x quality of relationships Family involvement x shared vision

-.81b -.28 .56

∆R square .007a .002 .018c .013c .011b R square .121c .116c .133c .135c .146c Adj. R square .106 .101 .118 .117 .125 F statistic 7.99 7.63 8.87 7.70 7.332 DF (df1, df2) 12,695 12,695 12,695 14,693 16,691 a: p < 0.05; b: p < 0.01; c: p < 0.001; N = 708 d: β values represent standardized regression coefficients in the multiple regression analysis.

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A bootstrap test is then used to estimate the mediation effect, following the recommendations of Preacher and Hays (2008). 10,000 bootstrapping resamples were run with a list wise deletion of missing data and 95 percent confidence intervals, and. The analyses examine the direct relationship between the quality of relationships and the dependent variable (product innovation) as well as the indirect relationship through the mediator (network mobilization) while controlling for the control variables. The total effect of the quality of relationships on product innovation (.12) is significant (t = 1.96, SE = .063, p = .05). However, after network mobilization is added as a mediator, the path coefficient becomes non-significant, suggesting mediation. Furthermore, the bootstrapping technique shows a bias-corrected 95% confidence interval of 0.0233 to 0.0977 for this indirect effect, with the lower and upper limits above zero. Taken together, the results reveal that network mobilization has a significant mediation effect on the relation between the quality of relationships and product innovation, which lends support for Hypothesis 3a. In Model 5, the results of the hypotheses predicting family involvement as a moderator are shown. Hypothesis 4a predicts that family involvement among the owners will have a negative moderating effect on the relationship between network mobilization and product innovation. The results show a negative interaction term for family involvement and network mobilization in the model predicting product innovation (β = -.81, p < .01). These results therefore support Hypothesis 4a. The nature of the interaction effect is depicted in Figure 3.2. Figure 3.2: Interaction term family involvement and network mobilization

1

1,5

2

2,5

3

3,5

4

4,5

5

Low Network mobilization High Network mobilization

Prod

uct i

nnov

atio

n

Low Family involvement

High Family involvement

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The solid line in Figure 3.2 is steeper than the dotted line, which indicates that firms with low levels of family involvement will benefit more from the mobilization of the owners’ network, resulting in higher scores for product innovation. Overall, the levels of the different slopes indicate that, when compared with firms with low levels of family involvement, firms with high family involvement have lower product innovation scores. The horizontal dotted line in Figure 3.2 confirms that the family firm context is not a fruitful environment for mobilizing and using potential network resources to realize product innovation. In other words, while the analysis of the data does not reveal a direct effect of family involvement on the development of new products and services, the proposed negative moderating effect of family involvement on the relation between network mobilization and product innovation is confirmed by the data set. Hypothesis 4b predicts that family involvement in the owning group will have a positive moderating effect on the relationship between the quality of relationships and product innovation. Following the same arguments, Hypothesis 4c predicts that family involvement in the owning group will have a positive moderating effect on the relationship between shared vision and product innovation. The results are presented in Model 5. The results of the moderating effect of family involvement on these components of bonding ownership social capital are not significant (interaction with quality of relationships: β = .28, ns; interaction with shared vision: β = -.56, ns), lending no support for Hypotheses 4b and 4c.

Other results

The number of owners is the only ownership characteristic that significantly influences the dependent variable (β = .06 in Model 2 and β = .03 in Model 4; p < .05), albeit not in all models. The control variables for business characteristics show significant associations for company size, expansion, age, and sector. Younger firms have a higher score on product innovation (Model 5: β = -.14, p < .001) as do larger firms (Model 5: β = .20, p < .001). The same holds true for firms in the expansion stage versus those in other life-cycle stages (Model 5: β = .12, p < .001). Of the various business sectors that were included in the analysis, only manufacturing has a significant positive effect on product innovation (Model 5: β = .16, p < .001). Those results are consistent through all models.

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Theoretical and managerial implications

The main aim of this study was to improve the understanding of the relationship between ownership social capital and product innovation. The analysis provides empirical support for several of the suggested hypotheses. With regard to bridging ownership social capital, the results reveal a significant direct relation between the mobilization of the owning group’s network and the realization of new products and services. Bonding ownership social capital is measured in terms of the shared vision among the owning group and the quality of the relationships among members of the owning group. Of these two components, only the quality of relationships has a significant effect on product innovation. The analysis shows that the quality of the relationships among members of the owning group has an indirect effect on product innovation via the mobilization of the network resources of the owning group. Based upon the theoretical discussion, family involvement is expected to act as a moderator. Given the bivalent attributes of family involvement, a positive effect on the relation between bonding ownership social capital and innovation, and a negative effect on the relation between bridging ownership social capital and product innovation are expected. However, only the negative moderating effect on the relation between bridging ownership social capital and product innovation is found to be significant. These results have several theoretical and practical implications. First, the findings of this study enhance the understanding of the concept of ownership social capital. A starting point of this study is the recognition of business owners as a distinct and important group within the privately held firm. The empirical results highlight the positive effect of components of ownership social capital on product innovation. From a theoretical perspective, the analyses support the view that both bonding and bridging ownership social capital play roles in innovation: good relations among owners as well as the resources in the owners’ external networks are valuable for the development of new products and services. These findings are consistent with other research showing that social capital in general is important for stimulating innovation (e.g., Subramaniam & Youndt, 2005). Furthermore, bonding and bridging ownership social capital do not appear to be mutually exclusive resources. These findings are in line with the qualitative study of family-controlled businesses by Salvato and Melin (2008) and a quantitative study of sales managers by Moran (2005). The results of the present study also support the argument that it is important to consider both bonding and bridging aspects when attempting to build an integrative view of social capital (Lin, 1999; Payne et al., 2011; Zheng, 2010). In addition, the results are in line with the argument made by “small world” researchers that high levels of closure and tie strength in the local cluster, together with a large number of weak bridging ties with other clusters, have a positive effect on innovation (Zheng, 2010). A study by Fleming and Marx (2006) on ties between inventors in Boston and Silicon Valley shows the benefits of such a “small world.” They emphasize that it is neither the cohesive clustering nor the bridging ties

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in themselves that improve seminal creativity. Rather, the interaction of these two effects leads to positive outcomes. From a managerial perspective, this study emphasizes the positive effect of both dimensions of ownership social capital on product innovation performance. The group of owners in privately held firms should view both aspects as important. Not only will good relations between owners have a positive effect on innovation but external network activities will also add value to the innovation process. The results reveal no significant direct effect of family involvement on the dependent variable. However, family involvement is also considered as a moderator. In the latter case, a significant negative effect is found for the relationship between mobilization of the owning group’s network resources and product innovation. This study shows that the influence of family ties among the owning group and family involvement in the firm have a limited influence on product innovation. In fact, the effect is less prominent than might be expected from previous theoretical and empirical research (e.g., Arregle et al., 2007a; Pearson et al., 2008; Sorenson et al., 2009). Therefore, it is suggested that research in this area should not be limited to the family firm context. When only family firms are taken into account, social capital can be misinterpreted as a resource stemming from the family sphere when, in fact, it is a positive outcome regardless of whether there are family ties. In summary, the results suggest that it is useful to focus on behavioral and attitudinal factors influencing the functioning of a group of owners instead of looking exclusively for a family effect. Nevertheless, it may be needed to delve deeper into the types of families studied. For instance, Ensley and Pearson (2005) find differences among non-family, parental, and familial top management teams with regard to the level of cohesion, conflict, potency, and consensus. Their study reveals, for example, that group cohesion is highest in parental teams followed by non-family top management teams, with familial teams scoring the lowest.

Research limitations and implications for future research

This research suffers from several limitations. First, although four of the hypotheses are supported by significant results, a rather small percentage of variance in the dependent variable is explained by the proposed full model. Future research might explore additional sources of capital that can help to explain a greater proportion of variation in product innovation. For example, Tsai and Ghoshal (1998) emphasize the exchange and combination of resources with other business units as important in explaining the level of product innovation. Research that takes other forms of capital into account, such as human capital, patient capital, or financial capital, would be helpful in developing a complete picture of how these different resources affect firm innovation (Sharma, 2008). For example, Subramaniam and Youndt (2005) reveal that social capital works as leverage for investments in human capital. Furthermore, to improve our understanding of ownership social capital, it would be helpful to elaborate on the characteristics of the group of owners. In line with Ensley and Pearson (2005), researchers could differentiate among non-family, familial, and parental

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teams. A future study that includes such variables as education, age, and work experience of members of the owning group may also more clearly reveal the antecedents of ownership social capital. Another limitation of this study is that it only includes one dimension of innovation – the development of new product and services. It would be valuable to include other aspects of innovation, such as managerial and organizational innovation. Kraus et al. (2012) find, for example, that organizational innovation is a type of innovation that has a significant positive effect on the corporate success of family firms. Furthermore, this study entails cross-sectional data from only one country (the Netherlands). Further research in other countries will reveal whether the results are country specific. Especially with regard to aspects of bonding ownership, social capital scholars are aware of the potential influences of cultural differences. For instance, trust among organizational members is probably highly correlated with the more general variable of trust in other persons (Westlund & Adam, 2010). The general score on trust within society can vary widely from country to country, an aspect that may be worthy of consideration in future research.

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Conclusions

The purpose of this study was to investigate whether ownership social capital contributes to the development of new products and services by private firms, and whether family involvement moderates this relationship. A first contribution of this study is an enhanced understanding of the concept of ownership social capital in relation to product innovation. Based on a random sample of Dutch private firms, this study reveals that the mobilization of the network resources of the business-owning group has a direct positive relationship with product innovation. An indirect effect is found between quality of relationships among the members of the business-owning group and product innovation via network mobilization. These findings confirm earlier research that highlights the role of owners in relation to product innovation (Bergfeld & Weber, 2011). Also the positive impact of social capital on product innovation is confirmed in this study (Zheng, 2010). A second contribution relates to the impact of family involvement on product innovation. Interestingly, the study finds only one moderating effect, namely a negative effect of family involvement on the relationship between network mobilization and product innovation. When combined with the positive effects of ownership, this negative family effect highlights the need for a better understanding of these different contributions to product innovation. This research is a first step towards a better understanding of this topic, and highlights the importance of distinguishing between ownership and family as two systems that interact with each other and with the business system. Finally, the indication that interaction effects are present between the bonding and bridging elements of social capital is interesting. It may be promising to analyze whether the “small world” conditions (Fleming & Marx, 2006) hold for the owner groups of privately held firms. Also, longitudinal research could more accurately investigate the sequential path between bonding and bridging, and thereby improve our understanding of the important concept of social capital in relation to product innovation.

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4: The relationship between spousal social capital in copreneurial firms and firm performance11

4.1 Introduction

Case 1: Just as Marc decided to hire the first employees in his construction business, his wife Alice lost her job as a management assistant at a regional technical school. Alice decided to take care of the many administrative tasks in her husband’s small business and started working for the firm on a part-time basis. Alice and Marc have four children and own equal shares in the business. As the business is located near their home, Alice can easily combine her work with taking care of the children. The business is growing and Alice’s contacts with her old employer help the company recruit young, qualified personnel. The spouses make all important decisions together, both at home and at work. However, their roles are clear: Marc is the manager at work and Alice is the manager at home. Case 2: The succession plan seemed clear. Robert and his life partner Lianne had taken over the real estate agency from Robert’s parents, who still worked part-time in the business but planned to retire within a couple of years. Lianne and Robert had a shared vision of the long-term orientation of the business. Lianne had been working in Robert’s family business for 10 years, and she and Robert had lived in an apartment above the office. However, things changed rapidly when Robert ended their relationship six months ago. Lianne found a new place to live but she still works for the family business. The relationships among the four adults are tense. Robert’s parents are worried about the completion of the succession plan and the future of the family business. Lianne is devastated. In a short space of time, she has lost nearly everything: her partner, her house and, most likely, her job. Robert feels responsible for the whole mess and is trying hard to keep matters from worsening. The cases above describe two situations in which couples are responsible for a family business. Such firms are known as “copreneurial” businesses. According to Ponthieu and Caudill (1993), copreneurs are married couples or life partners who jointly own and operate business organizations or who otherwise share risk, ownership, responsibility, and management by working together in any phase of a business venture. The first case illustrates the advantages of such a working relationship (quick decision-making processes and the possibility of combining business with personal life), whereas the second highlights the vulnerabilities of this type of business. The overlap of business and personal life presents several unique challenges for the couples involved. The purpose of this study is to investigate the influence of some of these challenges on the performance of copreneurial firms. Demographical changes and changes in society at large have not only influenced how families are composed but also the roles and relationships among family members. These

11 This chapter is based on a manuscript by Matser, Van Helvert-Beugels, Farrington, Venter & Rigtering. (2012), which was presented at EFMD Conference Maastricht, March 5-6, 2012.

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changes have implications for new business opportunities, opportunity recognition, business start-up decisions, and the resource mobilization process (Aldrich & Cliff, 2003). The copreneurial business serves as a good example of how these changes can impact an organization. In a representative study undertaken in the Netherlands (Flören et al., 2010), 16% of all family firms described themselves as copreneurial businesses (see also Chapter 1, section 1.5.3). Similarly, figures for the UK indicate that 26% of all business owners have a partner or spouse working with them (Fletcher, 2010). However, relatively little research has been done on this important subgroup of family firms (Rutherford, Muse, & Oswald, 2006). One exception is a research project conducted by Fitzgerald and Muske (2002) in the United States. Results from their study show that, when compared to other types of entrepreneurs, copreneurs work longer hours, have lower financial performance, and view their businesses more as a way of life than a source of income. Furthermore, copreneurs experience a need to renegotiate roles and expectations for both their firms and their spousal relationships. The importance of the spousal relationship is emphasized in the literature on new venture creation. The commitment of spouses seems critical to overcoming difficulties during the initial phases of operation (Bosma, Van Praag, Thurik & De Wit, 2004; Danes, Lee, Stafford & Heck, 2008; Davidsson & Honig, 2003). A spouse with low levels of commitment is said to add to the stress associated with starting a business, as a lack of commitment often creates work and family conflicts (Van Auken & Werbel, 2006). Bosma et al. (2004) find the emotional support of a spouse to be important—those entrepreneurs who enjoy it earn approximately 40% more than their counterparts who have no such support. This chapter expands the extant research on new venture creation to established copreneurial firms. Within this context, the impact of the spousal relationship on the financial performance of the business is analyzed and differences in performance within copreneurial businesses are explained in terms of dimensions of spousal social capital. In line with Danes et al.’s (2009) definition of family social capital, spousal social capital is defined as the goodwill among and between spouses and their external network that can serve as input for the couple and their business to facilitate action. Social capital is used as the theoretical framework because social capital is based on relational aspects and has been identified as a key strategic resource for achieving a long-term competitive advantage (Adler & Kwon, 2002). Given the large number of businesses characterized as copreneurial, as well as the role that spousal social capital can play in their success, the primary objective of this chapter is to investigate the influence of dimensions of spousal social capital on the performance of copreneurial businesses. This research also adds to the understanding of how social capital develops through the life cycle of copreneurial firms. The focus of this investigation is on established copreneurial firms. Until recently, most research on copreneurial firms has related to those in the start-up phase (Danes et al., 2008; Matzek, Gudmunson & Danes, 2010). Lastly, following Lee’s (2009) suggestion that the linkages and interplay among the various

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dimensions of social capital warrant further investigation, this study aims to investigate the interactions of various dimensions of spousal social capital. The article proceeds as follows. First, the literature overview discusses the concept of social capital theory and how it can be applied to copreneurial companies. The concept of spousal social capital is discussed in detail and the different dimensions of spousal social capital – the structural, relational, and cognitive dimensions – are discussed. The hypotheses and the methodology are then presented, as is the data analysis. Lastly, the implications of the research results are discussed, as are recommendations for future research.

4.2 Spousal social capital: background and hypotheses

4.2.1 The copreneurial relationship as a strategic resource

“Familiness” refers to the unique bundle of resources created by the interaction that occurs between the family and business (Sirmon & Hitt, 2003). The concept was introduced by Habbershon and Williams (1999), who use the resource-based view (RBV) to link the uniqueness of family firms to an advantage in the market. The overlap that occurs between the business and the family creates a strategic resource that can result in a long-term competitive advantage for the family business. Pearson et al. (2008) and Arregle et al. (2007a) use social capital theory to further develop the familiness construct. The focus on social capital arises because it is seen as a key strategic resource and as a way of leveraging other sources of capital (human, financial, emotional, and physical) (Arregle et al., 2007a; Montemerlo & Sharma, 2010; Steier, 2007). Similarly, the focus is on spousal social capital in the form of strategic resources derived from the couple’s relationship that span the home and work environments. Research has shown that spousal social capital is an important resource for couples starting a business (e.g., Bosma et al., 2004; Davidsson & Honig, 2003). The commitment of spouses to the business and the emotional support of spouses appear to be valuable resources during the initial phases of operation. However, familiness does not always lead to a competitive advantage. Habbershon and Williams (1999) distinguish between “constrictive” familiness and “distinctive” familiness. Constrictive familiness occurs when the overlap between the family and the business negatively affects the functioning of the family firm, whereas distinctive familiness occurs when the impact is positive. Therefore, this study suggests that spousal attributes can lead to a competitive advantage in some situations but not in all cases. In this study, “social capital” is defined as the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit (Nahapiet & Ghoshal, 1998). In organization studies, social capital theory is used to analyze the effect that the structure and content of social relations can have on firm performance (Nahapiet & Ghoshal, 1998). Westlund and Adam’s (2010) meta-analysis of the relation between social capital and performance shows strong evidence

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of this relationship. Of the 21 studies in their survey, 18 found a positive impact of social capital on performance when the latter was measured in terms of economic growth. Nahapiet and Ghoshal (1998) argue that it is useful to define social capital in terms of three dimensions: the structural, the cognitive, and the relational. This division has been adopted by numerous scholars, including Pearson et al. (2008). Pearson et al. (2008) designed a model of social capital stemming from familiness by incorporating the studies of Arregle et al. (2007a), Leana and van Buren (1999), Nahapiet and Ghoshal (1998), Oh, Labianca, and Chung (2006), and Tsai and Ghoshal (1998). To analyze the functioning of social capital in family firms, Pearson et al. distinguish between family firm resources and family firm capabilities: “The presence and strength of the resources lead to organizational capabilities that are advantageous for superior firm performance” (Pearson et al., 2008, p. 960). Pearson et al.’s (2008) model forms the basis of the research discussed in this chapter, which investigates the concept of spousal social capital in copreneurial firms.

4.2.2 Three dimensions of spousal social capital

Structural dimension

In general, the structural dimension of social capital refers to the configuration of the networks that link a social unit’s members to one another (internal networks) or to external individuals and units (external networks) (Nahapiet & Ghoshal, 1998). In other words, this dimension is about social interactions and network ties in terms of who can be reached and how (Burt, 1992). This definition highlights a central component of the structural dimension: the existence or absence of external ties. For family firms, external ties are an important source of the knowledge necessary to stimulate entrepreneurship and safeguard against conservatism and nepotism, which can plague family firms (Zahra, 2010). An external network can help owner-managers of small firms expand their limited supply of tangible and intangible assets. For instance, product innovation becomes a viable strategy when undertaken in cooperation with a supplier and/or client. For such purposes, external ties are valuable for gaining access to knowledge and sharing costs. In copreneurial firms, it seems important that couples approach non-family members for advice and expertise on business matters when needed. Chua et al. (2003) highlight the importance of non-family involvement by showing empirically that non-family executives play a critical role in strategic decision making. According to Sharma (2004), there is a clear need to devote more attention to understanding the role and influence of non-family employees. In this study, therefore, spousal social capital is linked to the usage of an external network for advice and for help in making strategic decisions. Not only is the existence of an external network relevant, but the willingness to use external ties also seems pivotal. Sorenson (2000, p. 197) indicates that consultation with outside professionals is correlated with both business and family outcomes: “Perhaps the best analogy of a family business leader that does not consult with professionals is the

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stereotypical man who refuses to stop to get directions when he is lost.” This analogy suggests that one characteristic of an effective family businesses is a willingness to utilize the expertise of competent external professionals. In a test of survey data covering firms in Finland, Mustakallio et al. (2002) show that outsider expertise positively influences strategy formation, decision making, and business survival. Furthermore, Farrington, Venter, Eybers, and Boshoff (2011) find evidence of a positive relation between non-family involvement and the performance of the copreneurial firm. Classen et al. (2012) find a positive relation between a higher percentage of non-family managers and a higher performance on product innovation. Arregle, Nordqvist, Mari, Melin, and Very (2007b) emphasize the role of the board in mitigating conflicts among family owners. Woods, Dalziel, and Barton (2012) stress the importance of outside board members in avoiding escalation of commitment. Long-term dependence on a single owner or small group of owner-managers can result in owner-managers becoming entangled in their own rhetoric and beliefs, and prevent them from facing reality and objectivity. Taken together, these arguments lead to the first hypothesis: Hypothesis 1: There is a positive relationship between non-family involvement and the financial performance of the copreneurial business. Cognitive dimension The cognitive dimension refers to those resources providing shared representations, interpretations, and systems of meaning among members of a collective (Nahapiet & Ghoshal, 1998). When actors within a collective participate in meaningful communication, synergy is created (Tymon & Stumpf, 2003). For instance, shared meanings and language facilitate the exchange of information that allows actors to share thinking processes (De Carolis & Saparito, 2006), which can lead to knowledge creation. Within family firms, a shared vision and a shared language are often deeply embedded in the family’s history. This creates fertile ground for the creation of a shared focus on the long-term continuity of the firm (Pearson et al., 2008). For example, a well-known, third-generation Dutch family firm uses mottos introduced by the first generation as a point of departure for its current strategic focus, highlighting that values from the past are still useful for shaping the present situation. In copreneurial firms, a key component of the cognitive dimension is the spouses’ shared vision for the firm. According to Van Auken and Werbel (2006), committed spouses/partners work cooperatively towards common goals, which in turn has a positive effect on business performance and perceived success. In their research on private firms, Uhlaner, et al. (2007) find a positive relation between collective norms and goals, and commitment, and that more commitment leads to higher financial performance. Similarly, Berent-Braun (2010) proposes that a firm that is unified by a shared vision among the owners will achieve better performance. In line with these findings, copreneurs who have a shared vision should perform better than their counterparts. These leads to the second hypotheses:

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Hypothesis 2: There is a positive relationship between a shared vision between the spouses and the financial performance of the copreneurial business. Relational dimension The relational dimension refers to those assets created and leveraged through relationships. The key aspects of this dimension are trust and trustworthiness, norms and sanctions, obligations and expectations, and identity and identification (Nahapiet & Ghoshal, 1998). A core element is trust, especially a trustor’s belief that a trustee will act beneficially because the trustee cares about the trustor’s welfare (De Carolis & Saparito, 2006). Lee’s review of empirical findings on social capital (2009) uncovers several benefits of high trust within a business environment: trust seems to enhance firm confidence, trust stimulates firm performance during times of market uncertainty, and trust facilitates the formation of alliances and resource exchange. The characteristics of family firms create conditions that are favourable for the development of the relational dimension. Especially in first-generation family firms, trust is regarded as an important strategic asset that can lead to a competitive advantage (Steier, 2007), particularly because the family firm stays within the context of a single nuclear family. This is also the case in copreneurial firms. Obligations to both the family and the business create an environment that stimulates collective actions (Pearson et al., 2008). However, a high-quality relationship between the spouses cannot be assumed. When couples are unable to effectively manage their professional and personal relationship, performance might be negatively affected. In this regard, Flechter (2010) identifies issues related to power, competition, and control. For example, the diversification of the business might be justified by the importance of creating “own space” for spouses. In contrast, when couples work and live together in harmony, Farrington et al. (2011) find a positive effect on firm performance and perceived success. Against this background, the proposition is that firms in which couples have a high-quality relationship that is characterized by trust and respect will outperform their counterparts, which leads to the third hypothesis: Hypothesis 3: There is a positive relationship between the quality of the copreneurial relationship and the financial performance of the copreneurial business. Shared vision as a mediating variable Little existing empirical research analyzes the interactions among the three dimensions of social capital (Lee, 2009). The association between the relational and cognitive dimensions of social capital can be viewed in opposing directions. Pearson et al. (2008) argue that the cognitive dimension is an antecedent of the relational dimension. For instance, a partner who is deeply committed to the firm’s goals is expected to invest more in keeping the relationship healthy. Empirical evidence for this proposition is provided by Liao and Welsch (2005), who

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find that nascent entrepreneurs distinguish themselves from a control group in their ability to utilize their cognitive capital to build relational capital. However, other scholars argue that the link between the cognitive dimension and the relational dimension functions in the opposition direction. Lee (2009) and Long (2011) posit the relational dimension of social capital as a critical starting point. In their view, meaningful communication is necessary for the development of intellectual capability. Sorenson et al. (2009) focus on two different but related building blocks of family social capital, they argue that collaborative dialogue relates positively to the presence of ethical norms of families in business. Collaborative dialogue can be viewed as a method for sustaining good relationships, and a moral infrastructure within a family might be extended to the business and positively influencing a shared vision on the business. The way in which the two dimensions influence each other may also be explained in terms of the stage in the firm’s life cycle. For a new business venture, a shared vision can help the copreneurial couple achieve a satisfactory relationship that can be sustained during the hectic initial years of the business (e.g., Van Auken & Werbel, 2006). If the couple can sustain a healthy relationship after working together for an extended period, their shared vision on the future of the firm will be positively affected. If instead a couple encounters problems in their private life, the strategic planning for the business will be negatively affected. Based on this discussion and the conflicting viewpoints, the following relation is hypothesized: Hypothesis 4: The relationship between the quality of the copreneurial relationship and the financial performance of the copreneurial business is mediated by the shared vision of the copreneurs.

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4.2.3 Developmental conditions for spousal social capital Arregle et al. (2007a) focus on the development of familiness and highlight the importance of the conditions for developing social capital. In general, favorable conditions include high levels of mutual interdependence, interaction, time and stability in social relationships, and a closed social network (Nahapiet & Ghoshal, 1998). Pearson et al. (2008) argue that a family firm context leads to more favorable conditions for the development of social capital than a non-family firm context. These favorable conditions should also be evident among copreneurial firms for several reasons. First, mutual interdependence and interaction typically characterize the relationship of spouses working together in a small firm. Second, evidence indicates that a closed network is a feature of social relationships that is conducive to the development of social capital (Nahapiet & Ghoshal, 1998), and that such closure is particularly strong in family firms (Arregle et al., 2007a), including copreneurial firms. However, while it is important to emphasize that closure is necessary to create social capital, too much closure can have a negative effect on the continuity of copreneurial firms. In this respect, Sirmon, Hitt, Arregle & Webb (2008) mention several negative effects of family influence: group think, alienation, strategic simplicity, nepotism, reliance on tradition, and succession biases. Non-family involvement can help prevent these negative effects, a suggestion reflected in the first hypothesis of this chapter. In line with the positive and negatives outcomes of a closed network, Adler and Kwon (2002) stipulate the importance of a balanced view on social capital, suggesting that social capital should not be seen as a resource with only positive effects. Montemerlo and Sharma (2010) posit that it is necessary to unbundle the family business into two separate units: the business and the family. This makes it possible to understand how stocks of bonding social capital are built and can flow from one system to the other. To ensure the long-term continuity of the two systems, it is necessary to find a balance, as an imbalance will eventually lead to reduced capital stock for one or both systems (Sharma, 2008). In the long run, the flow of stock between the business system and the family system will have to lead to a positive outcome (Litz, 2008; Sharma, 2004). Therefore, it is proposed that a balance between work and family life is an important developmental condition for social capital in copreneurial firms. Role clarity between the spouses can help to achieve this balance. Role clarity Boundary theory can help clarify the overlap and interaction between the family system and the business system. According to Sundaramurthy and Kreiner (2008), boundary theory is helpful in predicting the nature of interactions between social actors, and the potential benefits and liabilities of varying degrees of interaction. Most copreneurs will spend a significant amount of time together at home and at work. Consequently, they are expected to bring personal issues to work and vice versa. Boundary theory makes it possible to identify the roles of the copreneurs (partners for life versus partners in business), their role flexibility (the degree to which an individual changes roles, e.g., discussing work-related issues at

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home), and the role permeability (the degree to which a role allows for elements of another role to be integrated and assimilated, e.g., taking care of a child at work) (Sundaramurthy & Kreiner, 2008). For copreneurs in particular, dealing with these boundaries is challenging. Sundaramurthy and Kreiner (2008) identify a range of situations from full segmentation to full integration of private life and work. They highlight that all options have possible advantages and disadvantages. For instance, full integration, a common situation in copreneurial firms, can not only lead to a shared identity but also to role ambiguity or role conflict. Therefore, there is a need for actors in the firm to engage in “boundary work” to manage the integration of the family and the business to reach an optimal situation within a specific context. The relatively high interdependence between the business system and the family system in copreneurial firms can be seen as a risk for the continuity of the business. The copreneurial couples studied by Fletcher (2010) identify several key challenges stemming from this high interdependence with potential negative outcomes: balancing roles between family and work life; making the business more professional; and problems related to leadership ambiguity. Most firms in Fletcher’s (2010) study show signs of emotional intensity. In addition, Farrington et al. (2011) find evidence of a positive relation between balance of work and home and the quality of the relationship between spouses. It is therefore hypothesized that role clarity between spouses has a positive effect on the cognitive and relational dimensions of spousal social capital: Hypothesis 5a: The greater the role clarity between spouses, the higher the shared vision among the copreneurs. Hypothesis 5b: The greater the role clarity between spouses, the higher the quality of the copreneurial relationship. Role clarity has been hypothesized to have a direct positive impact on the relational and cognitive dimensions of social capital (hypotheses H5a and H5b). The relational and cognitive dimensions of social capital have also been hypothesized to have direct positive effects on financial performance (hypotheses H2 and H3). When these four hypotheses are combined, mediation effects are expected. Therefore, the following two hypotheses are proposed: Hypothesis 5c: The relationship between the role clarity between spouses and the financial performance of the business is mediated by the shared vision between the copreneurs. Hypothesis 5d: The relationship between the role clarity between spouses and the financial performance of the business is mediated by the quality of the copreneurial relationship. The hypothesized relationships are depicted in Figure 4.1.

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Figure 4.1: Research framework

Non-family involvement


Quality of relationshipsbetween spouses

Shared visionbetween spouses

Financialperformance

Role claritybetween spouses

H1

H2 H4 H5c

H3H5d

H4

H5b H5d

H5a H5c

Control variablesSector, age of business, gender and education level of respondent

4.3 Method

4.3.1 Sample and data collection

The target group for this research is small and medium sized enterprises12 (SMEs), as most copreneurial businesses are likely to fall within this category.13 In order to identify potential respondents, the database of The Dutch Centre for Family Firms (Centrum van het Familiebedrijf) was used. This database contains the contact details of 628 family businesses throughout the Netherlands. Once identified, potential respondents were contacted by telephone and invited to participate in the study. As in other research where access to a national database has been limited (Sonfield & Lussier, 2004; Van der Merwe & Ellis, 2007; Farrington, 2009), a convenience snowball sampling technique was used to increase the number of respondents. Once the copreneurs confirmed their willingness to participate in the study, they were asked to identify other copreneurial businesses that could be approached. These potential respondents were then also contacted by telephone and the process was repeated.

12 SMEs are categorized using the European Commission’s definition (Eurostat, 2011): micro less than 9 employees; small 10-49 employees; medium 50-249 employees. 13 For example, an additional analysis of the sample of Dutch private firms (Flören et al., 2010) shows that no more than 2.5% of the copreneurial firms have more than 200 employees.

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An instrument developed by Farrington et al. (2011) was used to measure the success of copreneurial firms and to gather data for each factor under investigation. Farrington et al. (2011) utilize items sourced from validated measuring instruments used in previous studies as well as several self-generated items based on secondary sources. In addition, questions were included in this study to solicit demographic and ownership information. Given our conceptual definition of copreneurs, responses were only included in the statistical analysis when the married or co-habiting couples shared ownership and/or when they worked together in the firm. An online survey instrument14 was made available via a web link sent by email to the copreneurs that agreed to participate. The email explained the purpose of the study and gave assurances of confidentiality. In total, 171 questionnaires were completed. Three cases were removed from the sample because data relating to company size was missing, making it impossible to check whether the company in question belonged to the target group. One case was deleted because the company did not meet the criteria for classification as an SME. All other responding firms met the criteria for copreneurial businesses and for SMEs, resulting in a final sample of 167 valid cases. The majority of the copreneurial businesses were retail businesses and the firms had, on average, 9 employees. Most respondents (56%) were male, the average respondent age was 47 years, and 33.13% of the respondents held a bachelor or master degree. A detailed overview of all sample statistics can be found in Table 4.1.

14 The Dutch questionnaire is available from the author upon request ([email protected]).

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Table 4.1: Overview of sample characteristics

Variable Demographic information

Sex 56% of the respondents are male

Respondent age Average age is 47 years

Partners Partners in life: mean of 22 years; partners in business: mean of 14 years

Education 33% B.Sc. or higher

Number of employees

The average number of employees is 9; 30% have 0 employees, 45% are micro firms (1-9 employees), 22% are small firms (10-49 employees), 3% are medium-sized firms (50-249 employees)

Sales 34% have sales of less than EUR 250,000; 15% have EUR 250,000-500,000; 21% have EUR 500,000-1 million; 25% have EUR 1-5 million; 5% have more than EUR 5 million

Sector 3% are in manufacturing 9% are in construction; 5% are in wholesale; 34% are in retail; 16% are in catering; 8% are in financial services; and 25% are in “other” industries.

Age of the business

13% were established prior to 1949, 16% in 1950-1974; 38% in 1975-1999; 31% after 1999

4.3.2 Variables

This section briefly describes each of the variables used in the study. A more detailed description of each composite variable is provided in Appendix A at the end of this chapter. Non-family involvement is a component of the structural dimension of social capital, and refers to the extent to which the copreneurial couples involve non-family members in order to effectively manage their businesses and when making strategic decisions in their business. Respondents were asked to respond to four statements (see Appendix A) using a seven-point Likert-type scale, ranging from totally disagree (1) to totally agree (7). In line with Classen et al. (2012), respondents were asked whether non-family members were part of the management team. Other statements elaborated on this by investigating when and how these non-family members were involved. To measure the shared vision of the copreneurs, respondents were asked to respond to four statements using a seven-point Likert-type scale. The first three items resembled the items Mustakallio et al. (2002) developed to measure shared vision. Quality of the relationship relates to the relational dimension of social capital. Respondents were asked to respond to three items that measured the quality of their relationship inside and outside the working environment. These items were based, to some extent, on the research conducted by Morris and Williams (1996). Role clarity between spouses relates to the relative balance in the working relationship of the copreneurial couple. Respondents were asked to respond to three statements that were

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measured on a seven-point Likert-type scale. The statements were formulated based on anecdotal evidence on the division of labor (Marshack, 1993; Gale, 2002; Roha & Blum, 1990). Financial performance is the dependent variable in this study. It was measured by asking respondents to provide information on their firms’ performance. Van Teeffelen (2010) and Ghobadian and O’Regan (2006) argue that it is acceptable to use perceived performance measures because owners of small, private firms are often reluctant to provide detailed data on performance. Furthermore, other studies show that perceptions of performance are reliable or highly correlated with objective measures of performance. Financial performance was measured using several dimensions: growth in turnover, profit, and number of employees; overall profitability; and financial well-being. All items were measured on a seven-point Likert-type scale. Control variables are usually included in statistical analyses to identify partial relationships and to rule out alternative explanations (Babbie, 2004). Recently, there have been some concerns regarding the use of control variables in statistical models. Although researchers generally assume that the inclusion of a number of control variables in the model leads to more precise results, control variables can contaminate evidence of statistical relationships, and may lead to underestimated or overestimated relationships (Spector & Brannick, 2011). However, the blind inclusion of control variables remains the dominant approach even among top management journals (Atinc, Simmering & Kroll, 2012). In this study, Becker’s (2005) recommendations are followed in that control variables are only included when there is a significant relationship between those variables and the dependent variable, and/or when there is prior evidence and a logical reason for inclusion in the statistical model. The following variables were viewed as potential control variables in the present study: gender of the respondent, age of the respondent, education of the respondent, and age of the business. Gender and age have shown to be related to the quality of the interpersonal relationship within a marriage (Levenson, Carstensen & Gottman, 1993). As the quality of the copreneurial relationship is an essential element within the proposed model, these two control variables were added to filter out respondent-specific characteristics. Gender was measured as a dummy variable (0 = male; 1 = female), while age was measured as a continuous variable. Management training and education have been proven to increase the financial performance of small businesses (Jennings & Beaver, 1997). On the basis of the assumption that higher formal educational levels can synthesize such management training, education (measured as no bachelor degree (0), and bachelor degree or higher (1)) was added as a control variable. Firm age was added as a firm-level control variable, as firm age has been proven to have a negative effect on performance within large family firms (Anderson & Reeb, 2003). This relationship is expected to be similar for small and medium-sized family businesses. The inception year of the business was categorized on the following scale: before 1900, 1900-1924, 1925-1949, 1950-1974, 1975-1999, and after 1999.

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4.4 Results

The empirical analysis starts with tests of the convergent and discriminant validity, as well as a test of the reliability of the proposed measurement scales. The zero-order correlations between the different constructs developed to examine the hypothesized relationships, and the relationships between the control variables and variables under study are analyzed. Finally, the hypothesized model is tested using structural equation modeling (AMOS 18).

4.4.1 Factor analysis

All independent composite variables are included in a confirmatory factor analysis (CFA). To assess model fit, the confirmative fit index (CFI), root mean square error approximation (RMSEA), Tucker-Lewis index (TLI), and normative fit index (NFI) are calculated. Following Hair et al. (2006), a threshold value of .90 is set for the TLI, NFI, and CFI, while .08 is set as the threshold value for the RMSEA. The initial CFA yields acceptable levels of model fit for the CFI (.934), RMSEA (.062), and TLI (.916). Only the NFI (.850) is below the threshold value of .90. The latter is mainly due to the first item of the scale role clarity between spouses, which displays significant (p = < .01) cross loadings on the shared vision scale. This item is removed from the measurement scale because it is significantly related to another factor than to which was hypothesized. The adjusted model yields good to excellent model fit (CFI .988; RMSEA .028; TLI .984; NFI .906) and further model respecification seems unnecessary. Convergent validity in a measurement model is generally achieved when the squared factor loadings on the hypothesized latent construct are greater than .50 and/or when there is a significant relationship between the indicator and its hypothesized latent construct (Bollen, 1989). In the present study, all averaged squared factor loadings are above .50 except for the family involvement scale (average λ2 = .40). However, the individual item factor loadings for this scale are highly significant (p = < .01). Discriminant validity refers to the degree to which measures of theoretically unrelated constructs do not correlate with one another (Brown, Churchill Jr., Gilbert & Peter, 1993, p. 130). Farrell’s (2010) procedure for testing the discriminant validity of a scale, which is based upon the seminal work of Fornell and Larcker (1981), is applied. It involves the comparison of the average variance extracted (AVE) on each latent factor with the shared variances between the factors. As shown in Table 4.2, the AVE for each factor far exceeds the shared variances between the relevant factors. Therefore, it can be concluded that the developed measurement instrument displays good discriminant and convergent validity.

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Table 4.2: Average variance extracted and shared variance estimates

Variable Items 1 2 3 4 1 Non-family involvement 4 .16 .00 .02 .00 2 Shared vision 4 .08 .62 .44 .12 3 Quality of relationships 3 .14 .66 .73 .12 4 Role clarity between the spouses 2 .06 .35 .35 .60 Note: Correlations are below the diagonal, shared variance estimates are above the diagonal, and AVE estimates are on the diagonal. A Cronbach’s alpha test is used to calculate the reliability of the different measurement scales. A Cronbach’s alpha of .70 or higher is generally preferred (see Nunnally, 1978). All measurement scales within the present study can be regarded as reliable (see Table 4.3) except for the balance scale, which has a Cronbach’s alpha of .59. However, Cortina (1993) has shown that a Cronbach’s alpha test is sensitive to the number of items within the measurement scale and that an average inter-item correlation of .50 should generally lead to acceptable levels of reliability (Cronbach’s alpha > .75). The inter-item correlation within our two-item balance scale is .46 (p = < .01). Therefore, it can be concluded that the reliability of this scale is sufficient for use within the statistical analysis. The theoretical constructs were created by calculating the average score for each respondent.

4.4.2 Descriptive statistics and correlations

The zero-order correlation coefficients as well as the means and standard deviations of the variables under investigation are presented in Table 4.3. None of the control variables are significantly related to company performance. Contrary to expectations, age and gender are also not significantly related to the quality of the copreneurial relationship or the balance within that relationship. Following Becker's (2005) recommendations, these control variables are excluded from the statistical model. As a result, the only tested involving the proposed control variables focuses on whether their inclusion would change the results at a qualitative level. All variables under study are significantly related to firm performance and the directions of the relationships are consistent with our hypotheses (see Table 4.2). The results also offer support for the potential existence of the proposed mediating relationships, as all relevant independent variables are significantly related to both the potential mediating variables and the dependent variable. All mediating variables are significantly related to the dependent variable. Therefore the proposed mediating relationship is included within the statistical model.

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Table 4.3.: Means, standard deviations, and zero-order correlations Variable 1 2 3 4 5 6 7 8 9 1. Gender (-)

2. Age -.23**

(-)

3. Education -.03 -.08 (-) 4. Age of organization (category)

.11 -.20* .26** (-)

5.Non-family involvement

-.09 -.06 .05 .05 (.70)

6. Shared vision .11 .01 -.05 .02 .08 (.81) 7. Quality of relationship

-.04 .05 -.01 .03 .12 .56** (.73)

8. Role clarity -.05 -.04 .11 .06 .17* .26** .24** (.59) 9. Firm performance

-.10 -.07 .06 .01 .17* .32** .28** .20** (.77)

Mean .44 47.17 .33 4.79 4.24 6.05 6.53 5.54 5.11 SD .50 9.45 .47 1.24 1.31 .70 .50 1.09 1.13 Notes: The reliabilities (Cronbach’s alphas) are shown on the diagonal axis. Cronbach’s alphas cannot be calculated for one-item measures—these are labeled (-). N=167 * p = < .05 ; ** p = < .01.

4.4.4 Structural model

The hypothesized structural model (see Figure 4.2) is fitted to the data (N = 167), and the structural weights and model fit is examined. The model yields excellent model fit (CFI 1.0; RMSEA .0; TLI 1.008; NFI .974) and supports hypothesis H1, which suggests that non-family involvement increases firm performance (ß = .13, p = < .10). There is also support for hypothesis H2, which highlights the role of a shared vision in enhancing firm performance (ß = .25, p = < .01). Hypothesis H3, which states that the quality of the copreneurial relationship enhances firm performance, is not supported. Furthermore, role clarity between the spouses results in higher levels of shared vision (ß = .13, p = < .05) and increases the quality of the copreneurial relationship (ß = .24, p = < .01), providing support for hypotheses H5a and H5b. Within the structural model, neither role clarity between the spouses or the quality of the copreneurial relationship have significant direct effects on performance. In both cases, shared vision acts as a mediating variable, which provides support for hypotheses H4 and H5c. Given the absence of a direct relationship between the quality of the copreneurial relationship and firm performance, hypothesis H5d, which highlights the mediating role of the relational dimension of structural capital, is rejected. The inclusion of the control variables in the structural model with all hypothesized relationships between the control variables and the dependent and mediating variables does not change the results at a qualitative level.

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Figure 4.2: Structural model

Note: Covariances between the constructs and measurement errors have been omitted for the sake of clarity. † p = < .10; * p = < .05; ** p = < .01


The aim of this chapter was to identify those factors that influence the financial performance of copreneurial firms. The results contribute to the understanding of this type of business, which has received little attention from family business scholars. The statistical results show that various factors affect the financial performance of copreneurial business. Non-family involvement, for example, has a direct positive effect on financial performance. Role clarity has a positive effect on the relationship between the spouses and the shared vision of the copreneurial couple. The association between the quality of the copreneurial relationship and financial performance is mediated by the copreneurs’ shared vision. In addition, shared vision has a direct positive effect on the financial performance of the business.

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Theoretical implications The findings have several implications for family firm scholars. One of the goals of this research was to enhance the understanding of how social capital develops throughout the life cycle of copreneurial firms. Where other research has revealed the positive impact of spousal social capital in the start-up phase (e.g., Davidsson & Honig, 2003), this study shows that spousal social capital also has a positive impact on the financial performance of established copreneurial firms. In addition, this study identifies shared vision between spouses, and the use of non-family involvement at the strategic and management levels as elements of social capital that have a direct, positive impact on financial performance. Zheng’s (2010) review of social capital and innovation reveals the cognitive dimension of social capital as an under-researched dimension. Moreover, the results of the available research show that the cognitive dimension significantly overlaps the relational dimension. This study shows that shared vision, as a key element of the cognitive dimension, is a distinctive and significant variable – at least in this sample of copreneurs. Another aim of this study was to gain more insight into the linkages and interplay among the three dimensions of social capital. One of this study’s interesting findings is that the association between the quality of the copreneurs’ relationship and financial performance is mediated by the shared vision, and not vice versa. This finding differs from the theoretical construct proposed by Pearson et al. (2008) but is in line with the viewpoints of Lee (2009) and Long (2011). Limitations and recommendations for future research This research project is not free of limitations. A first limitation stems from the variable used to measure financial performance – objective financial data would enhance the credibility of the results. Second, the relatively small sample size implies that the possibilities to generalize the results are constrained. Third, as the sample consists only of copreneurial firms, the approach adopted here reveals factors that make some copreneurial firms more successful than other copreneurial firms. However, this study does not compare copreneurial firms with other types of firms. Future research with a more diverse sample would make it possible to identify the specific characteristics that distinguish copreneurial firms from other firms. Fourth, the dataset is biased for periods of economic growth. It would be interesting to test the assumptions in periods of economic decline. Therefore, future researchers may wish to work with a longitudinal research design. Repeated measurements would make it possible to establish causality and provide insight into the dynamics of the social capital dimensions. Such an approach would make it possible to test Long’s (2009) iterative model of social capital development.

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Practical implications The analyses of the data presented here can be translated into recommendations for copreneurs and their advisors. They offer several key messages for copreneurs. For copreneurs, working together with a spouse can create social capital and have a positive impact on the performance of the copreneurial business. In fact, the business will benefit from a good relationship between the spouses. However, the opposite is also true. If the relationship deteriorates, the shared vision of the business will be negatively affected and financial performance will suffer. Couples should be aware of these risks and should invest in keeping the relation healthy. One way of doing so is maintaining clear definitions of the various roles in play. Above all, the results highlight the importance of paying attention to spousal social capital. The findings presented here are in line with Sharma’s (2004) matrix on family and business dimensions: for long-term success, family firms need positive scores on both the business and the family dimension. Investments of time and effort in these “soft” issues will be beneficial for the private life of the couple and for the copreneurial business. Business advisors may discuss with couples the benefits and costs of working together in the business. They can help copreneurs by explaining the factors that influence the success of the businesses. By raising awareness of these “soft” issues, they can help these couples to achieve sustainability of both the business and the relationship. Conclusion To conclude, this study makes several contributions to the family business literature. The results help clarify the social capital components that are relevant for copreneurial firms. Moreover, these components are linked to the financial performance of copreneurial businesses.

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Appendix: Questionnaire items Financial performance C

ompl

etel

y di

sagr

ee

Neu

tral

Com

plet

ely

agre

e

Our copreneurial business has experienced growth in turnover over the past two years.

1 2 3 4 5 6 7

Our copreneurial business has experienced growth in profits over the past two years.

1 2 3 4 5 6 7

Our copreneurial business has experienced growth in employee numbers over the past two years.

1 2 3 4 5 6 7

Our copreneurial business is profitable. 1 2 3 4 5 6 7

The financial well-being of our copreneurial business is secure. 1 2 3 4 5 6 7

Structural social capital

In our business, my spouse and I involve non-family members in assisting us to effectively manage our business.

1 2 3 4 5 6 7

In our copreneurial business, non-family employees form part of the management team.

1 2 3 4 5 6 7

In our copreneurial business, we involve non-family members when we have to make important strategic decisions about our business.

1 2 3 4 5 6 7

If necessary, my spouse and I draw on the expertise of non-family members to assist us with business matters.

1 2 3 4 5 6 7

Shared vision My spouse and I have agreed on the goals for our copreneurial business.

1 2 3 4 5 6 7

My spouse and I have agreed on the future direction for our copreneurial business.

1 2 3 4 5 6 7

My spouse and I have agreed on the vision for our business. 1 2 3 4 5 6 7

My spouse and I freely express our opinions to each other concerning day-to-day business decisions.

1 2 3 4 5 6 7

Quality of relationships

My spouse and I trust each other. 1 2 3 4 5 6 7

My spouse and I respect each other. 1 2 3 4 5 6 7

My spouse and I are emotionally attached to one another. 1 2 3 4 5 6 7

Role clarity

In our business, a clearly defined division of labor exists between my spouse and I.*

1 2 3 4 5 6 7

My spouse and I have agreed on each other’s areas of authority and responsibility in our business.

1 2 3 4 5 6 7

In our business, clearly demarcated areas of authority and responsibility exist between my spouse and I.

1 2 3 4 5 6 7

* Item dropped after factor analysis

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5: Securing post-succession continuity in family firms through knowledge transfer15

5.1 Introduction

In the wake of the worldwide recession, family firms might prove to be a solid foundation for economic recovery. Family firms are viewed as the original form of business activity (Wakefield, 1995) and they dominate the economic landscapes of most major economies (Astrachan, 2003; Kraus et al., 2012; Morck and Yeung, 2003; Shanker & Astrachan, 1996). Furthermore, family firms appear to be less sensitive to rigorous, short-term demands from external shareholders. However, in periods of slow economic growth and less financing availability, the transfer of firms from generation to generation may prove challenging. A crucial moment in the life cycle of any family firm is a succession phase. An unsuccessful succession can have detrimental effects on performance and continuity. In addition, given the number of family firms, issues related to succession can have an impact at the macroeconomic level. The resource-based view (RBV) is often used as a theoretical basis to argue that “familiness” is a unique bundle of resources that ensures the competitive advantage of the family firm (e.g. Habbershon & Williams, 1999). In this article, familiness is linked to the growing interest in the knowledge-based view (KBV) of the firm. The KBV states that a firm’s ability to gain new knowledge and absorb it can be a great competitive advantage (Tsai & Ghoshal, 1998). Family firms have a significant amount of knowledge stored outside their real “knowledge tanks,” such as protocols and business archives. In these firms, extensive knowledge is also stored in routines, values, and norms (Grant, 1991). This reservoir can be labeled “tacit knowledge” (Cabrera-Suárez et al., 2001). This specific firm knowledge, together with the ability to create and transfer it, is considered a key strategic asset. It is argued that post-succession performance is highly dependent on the extent to which tacit knowledge has been transferred to the successor (Zahra et al., 2007). This chapter therefore suggests that tacit knowledge transfer plays an important role in post-succession performance. People are often not aware of tacit knowledge or how it can be of value to others. It is considered valuable because it provides contexts for people, places, ideas, and experiences. Given the characteristics of tacit knowledge, transferring it generally requires intense personal contact and trust. Royer, Simons, Boyd & Rafferty (2008) state that intergenerational succession has an advantage in this respect, as a positive knowledge transfer climate appears crucial for the success of the transfer of tacit knowledge. Therefore, the aim of this paper is to increase the understanding of one particular aspect of the succession process: the role of knowledge transfer. To assess the knowledge transfer climate, a construct 15 This chapter is based on Matser, Kraus, and Märk (2011), “Securing post-succession continuity in family firms through knowledge transfer,” which was published in the International Journal of Entrepreneurship and Small Business, Volume 14, No. 4.

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based on the theoretical framework proposed by Cabrera-Suárez et al. (2001) is built and tested. In May 2008, a survey of Dutch family firms was conducted. All firms had recently completed a succession process. An ordinary least squares (OLS) regression method was used to test the hypotheses. The data provide insights into the relations between knowledge transfer and post-succession performance, and show that trans-generational succession is preferred relative to transfer to an outside successor. The aim is to understand how knowledge transfer influences post-succession performance and to assess whether trans-generational succession should be preferred due to relatively better post-succession performance when compared to succession to outside parties. The chapter begins with a discussion of the familiness construct and the family firm’s focus on continuity as a key strategic asset. If familiness can be transferred from one generation to another, this legacy may be the core of the family firm concept. An important requirement for successful succession is the transfer of tacit knowledge from incumbent to successor. In Section 5.2.2, therefore, knowledge management, types of knowledge, and barriers to knowledge transfer are discussed. In Section 5.2.3, the moderator effect of a family successor is discussed. In Section 5.3, the methodology is explained, the data is described, and the hypotheses are tested. In the final section, the social implications of the findings are discussed and suggestions are made for further research.


5.2.1 Post-succession continuity

The concept of familiness, which was first introduced by Habbershon and Williams (1999) and based on the RBV, suggests that the unique resources that family firms may possess may give them an advantage in the marketplace. The RBV argues that firms can outperform others if they are able to maintain a competitive advantage. These competitive advantages can be maintained over the long run if resources are valuable, rare, inimitable, and non-substitutable (Barney, 1991). Several scholars suggest that the connection between family and business may lead to unique advantages in the acquisition of resources (Aldrich & Cliff, 2003; Haynes, Walker, Rowe & Hong, 1999; Stewart, 2003). For example, Barney, Clark & Alvarez (2002) argue that family ties may provide an advantage in opportunity identification because family members might be more likely to share information with each other than non-family members. Sirmon and Hitt (2003) distinguish five sources of so-called “family firm capital”: human capital, social capital, survival capital, patient capital, and governance structures. These authors argue that family firms acquire, bundle, and leverage their resources differently than non-family firms. Miller and Le Breton-Miller (2005) also describe resources that create competitive advantages for large, family-controlled businesses. They highlight four priorities that drive

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successful strategies, which they refer to as the “four Cs”: take command, ensure continuity, create a community, and build connections. In this regard, Miller and Le Breton-Miller (2005) draw attention to continuity as one key aspect of successful family firms. They distinguish various elements of continuity. Continuity starts with a fundamental mission that is deeply rooted within the family. This, in turn, motivates patient investment in the development of core capabilities, which will later enable the achievement of the mission. This patient capital is combined with a risk-averse financial strategy to secure organizational health. Another aspect of continuity is the length of top executive apprenticeships and tenures, which is a unique characteristic of family firms – one generation runs the company until the next is ready to take over. This approach to succession seems to be one pillar of family firm success (Miller & Le Breton-Miller, 2005, p. 38) and is in line with the preferences of most families (Matser & Gerritsen, 2008). The focus on continuity suggested by Miller and Le Breton-Miller (2005) runs parallel to an important topic in family firm research based on the RBV: the transfer of unique capabilities in business successions from one generation to another (Habbershon & Williams, 1999). The main issue here is understanding which specific resources and capabilities a family firm should have to ensure that its vision will be passed from one generation to another (Wortman, 1994). If RBV is used as a foundation, the creation of familiness proposed by Habbershon et al. (2003) might be a driver of post-transfer family firm performance. In short, Habbershon et al. (2003) argue that the intersection of family and business leads to hard-to-duplicate capabilities that make family firms particularly suited for survival and growth. If this familiness can be transferred from one generation to another as a legacy, it might ultimately comprise the core of the family firm concept (Baker & Wiseman, 1998; Kelly, Athanassiou & Crittenden, 2000; Poza & Messer, 2001). Therefore, a key question of family business research is: Can familiness be transferred to the next generation? Since the inception of academic research on family firms in the early 1980s, one leading topic has been business succession (Dyer & Sanchez, 1998). This focus probably reflects the importance of a successful transfer of management within family firms, which is crucial for firm continuity (Harvey & Evans, 1995). The life span of family firms is often relatively short, as only a limited number survive the transition to the third generation, and barely one-third survive the second generation (Beckhard & Dyer, 1983; Neubauer & Lank, 1998; Paisner, 1999). Therefore, the transfer of a firm from one generation to the next represents a crucial strategic issue of the firm (Barach & Gantisky, 1995). If succession within the family is not a feasible option than business owners have to look for other solutions to guarantee the continuity of the firm. In general, the succession issue is unlikely to lose its appeal in the foreseeable future since about one-third of all SMEs in the European Union are expected to be involved in a business transfer at some point in the coming years (Mandle, 2008). Such business transfers may result in major restructurings in many industries and could lead to the substantial destruction of (tangible and intangible) capital (Van Teeffelen, Meijaard & Geerts, 2005). Within this context, the European Commission (2006) tends to see business succession as a threat to the survival of small and medium-sized firms as well as to overall employment and economic growth.

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The transfer of a firm is a highly complex process that is influenced by many factors. Le Breton-Miller, Miller & Steier (2004), for example, show this complexity in a model that demonstrates that there are different phases in the process; each phase has different aspects; and there are various stakeholders involved, of which the most important are the incumbent(s) and the successor(s). Moreover, the entire process is influenced by the family context and the rational business context. Le Breton-Miller et al. (2004) base this model on a review of the available research and literature on this topic. According to Sharma, Chrisman & Pablo (2001), the business owner’s inability to “let go” is the most-cited obstacle to effective succession. Sharma, Chrisman & Chua (1996) state that three internal factors are consistently identified as factors influencing transfer planning: the incumbent’s propensity to step aside, the presence of a competent successor, and the presence of an active advisory board. Based on a review of the literature to assess the factors that prevent intra-family succession, De Massis, Chua & Chrisman (2008) present a preliminary model that includes five factors. Along with context and financial factors, these include individual, relation, and process factors. The latter are suggested to influence the individual and relation factors. Examples of these factors include the willingness of the incumbent to resign (individual factor), the level of trust among family members (relation factor), and the professional testing of the potential successor (process factor). De Massis et al.’s (2008) framework stresses the complexity of the business transfer process. To obtain more insight into the factors influencing the process, it makes sense to focus on specific elements, as doing so helps limit the confusion arising from the various factors as they interact with each other. Any one of the numerous factors can be chosen. Cabrera-Suárez et al. (2001) draw attention to the importance of knowledge transfer between successor and incumbent, as a key factor in the business transfer process. In fact, their article is one of the 25 most influential articles in family business research (Chrisman et al., 2010).

5.2.2 The knowledge transfer climate

The development of the knowledge-based view

Knowledge is seen as an important strategic asset for companies due to growing competition and change (Davenport & Prusak, 1998). The ability of a firm to gain new knowledge and absorb it can be a great competitive advantage (Tsai & Ghoshal, 1998). To understand the importance of knowledge, it is useful to utilize the RBV. The core point of this approach is that the competitive advantage of a firm comes from its unique bundle of resources (Cabrera-Suárez et al., 2001). Given the wide spectrum of resources, it is no surprise that researchers have begun considering whether some resources are more important than others. Undoubtedly, every resource has its importance in different situations, but the existing knowledge of a firm and the transferability of that knowledge seem to be the most vital resources to manage (Hoy & Sharma, 2010; Kim & Mauborgne, 1998; Probst, Raub & Romhardt, 2006). Family firms hold extensive knowledge beyond their actual “knowledge tanks.” Their knowledge is also stored in routines, values, norms, etc. (Grant, 1991). These types of

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resources are labeled “tacit knowledge” (Cabrera-Suárez et al., 2001). A firm’s specific knowledge, as well as the firm’s ability to create and transfer it, are together considered a key strategic asset. This asset has the potential to help improve performance (Cabrera-Suárez et al., 2001) because it is valuable, rare, and difficult to trade and imitate (Bierly & Chakrabarti, 1996; Nonaka & Takeuchi, 1995). This phenomenon has been covered by some authors and given rise to a new theoretical stream of growing importance in the strategic management field: the KBV of the firm. From the KBV perspective, knowledge can be defined as “information that is relevant, actionable, and based at least partially on experience” (Leonard & Sensiper, 1998, p. 113). This approach tries to “analyze how organizations create, acquire, apply, protect, and transfer knowledge” (Bierly & Chakrabarti, 1996, p. 123).

Explicit and tacit knowledge

Dalkir (2005), Alavi and Leidner (2001), and Jennex (2007) point out that effective knowledge management is one of the most important challenges of this century. Cabrera-Suárez et al. (2001) perform extensive theoretical and practical work in this research area. Although a multitude of frameworks exist for different kinds of knowledge (Grant, 1996; Probst et al., 2006; Sackmann, 1992), the distinction between explicit and tacit knowledge is key. The literature clearly distinguishes between “real pure knowledge” (i.e., explicit knowledge) in the form of information on and an understanding of fundamental principles acquired through education, and “skill” (i.e., tacit knowledge), which is the ability to apply the accumulated pure knowledge through experience gained (Chirico, 2008). Another major difference between explicit and tacit knowledge is how the knowledge can be stored. Explicit knowledge can be stored in handbooks (how to) or in statistical data (how we did it and what the outcome looks like). Such knowledge is always combined with the interpretations of the people who own it. In contrast to explicit knowledge, tacit knowledge is hard to transfer. Furthermore, such knowledge is an important advantage in family firms (Probst et al., 2006; Royer et al., 2008; Von Krogh & Köhne, 1998). This type of knowledge can be seen as the outcome of the interactions between persons (family members, the entrepreneur, employees, and other important stakeholders), and it is formed through network ties, a shared vision, and trust and obligations among family members. This social capital can also result from the overlap between the family and the firm. Therefore, it seems reasonable to argue that, for family firms, trans-generational transfers offer advantages relative to transfers to an external actor (“external succession”).

Factors influencing knowledge transfer

As mentioned above, family businesses and knowledge management are complex. Therefore, it is not surprising that there are a wide variety of factors that can influence the knowledge transfer. A literature review highlights the factors that have been named in the literature (see Table 5.1). It is important to note that the factors can have positive and negative effects. The aim of Table 5.1 is to show the multitude of factors firms face in the knowledge management process. These factors relate to three main areas:

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• Trust, • Conflicts and rivalry, and • Social structure and networks. Trust is one of the main pillars of family firms (Chirico, 2008; Corbetta, 1995; Steier, 2001). Chirico (2008) stresses that trust is the foundation of many interactions and that the trust that people show each other has an enormous impact on their willingness to share knowledge. Other authors argue along similar lines, including Davenport and Prusak (1998), Gupta (2008), Inkpen (2008), Newell (2007), Probst et al. (2006), and Von Krogh and Köhne (1998). Under normal circumstances, this should be a positive phenomenon for family firms because family members typically show a high degree of interaction and trust (Chirico, 2008; Steier, 2001). Table 5.1: Possible factors influencing the knowledge-management process Factors Authors

• Openness of those involved in the knowledge-transfer process

Gupta, 2008; Probst et al., 2006; Simonin, 1999; Wathne et al., 1996

• Kind of interaction Wathne et al., 1996 • Trust Davenport & Prusak, 1998; Gupta, 2008; Inkpen, 2008;

Newell et al., 2007; Probst et al., 2006; Wathne et al., 1996 • Prior experiences Argote & Ingram, 2000; Kogut & Zander, 1993; Wathne et

al., 1996 • Culture Davenport & Prusak, 1998; King, 2007; Kohlbacher &

Krähe, 2007; Probst et al., 2006; Simonin, 1999 • Absorption and learning aptitude Davenport & Prusak, 1998; Gupta, 2008; Lane &

Lutbatkin, 1998; Probst et al., 2006; Szulanski, 2000 • Organizational structure,

organizational context, and organizational atmosphere

Gupta, 2008; Inkpen, 2008; King, 2007; Lyles & Salk, 1996; Probst et al., 2006; Szulanski, 1996

• Interactions among the persons involved

Argote & Ingram, 2000; Szulanski, 2000

• The ability to retain the knowledge Szulanski, 1996

• Motivations of the persons involved

Probst et al., 2006; Gupta, 2008; Kalling, 2003; Szulanski, 2000

• Reliability of the bearer Szulanski, 1996

• Incentive schemes Davenport & Prusak, 1998; Probst et al., 2006

• Conflicts, rivalries, and misunderstandings

Lyles & Salk, 1996; Probst et al., 2006

• Timing of the knowledge transfer Davenport & Prusak, 1998; Gupta, 2008

• Team atmosphere King, 2007

• The network aspect Tsai & Ghoshal, 1998

• The ambiguity of knowledge Simonin, 1999, Szulanski, 1996

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While trust can serve as an important tool for knowledge transfer, conflicts and rivalry can ruin it (Lyles & Salk, 1996; Probst et al., 2006). In this regard, the generational aspect becomes an important factor. Things that happened long ago can suddenly become important topics and the succession process can create an opportunity to dig up the skeletons of the past. Social structure and networks can be equally important. Zahra et al. (2008) show that the way in which family members and their employees interact with each other has a significant impact on the willingness to share knowledge. Zahra et al. (2007) emphasize the importance of both formal and informal knowledge sharing practices to ensure that critical information is shared. Especially, informal knowledge sharing should benefit from a family firm context with frequent face-to-face meetings and high levels of shared beliefs and values (Zahra et al., 2007). Much scientific effort has focused on finding success factors for business transfers. Cabrera-Suárez et al. (2001) draw attention to the importance of knowledge transfer. They follow Grant (1991), who argues that the tacit collective knowledge embedded in the firm’s routines is necessary to manage those resources successfully. This KBV of the firm also stipulates the importance of the transfer of tacit knowledge for achieving successful successions and sustainable competitive advantages (Grant, 1996). A favorable knowledge transference climate is helpful for achieving a smooth transfer and overcoming the barriers mentioned above. Similarly, Cabrera-Suárez et al. (2001) suggest a framework for creating an environment that encourages knowledge transfer. This includes the owner-manager “being willing to appreciate and be proud of his or her successor’s achievements and possibilities” while also “having the flexibility to explore and accept new management approaches” (Cabrera-Suárez et al., 2001, p. 44). The successor “must appreciate the predecessor’s knowledge and his or her contribution to the firm, not rejecting established work methods and practices without having considered their value to the firm.” (Cabrera-Suárez et al., 2001, p. 44). Although Cabrera-Suárez et al. (2001) focus on family firms, their framework may be applicable to alternative paths of succession. For instance, Scholes et al. (2008) find evidence of the importance of information sharing and solid relationships in management buyouts (MBOs) and management buy-ins (MBIs). This leads to the first hypothesis: Hypothesis 1: A positive knowledge transfer climate during succession will have a positive effect on post-succession continuity. To measure “post-succession continuity,” part of the firm performance measurement model developed by Daily and Dollinger (1992) is adopted. The variables used to estimate actual firm performance include size, growth, margins, and perceived performance.

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5.2.3 Moderator: Is the successor a family member?

Pearson et al. (2008) use the social capital theory to argue that a shared vision is often deeply embedded in the family’s history and that the preservation of the family business is an integral part of this vision. Therefore it can be argued that a trans-generational succession will have a positive impact on the knowledge transfer climate as a means of achieving post-succession continuity. Research done by Royer et al. (2008) provides an indication of the relative success of intra-generational succession. They argue that a clearer focus among family firms on the preference for internal successors could enhance the success rate of business transfers. However, they also identify a crucial precondition: the internal successor should possess the necessary general and technical competencies to effectively manage the firm. When there are no suitable family members willing or able to take over the company, the family firm has to look for alternatives. Management and ownership transfers through an internal MBO or an external MBI could be attractive alternatives because they provide a means of realizing the owner’s investment while allowing for continued independent ownership of the firm (Scholes, Westhead & Burrows, 2008). The fact that the firm’s identity will remain the same seems to be important for family firm owners (Westhead, 1997). An interaction effect can be expected between trans-generational succession and a favorable knowledge transfer climate. It seems plausible that a successor who is a family member might have deep knowledge about the firm before the actual succession starts (Cabrera-Suárez et al., 2001). This knowledge may even have been acquired subconsciously, and it may stem from growing up hearing stories about the family firm, helping out during the holidays, or working as an employee within the firm. As a consequence, a positive knowledge transference climate becomes less important during the business transfer. Furthermore, family ties imply that the social ties between the successor and the incumbent will remain close long after the succession has taken place. Therefore, knowledge transfer can continue even after the succession process, making knowledge transfer during the succession process less crucial. As a result, a positive knowledge transference climate should have a greater impact on post-transfer performance in transfers of family businesses to an outside successor or in succession in non-family firms. Hypothesis 2: The direct positive effect on performance of a positive knowledge transfer climate during succession is greater for non-family successions.

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5.3 Method


The data used in this study were obtained from a research project undertaken by the Dutch Center for Family Firms (Centrum van het Familiebedrijf) in cooperation with Utrecht University’s School of Economics. In this study, empirical research focused on the identification of those factors that determine the success of a leadership transfer. In the spring of 2008, a web survey tool was used to gather the data. An e-mail request to complete the survey was sent to the contact list of the Dutch Center for Family Firms. A reminder was sent two weeks later, resulting in 330 questionnaires being returned (a response rate of 11%). Of these 330 respondents, 135 had completed a succession process (involving a change in leadership) in the preceding ten years. A next step was to use Flören’s (2002) definition of family firms to categorize the firms. Under this definition, a firm is classified as a family firm when at least two of the following three criteria are met: 1. a single family owns more than 50% of the shares or certificates; 2. a single family is able to exercise considerable influence on the business strategy or succession decisions; and 3. a majority or at least two of the members of the board of directors or board of advisors are from one family. Based on these criteria 95 firms were coded family firms. The survey questionnaire16 consisted of 53 questions that covered various issues, including the role of the successor, the role of the incumbent, the role of the family, and the succession process itself. All firms in the sample were at least ten years old. After removing cases with missing values, the final data set consisted of 81 firms.

16 The Dutch questionnaire is available from the author upon request ([email protected]).

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Variables

Dependent variable: The perceived operational profit growth was used (profit) as a proxy for post-transfer performance. A scale item was used to ask respondents whether they had experienced an increase in operational profit since succession. Independent variables: Two variables were used to test the hypotheses. A dummy variable was used to measure whether the successor was a family member (family) (1 = family member, 0 = non-family member). A scale was created to measure the knowledge transference climate (knowledge). Cabrera-Suárez et al. (2001, p.44) suggest three items help to create an environment that encourages knowledge transference: the owner-manager “being willing to appreciate and be proud of his or her successor’s achievements and possibilities;” “having the flexibility to explore and accept new management approaches;” and the successor needing to “appreciate the predecessor’s knowledge and his or her contribution to the firm, not rejecting established work methods and practices without having considered their value to the firm.” Therefore, three questions asked whether: during the succession process the incumbent had shown an appropriate amount of appreciation for the way his/her successor operated; during the succession process the incumbent was open to new ideas and the successor’s working methods; and the successor had shown an appropriate amount of appreciation for what the incumbent had built up in the firm. The answers were categorized into three groups: 1 = negative, 2 = neutral, 3 = positive. The scale for the knowledge transference climate reflected the sum of the three questions, so that the lowest possible score was three points and the highest was nine points. In terms of the internal consistency of the scale, the Cronbach alpha was 0.66, which is sufficient. The scale was therefore included in the analysis. Control variables: Five control variables were included in the final regression model, although more control variables were tested. The control variables include: moment, firm size, education, capacities, motivation. The choice of these five variables was based on their importance in the literature and/or their statistical significance. Given the type of dependent variable (increase in operational profit), an adjustment was made for the length of time since the transfer had taken place. An item indicating the year of the transfer was used and the answers were split into two groups (1996 to 2003, and 2004 to the beginning of 2008; group definitions based on the mean) (moment). A precondition of the proposed model was the availability of an appropriate internal successor (Royer et al., 2008). Therefore, three control variables concerning the successor were included: - Level of education (1 = primary school, 5 = university) (education), - Perceived capacities of the successor (three-point scale) (capacities), and - Perceived motivation to join the business (three-point scale) (motivation).

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The descriptive statistics and the correlation matrix are provided in Table 5.2. Table 5.2: Descriptive statistics and correlation matrix

mean SD 1 2 3 4 5 6 7 8 Perceived operational profit growth (Profit)

3.90 1.20

Family successor (Family) .74 .44 .45** Knowledge transfer climate (Knowledge)

7.58 1.69 .26* .10

Company size (Size) 41.51 57.47 .07 .01 -.09 Transfer moment (Moment) .56 .50 -.01 -.02 .10 .08 Education (Education) 2.93 .91 -.10 -.27* .05 .07 .04 Motivation successor (Motivation) 2.90 .34 .04 .08 -.01 .03 -.04 .02 Capacities successor (Capacities) 2.72 .58 .25 .20 .18 .01 .03 -.04 .30* N= 81 Pearson correlation, ** Correlation is significant at the 0.01 level (2-tailed), * Correlation is significant at the 0.05 level (2-tailed)

5.4 Results

A linear regression model was conducted to test the hypotheses. The data was tested using statistical program SPSS 16.0. An interaction term of family successor with the knowledge transfer climate was applied to account for the moderating effect of family succession. The model with all the variables: Profit = β0 + β1Family + β2Knowledge + β3Family_Knowledge + β4 Size + β5 Moment + β6

Capacities + β7 Motivation + β8 Education + µ Table 5.3 presents the results of the multiple regression analysis. The VIF scores for the models 1 and 2 are not higher than 1.18. On the basis of currently accepted standards, these results indicate that there is no concern for multicollinearity. Model 3 test for moderating effect mathematically leading to high VIF scores.

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Table 5.3: Predicting profit growth Dependent variable Perceived operational profit growth

Model 1 Model 2 Model 3 Explanatory variables β valuee β valuee β valuee Company size (ln) .07 .09 .09 Transfer moment .-.02 -.04 -.02 Education .02 .00 .03 Motivation successor -.05 -.04 -.06 Capacities successor .18 .15 .16 Family successor .42d .40d 1.39d

Knowledge transfer climate .20a .57c

Family successor x Knowledge transfer climate

-1.11b

∆R square .04d .05 d R square .23d .27d .32 d

Adj. R square .17 .20 .24 F statistic 3.77 3.88 4.23

DF (df1, df2) (6, 75) (7, 74) (8, 73)

a significant at 0.10 level, b significant at 0.05 level, c significant at 0.01 level and d significant at 0.001 level. e: β values represent standardized regression coefficients in the multiple regression analysis. As shown in Model 1, Table 5.3, the control variables are not significant except for family successor. The results show that family transfer has a large positive effect on perceived operational profit growth (β = -.42, p < 0.001). The results related to Hypothesis 1, which predicts a positive relationship between a positive knowledge transfer climate during succession and post-succession continuity, are presented in Model 2, Table 5.3. The results show a significant positive relation (β = -.20, p < 0.1) and thus offer support for Hypothesis 1. For Hypothesis 2, the evidence as shown in Model 3, Table 5.3 indicates a significant interaction effect (β = -1.11, p < 0.05), lending support to Hypothesis 2. The results suggest that the direct positive effect of a positive knowledge transfer climate on profit during succession is larger for non-family successions. The nature of the interaction effect is depicted in Figure 5.1.

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Figure 5.1: Interaction term family succession and knowledge transfer climate

The steep solid line in Figure 5.1 indicates that in family firms where an external succession takes place, a positive transfer climate will lead to an increase in the perceived profit growth. The dashed line shows that in firms with a family successor, the positive effect from a positive knowledge transfer climate disappears. This result indicates that the transfer of knowledge follows a different route in family firms with a trans-generational succession than with an external successor. Furthermore, the dashed line lays above the solid line, which highlight the proposition that when an internal successor is available who possesses the necessary general and technical competencies, a family firm should prefer a trans-generational transfer given the expected post-transfer performance. Based on the analysis, the outcomes can be ranked as follows (from high to low): 1 Trans-generational transfer in a positive knowledge transfer climate, 2 Trans-generational transfer in a negative knowledge transfer climate, 3 Transfer to an external successor in a positive knowledge transfer climate, and 4 Transfer to an external successor in a negative knowledge transfer climate.

1

1,5

2

2,5

3

3,5

4

4,5

5

Low Knowledge transfer climate

High Knowledge transfer climate

Prof

it gr

owth

Low Family succession

High Family succession

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In recognition of the importance of a smooth succession process for family firms, this study attempted to highlight the positive effects of trans-generational succession and the importance of a positive knowledge transfer climate during the succession process. The hypotheses were formed on the basis of the familiness construct. The support found for the hypotheses is therefore also an indication of the relevance of this construct. Some tentative conclusions were made concerning the positive effect of a family member as a successor and the importance of a smooth transfer of a firm’s tacit knowledge. This study suffers from several limitations, which could be improved with further research. The relatively small sample size was a significant weakness. More information about the ownership structure of companies would also be beneficial. With regard to external successions, it was not known if a “new” family took over the family firm or if an external director had been hired by the family. Future research that will include non-family firms in the sample would strengthen the empirical analysis. This would make it possible to analyze the influence of family involvement on the knowledge transfer climate. Furthermore, this study relied heavily on the self-judgment of the respondents. In addition, the sample was biased because only successful successions were included, with success being measured as the continuity of the firm after the transfer. Sharma (2008) indicates that the influence of family social capital can also be negative depending on specific family characteristics. In the sample used here, there may have been a relatively large portion of firms that had experienced a positive familiness influence. It would be interesting to use a longitudinal study to gain more insight into whether and how this influence plays a role during succession. For example, strong, positive family ties can motivate families to overcome the difficulties caused by succession by providing instant survival capital, while negative influences might have a destructive effect on the continuity of the firm. The research results indicate a positive relationship between a positive knowledge transfer climate and post-succession performance. Therefore, investments in this climate should be good for the performance of the firm. The results also indicate that a positive knowledge transfer climate is even more important for the post-succession performance when the successor is not a family member. With intra-generational succession, the extent of knowledge transfer during succession is less important. This might imply that knowledge transfer in family firms is an ongoing process that spans over a much longer period than in non-family firms. As such, the transfer of knowledge is perhaps not a conscious process and not one solely related to knowledge on the way the business should be run. The outcomes presented here are also in line with Royer et al. (2008), who found a preference for family members as successors.

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Conclusions

Based on the research outcomes some preliminary recommendations for the various stakeholders of family firms can be made. Successors and current leaders can learn from this study that a positive knowledge climate during succession has a positive effect on post-succession performance. Investments in good relationships and in information sharing serve a common interest and seem to pay off in the long run. These recommendations hold for family successors but are even more important when the successor is not a family member. The results further indicate that a family firm’s focus on continuity and its preference for intergenerational succession could be an effective strategy. This suggestion is in line with other research findings. A precondition for success is that the family successor is capable and motivated. Alternative routes to family succession can be a management buyout or a management buyin, in which case a positive knowledge climate becomes even more important. A recommendation for policy makers that follows from this study is to invest in initiatives and programs to improve the preparation of the next generation family members. How to create a positive knowledge transfer climate should be a key item here. In line with this it is recommended for business advisors to be aware of the differences in knowledge transfer among family members and non-family members. To conclude, this study focused on the process of knowledge transfer. To obtain a more complete picture, it would be helpful to gain more insight into the type of knowledge that is transferred. More research is this area would be welcome.

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6: Conclusions and implications

In this chapter, the overall conclusions and implications of this dissertation are presented. The chapter starts with a short review of the results of the empirical studies, which is followed by the answers to the research questions posed in Chapter 1 that have been derived from the empirical research presented in this dissertation (section 6.2). In section 6.3, the theoretical implications of this study are discussed. Section 6.4 presents an overview of the limitations of the current study and indicates possible directions for future research. Finally, section 6.5 covers the practical lessons learned from this study.

6.1 Research findings

Past research has raised many interesting questions regarding the effect of family involvement on businesses. With the resource-based view as the primary theoretical framework, this dissertation looks at strategic resources in private firms and how those resources are influenced by family involvement. The focus is on the development of tacit knowledge and social capital, as these components of strategic resources have been identified in the literature as elements for which family involvement may have a strong, positive influence. This approach led to the following research framework, which was presented in Chapter 1: Figure 6.1: Research framework

Firm characteristics, ownership characteristics, business cycle

STRATEGIC RESOURCES





FIRM PERFORMANCE

Product innovation




The framework presented in Figure 6.1 forms the basis of the four empirical studies discussed in the preceding chapters. It also demonstrates how the research questions developed in Chapters 2 through 5 are related. A summary of the main research findings is presented in Table 6.1.

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6.2 Overall conclusions

This section starts with a review of the answers to the questions formulated in Chapter 1. Thereafter, the research framework is adjusted based on these answers. With help of the adjusted framework, the primary research question is then discussed. 1. What specific components of social capital and tacit knowledge are positively or negatively influenced by family involvement? The results from the study of business transfers reveal a positive family effect on post-succession continuity. In that study, the tacit knowledge transfer climate is found to be less important during a trans-generational succession than during a non-family succession. These results together suggest that family involvement has an indirect effect on the development and transfer of tacit knowledge. This dissertation also shows that family involvement has an indirect effect on the development of social capital. Family involvement has a positive impact as a moderator of the relationship between a shared vision among owners and the mobilization of network resources – high family involvement stimulates owners who share the same vision to mobilize their network resources. Interestingly, in the study of copreneurial firms, the involvement of non-family members is found to have a positive direct effect on the financial performance of the firm. This outcome confirms that it is important to involve non-family members instead of relying solely on family members. However, the results also reveal a negative impact from family involvement, namely as a moderator of the relationship between mobilizing network resources and product innovation. This negative effect suggests that owners of firms with high family involvement are relatively passive in mobilizing their network resources to develop new products and services. Overall, the results reveal bivalent outcomes of family involvement. Positive indirect effects arise in relation to tacit knowledge and the bonding aspects of social capital, while negative effects are evident in relation to mobilization of network resources for the product innovation process. 2. Which contingency factors other than family involvement influence the development of components of social capital and tacit knowledge in privately held firms? The empirical studies highlight ownership, role clarity between spouses, ownership-management overlap, and company size as valuable factors in the development of the strategic resources under study. Furthermore, the results show that the bonding and bridging elements of ownership social capital are positively related – the shared vision among owners and the quality of relationships among owners both have a positive impact on the mobilization of the owner group’s network resources. In addition, a combination of a shared

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vision and a high quality of relationships among owners creates an additional stimulating factor for the mobilization of the resources in the owners’ network. The overlap between management and ownership roles also has a positive effect on the development of bonding and bridging elements of ownership social capital. Company size is further identified as a factor that has a positive impact on the mobilization of the owning group’s network resources. Finally, the clarity of the roles between the spouses is identified as a supportive developmental condition for the bonding elements of spousal social capital. 3. Do components of social capital and tacit knowledge have a positive impact on firm performance? In stressing the importance of innovation for the long-term continuity of the firm, this dissertation focuses on the influence of strategic resources on the introduction of new products and services. The results show that some components of bonding and bridging social capital have a positive impact on the realization of product innovation. For example, the mobilization of network resources has a direct positive effect, while the quality of relationships between owners has an indirect effect via the mobilization of network resources. When looking at the financial performance of copreneurial firms, a direct positive effect is found for shared vision among copreneurial couples, and the inclusion of non-family members in strategic and managerial activities. Furthermore, the quality of the copreneurial relationship enhances financial performance by stimulating the couple’s shared vision of the business. Finally, the results reveal a positive effect from a positive knowledge-transfer climate on post-succession continuity. Overall, the research results identify various strategic resources that have a positive impact on firm performance. Based on the findings discussed above, the proposed research framework of this dissertation can be adjusted (Figure 6.2).

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Figure 6.2: Adjusted Research Framework

Company size, expansion, age, sector, ownership-‐management overlap, role clarity between spouses

Product innovation



XFamily involvement

Family successor


STRATEGIC RESOURCES





FIRM PERFORMANCE

As shown in Figure 6.2, the studies in this dissertation confirm that strategic resources, such as components of social capital and tacit knowledge, are positively related to firm performance. Based on the literature (e.g., Habbershon & Williams, 1999; Sirmon & Hitt, 2003), a positive direct relation between family involvement and strategic resources relation was also expected. However, this relationship is not confirmed by the empirical results. Therefore, the line connecting strategic resource to contingency factors related to the family context has been removed. Furthermore, the general contingency factors (firm characteristics, ownership characteristics, and business cycle) related to the business context have been replaced with the relevant factors (company size, expansion, age, sector, ownership-management overlap, and role clarity between spouses) identified in the empirical studies. The next step in drawing conclusions based on this study is to use the adjusted framework to answer the general research question. The general research question is formulated as follows: How does family involvement influence the development of components of social capital and tacit knowledge in privately held firms, and to what extent does the development of these strategic resources have an impact on firm performance? The main conclusion concerning the first part of the research question is that the impact of family involvement on the development of strategic resources is indirect and bivalent. Notably, the influence of family involvement in the firm is not as high or as positive as was expected given the discussed literature on familiness and family social capital. With regard to the second part of the question, the empirical studies reveal a positive impact of strategic resources on firm performance, and show that the owners of privately held firms play a

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prominent role in this respect. Ownership social capital can apparently serve as a strategic resource for firms. Interestingly, the role of ownership in privately held firms and, more specifically, the active role of owners are topics that have received little attention from researchers (Hall et al., 2012; Uhlaner, 2008). Given the findings of this dissertation, it may be relevant to focus on the role of ownership to gain a deeper understanding of the antecedents and development of strategic resources in family firms. For this purpose, the three-circle model is useful (Tagiuri & Davis, 1996). The three-circle model, which is used by family business scholars as the key symbolic generalization of the family business (Moores, 2008; see also section 1.2), clearly defines the family business as a system that consists of three sub-systems. However, the family business literature places a great deal of emphasis on the influence of the family on the business and not on ownership. This focus on family in relation to the business makes sense, as family business researchers are convinced that family firms differ from non-family firms – if they did not, there would be no need to study them separately (Chrisman et al., 2005). This focus is reflected in the majority of the literature, where the points of interest relate to the interactions between the family and the business, while the role of ownership is generally neglected (e.g., Litz, 2008; Sharma, 2004; Sirmon and Hitt, 2003; Ward, 1987). Therefore, to develop a better understanding of how strategic resources develop in family firms, a focus on the role of ownership is recommended for several reasons. First, family business scholars need to be more aware of the ownership system as part of the family business system. Second, the distinction between the influences of ownership and the influences of the family system seems to be a key aspect to investigate. This is particularly true because there is much to learn about the role of ownership in private firms, an area of research that has been largely neglected. In the following sections, these recommendations are applied in discussions of the theoretical and practical implications, and suggestions for future research.

6.3 Theoretical implications

This dissertation has theoretical implications for three fields: the resource-based view, the social capital theory, and the theory of the family business.

Resource-based view (RBV)

The main proposition of the resource based view (RBV) is that strategic resources are valuable because they help in the development of a long-term competitive advantage for firms. The findings of this study reveal various strategic resources that have a positive impact on firm performance. The most relevant resources covered in this study are spousal social capital, ownership social capital, and the knowledge-transfer climate. The results do not consistently confirm the notion that family involvement itself can serve as a strategic resource. In fact, a direct positive family effect is found only in relation to post-succession

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continuity. Overall, the findings are in line with the meta-analysis undertaken by Crook et al. (2008), who estimated a positive effect of strategic resources on performance. The resource-based view is one of the most widely accepted theories of strategic management (Newbert, 2007) but it has also been subject to critique (Kraaijenbrink, Spender & Groen, 2010). In response to these criticisms, amendments to the theory have been suggested, some of which seem particularly relevant within the context of this dissertation. On the basis of a systematic assessment of the available empirical findings, Newbert (2007, p. 142) argues that “it may well be the firms’ organizing context and its valuable, rare, inimitable capabilities and core competencies rather than its static resources that are essential to determining its competitive position.” Along similar lines, Sirmon, Hitt, Ireland, and Gilbert (2011) emphasize the need to explicitly address managers’ actions related to firm’s resources. In other words, it has been recommended that business owners’ and family members’ actions related to firm resources be incorporated to allow for an accurate assessment of the competitive advantage of a privately held firm. An example of this action-oriented approach is found in Chapters 2 and 3, where bridging ownership social capital is measured in terms of the business-owning group’s efforts to mobilize potential network resources.

Social capital theory

The theoretical implications presented in this section refer firstly to the type of social unit and the level of analysis to which the social capital theory can be applied. Secondly, they refer to the interactions among the various dimensions of social capital. First, as the core concept of social capital concerns the resources derived from social relations, it is important to specify the specific social context that is being studied. This dissertation focuses on social capital within the group of owners in private firms and on social capital stemming from the spousal relationship in copreneurial firms. The results confirm that social capital is an important resource within these specific social contexts. Payne et al. (2011) highlight the multilevel challenges and opportunities in social capital research. The models presented in Chapters 3 and 4 can be seen as examples of cross-level models, as the dependent and independent constructs are at different levels of analysis. For instance, the effect of spousal social capital on financial performance is measured; this represents a combination of a construct at the dyadic spousal level of analysis with a construct at the firm level. While Payne et al. (2011) emphasize the opportunities of this multilevel approach, the approach also shows the complexity of social capital theory. Westlund and Adam (2010) discuss this complexity with regard to the concept of trust in general and the potential sources of this trust—the cultural context of a nation, business values, or dyadic relations between actors. The family firm context adds complexity because of the overlap among the different roles of owners, managers, and family members. Therefore, the focus in Chapter 2 is on ownership social capital while controlling for management-ownership overlap and family involvement. To arrive at an in-depth understanding of the construct of social capital, more insight into this aspect is necessary.

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The second issue relates to the interactions among the various dimensions of social capital. Overall, the results provide empirical support for the notion that bonding and bridging elements of social capital interact. Furthermore, the results of the empirical studies are in line with the theoretical frameworks suggested by Adler and Kwon (2002) and Lin (1999), who emphasize a sequential process toward a return on social capital. Another matter discussed in the literature is the difficulty of operationalizing the cognitive dimension of social capital. Zheng’s (2010) empirical literature review on social capital in relation to innovation concludes that the cognitive components of social capital have not been found to make a significant contribution to innovation relative to the other two dimensions of social capital. This finding is supported by the results presented in Chapter 3, where shared vision as component of the cognitive dimension was not significantly related to product innovation. However, shared vision is identified as a key component of spousal social capital and as an antecedent for the mobilization of available network resources by the business-owning group. Given these mixed results, it is clear that more research is necessary to gain a better understanding of the specific role of the cognitive dimension of social capital.

Theory of the family business

The resource-based view and social capital theory have been important contributors to the development of the theory of the family firm (Chrisman et al., 2010; Moores, 2008). This dissertation’s theoretical framework is built on these concepts and explores the concept of familiness (Habbershon & Williams, 1999). Overall, the empirical results indicate that the effect of familiness can be both “distinctive” and “constrictive,” lending support to the theoretical discussion found in Sharma (2008). Furthermore, these findings support the argument made by Tagiuri and Davis (1996) on the bivalent characteristics of family firms. Another interesting finding is that familiness does not seem to have, on average, a strong impact on firm performance. As discussed earlier in this chapter, it seems that scholars have to be very precise in defining the source of potential strategic resources. For example, the results presented in Chapters 2 and 3 indicate that, to a great extent, committed owners in non-family firms act in the same way as committed owners in family firms. In other words, the aspects of social capital identified by Sirmon and Hitt (2003) as family-specific resources are also evident among private firms with multiple owners and no family involvement. If these results are related to the three-circle model, the question is whether the family circle or the ownership circle is the source of social capital. The quest to understand the effects of family involvement on the firm is made more difficult by the fact that some research fails to clarify the types of firms to which family firms are being compared. The heterogeneity of family firms makes this comparison even more complicated. It could be that in constructing theories of family firms, family firms are implicitly compared with publicly traded firms with dispersed ownership. However, even in such cases, this implied comparison is often followed by empirical investigations using samples consisting of only family firms. The consequence of this approach is that family

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involvement’s linkages with various elements may be questionable, as the results may stem from the role of the active owners in general rather than from family involvement. An important implication of the results presented here is that there is a need to reconsider the concept of family social capital (Carr et al., 2011; Sorenson et al., 2009). The empirical studies that measure family social capital may have “labeled” the social capital under study as family social capital but actually measured ownership social capital. Some factors identified in the literature are undeniably resources that relate to the family circle, such as the consequences of the fact that family relations are long lasting. Such consequences can include deep tacit knowledge of and commitment to the firm, which are built from the moment that young children begin to learn about the business from their parents. Negative effects can occur when conflicts or incidents from the past reoccur in the next generation. The overlap of the family and the business is also clearly a unique attribute of family firms. The cases described in the study of copreneurial couples provide good examples of the positive and negative consequences of this interdependency. In the interest of moving towards a better understanding of the strategic resources that are unique to family firms, the driving forces for business-owning families seem to be an appropriate starting point. The family business literature emphasizes trans-generational wealth creation as a driving force that is unique to family firms (Habbershon, Williams & MacMillen, 2003; Chrisman, Sharma & Taggar, 2007). The (often implicit) assumption is that the goal of the owning family is to ensure the longevity of the firm (e.g., Nordqvist & Zellweger, 2010). Chrisman et al. (2005) state that the knowledge about to the fundamental driving forces in family firms is limited but that this knowledge is necessary to build a theory of the family firm. More research in this particular field would be very helpful for gaining more insight into the unique attributes of family firms.

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6.4 Limitations and directions for future research

The research presented in this dissertation addresses questions concerning the impact of family involvement on the development of private firms’ strategic resources and how these resources affect firm performance. These studies suffer from several limitations. In this section, general limitations related to the empirical chapters are discussed and, on this basis, suggestions for future research are made. Moreover, as not all questions concerning strategic resources could be covered in this dissertation, this section suggests possible avenues for future research that could help to more fully develop insights in this area.

Definition issues

In this study, several methods of defining family firms are applied. Chapters 2 and 3 measure family involvement on a continuous scale in order to capture the variance within the entire group of private firms. This scale makes it possible to measure the impact of varying levels of family involvement on the development of the components of social capital. Chapter 4 focuses on a specific type of family firms, namely copreneurs, to gain a better understanding of spousal social capital as a potential strategic resource. Chapter 5 uses the definition formulated by Flören (2002) to distinguish between family and non-family firms. This approach is used to compare family firms with regard to trans-generational and non-family successions. The application of different definitions limits the possibilities to compare the research outcomes. In general, family involvement should be measured using a continuous scale that reflects the variance within the group of family firms (Uhlaner, 2005). Moreover, it is recommended that future research include both family firms and non-family firms, thereby making it possible to objectively capture the effect of family involvement on the business system (Poza, Hanlon & Kishida, 2004).

Research methods

The empirical approach of this dissertation is to analyze quantitative data on strategic resources and family firm performance. Different independent and dependent variables are analyzed in each of the chapters 2 through 5. This negatively affects the possibilities to generalize the four studies. The fact that are no publicly accessible data on private firms in the Netherlands makes it difficult to collect data for research. This is especially the case, when the target group of the study consists of a specific subgroup, for instance copreneurs or firms that recently completed a business transfer. This is reflected in the relatively small datasets in Chapters 4 and 5 and affects the external validity of these studies. Therefore the large and random stratified sample of private firms that is used for the studies in Chapter 2 and 3 is an unique dataset that reveals valuable insights into private family and non-family firms in the Netherlands. The studies presented here are all based on cross-sectional data gathered at one specific point in time. As the constructs under study interact with each other, a longitudinal research approach would be valuable. For instance, a longitudinal study would make it possible to empirically investigate the process of investing in social capital up until the realization of a

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return on this investment (Lin, 1999). Furthermore, empirical research based on social exchange theory as suggested by Long (2011) would lead to a more in-depth understanding of how the various dimensions of social capital interact. All studies in this dissertation rely on data gathered from one source. Future research using data from multiple sources – such as multiple owners of the same firm – would allow for confirmation of the reliability of the gathered data. Research that takes multiple perspectives into account would also generate additional insights. For example, it would be interesting to combine the viewpoints of owners and managers within the same firm.

Strategic resources

This research focuses on specific components of bonding social capital, bridging social capital, and tacit knowledge as potential strategic resources. Social capital and tacit knowledge are the subjects of separate studies. Future research that combines these two elements would add value to the answer to the general research question presented in this dissertation. This is particularly true because it is argued in the literature that tacit knowledge can be regarded as the outcome of social interactions among the various stakeholders in the firm (Ireland, Hitt, and Sirmon, 2003). Moreover, the combination of these resources serves as an important potential advantage for family firms (Probst et al., 2006; Royer et al., 2008; Von Krogh and Köhne, 1998). It seems that family firms have opportunities to develop tacit knowledge through network ties, a shared vision, trust, and obligations among family members. In addition to social capital and tacit knowledge, other sources of strategic resources have been proposed for which family involvement might have a positive impact. For instance, Sirmon and Hitt (2003) identify “patient financial capital,” “survivability capital,” and “governance structure” as additional strategic resources specific to the family firm. As the research presented here reveals a rather limited effect of family involvement on the development of the strategic resources under study, it would seem relevant to undertake additional research into these other strategic resources. The uniqueness of family firms may be more related to these strategic resources than those studied in this dissertation.

Ownership

One interesting finding in this dissertation relates to the role owners play in creating ownership social capital. The role of owners is stipulated by Uhlaner (2008) and Berent-Braun (2010). Their recommendations for more research in this direction are supported by the results of this study. Thus far, ownership research has been dominated by a focus on “having” shares, and has failed to adopt a more dynamic approach that looks at “acting” and “doing” in relation to ownership (Hall et al., 2012). Hall et al. (2012, p. 18) make useful suggestions for future research on ownership, stipulating the need to take an interest in “owners as human beings, with the aim of understanding how their emotions, values and relations inform and

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influence ownership practices, and thereby organizations.” In this respect, the research on ownership social capital is a valuable contribution to this dynamic approach. For family business researchers, it may be promising to investigate the phenomenon of active ownership in the context of the succession process, as various actors within the family business system will change their positions during a period of succession. The role of ownership becomes more prominent when, for instance, the incumbent leader transfers the leadership of the business but remains attached as an owner of the firm. The consequences of these changes and the question of how to effectively deal with these changes are interesting avenues for future research. Another issue related to this topic is the notion that female successors, in particular, want to share in the ownership of family businesses (Arijs, 2009; Remery, Matser, Van Zwol, & Flören, 2012). If this desire is met in the next decade, it will mean an even higher percentage of multiple-owner firms, providing yet another indication of the relevance of research on the specific dynamics of multiple ownership. Ultimately, the knowledge derived from this research can help stakeholders in family businesses perform their different roles in an optimal way. The practical lessons learned from this study are therefore discussed in the next session. 6.5 Practical implications

The results of this study have practical implications for business owners in private firms. The results indicate that bonding elements of social capital, such as a shared vision and the quality of relationships, positively affect the performance of the firm. Therefore, business owners should be encouraged to work on these issues. This holds for family business owners, such as copreneurs or sibling partnerships, as well as for business partners with no family ties. Business advisors can help business owners in this regard by raising their awareness of these “soft” issues. This may appear to be an easy suggestion to apply but research (e.g. Matser & Gerritsen, 2008) has shown that family business owners generally do not score very high on communication skills. Discussions about the vision of the firm, evaluations of (shared) leadership, and reflections on relationships are all examples of valuable activities that are normally not undertaken in most family firms. The results related to bridging elements of social capital highlight the benefits of mobilizing network resources. Business owners can support their businesses by actively developing new contacts, opportunities, and resources. This research investigates the impact of network mobilization on product innovation but the positive relation found in this respect will probably hold for other firm-performance indicators as well. Family business owners could benefit from working on this aspect, especially because the results indicate that businesses with high family involvement score relatively low on the use of network contacts in the development of new products and services. The study on copreneurial businesses shows that the involvement of non-family members has a positive impact on firm performance. This implies that copreneurs should be encouraged to extend their networks by engaging capable

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and motivated non-family members in their businesses. Of course, copreneurs have to carefully consider their specific contexts to identify where these “outsiders” could contribute the most. Nevertheless, the possibility of extending the network with “outsiders” is a promising opportunity. Business owners should also be aware of the equal importance of bonding and bridging elements of social capital. In particular, the combination of working on internal relations and focusing on extending the external pool of resources seems to be an effective strategy for business owners. Finally, the results of the study in Chapter 5 reveal the positive effect of family succession on post-succession continuity. If a capable family member is available who wishes to take over the family business, then the firm has a strategic asset at hand. This implies that putting effort into the development of next-generation leaders can be viewed as a valuable investment. Although this focus is the responsibility of the business families, it can be supported by the government. Studies indicate that succession will be a highly relevant topic for many firms in the coming years, with potentially significant impacts for the economy as a whole (Mandle, 2008). The importance of a positive knowledge-transfer climate is also highlighted with respect to a successful business transfer. All actors in this process – incumbent leaders, future leaders, and business advisors – need to pay attention to factors that support such a climate. These factors are: a willingness to appreciate and be proud of the achievements of the “counter” party; an openness to exploring and accepting new management approaches; and a willingness to maintain established work methods and practices until their value for the firm has been fully examined. In conclusion, this dissertation takes an important step towards understanding the phenomenon of strategic resources within private firms, especially family firms. The study offers valuable insights for businesses owners, private firms’ stakeholders, and family business scholars. Hopefully, this dissertation will lead to new research in this promising field.

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Summary

Most companies in the Netherlands can be labeled as family firms (according to the GEEF definition (Mandle, 2008; Flören et al., 2010). The family firm can be regarded as an open-system model comprising three overlapping, interacting, and interdependent subsystems: owners, family, and managers (Moores, 2008). This is known as the three-circle model. Tagiuri and Davis (1996) stipulate that family firms have unique resources that create positive and negative outcomes for the firm. This notion has more recently been referred to as the “familiness” of the firm (Sirmon et al., 2003). In this dissertation, the resource-based view (RBV) is adopted as the theoretical foundation for understanding the distinct attributes of a family firm (Habbershon & Williams, 1999). With the RBV as the primary theoretical framework, this dissertation looks at strategic resources in private firms and how those resources are influenced by family involvement. The focus is on the development of tacit knowledge and social capital, as the literature indicates that family involvement may have a strong and positive influence on these components of strategic resources (Arregle et al., 2007a). The need for more empirical research in the field of social capital and tacit knowledge within the context of private firms is made clear by a review of extant empirical research. This review also reveals specific topics of interest: the role of owners, the influence of the family on the development of social capital, the diverse links among the various dimension of social capital, the transfer of tacit knowledge during business successions, and the construct of the tacit knowledge climate. Therefore, the primary research question addressed in this dissertation is: How does family involvement influence the development of components of social capital and tacit knowledge in privately held firms, and to what extent does the development of these strategic resources have an impact on firm performance? The research question is answered on the basis of empirical research presented in this dissertation. All studies rely on a quantitative research method. Chapter 2 examines ownership social capital. The study focuses on a random sample of 708 privately held family and non-family firms with multiple owners. The results of this study show that high levels of bonding elements of social capital (specifically a shared vision and the quality of relationships among owners) positively affect the mobilization of the owning group’s network resources. Interestingly, the results do not indicate a significant direct effect of family involvement on ownership social capital. However, they do reveal a moderating effect of family involvement: the family firm context is a fruitful environment for the mobilization and use of the potential of bridging ownership social capital when owners agree on the vision for the firm. Chapter 3 investigates the relation between ownership social capital and product innovation. The study is based on the same sample as in Chapter 2. Literature on innovation in family firms stipulates the crucial role of owners in realizing radical innovation for the firm. The

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results show a positive direct effect from bridging ownership social capital: the mobilization of the owning group’s network resources has a positive effect on product innovation. The positive effect of the quality of relationships among members of the owning group on product innovation is mediated by network mobilization. Furthermore, family involvement works as a moderator in the relation between network mobilization and product innovation: in firms with high family involvement, the positive effect of mobilizing network resources is weaker than in firms with low family involvement. This may imply that family business owners view the potential value of network resources as relatively unimportant to the development of new products and services. Chapter 4 looks at the impact of spousal social capital on the financial performance of copreneurial businesses. The study is based on a snowball sample of 167 copreneurs—couples who jointly own and operate a family business. The results indicate that the inclusion of non-family actors has a significant, positive effect on the performance of the firm. A shared vision among the copreneurial couple is also positively related to performance. The relation between the quality of the copreneurial relationship and performance is mediated by the shared vision of the copreneurs. Furthermore, role clarity between spouses is identified as a significant condition for the development of the relational and cognitive dimensions of spousal social capital. Overall, the results indicate that both bonding and bridging elements of spousal social capital positively affect the financial performance of copreneurial businesses. Chapter 5 explores the relation between the transfer of tacit knowledge and post-succession continuity. Tacit knowledge is acknowledged in the literature as a key strategic resource for all firms. The family business literature further argues that the deep tacit knowledge that is transferred from one generation to another can be a resource that creates a long-term competitive advantage for family firms. The study is based on a non-random sample of 81 Dutch family firms, all of which recently completed a succession process. The findings reveal a positive effect of family-based succession on post-succession continuity. Furthermore, they show that a positive knowledge-transfer climate during succession has a positive effect on post-succession continuity in general, although the knowledge-transfer climate is more critical in non-family successions.

Conclusions

The studies in this dissertation confirm that some strategic resources, such as components of social capital and tacit knowledge, are positively related to firm performance:

• Components of bonding and bridging ownership social capital have a positive impact on the realization of product innovation. The mobilization of network resources has a direct positive effect, while the quality of relationships between owners has an indirect effect via the mobilization of network resources.

• A shared vision and the use of non-family members are directly and positively related to the financial performance of copreneurial firms.

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• Furthermore, the quality of the copreneurial relationship enhances performance by stimulating the couple’s shared vision of the business. A positive knowledge-transfer climate during business succession has a positive effect on post-succession continuity.

The main conclusion concerning the impact of family involvement on the development of strategic resources is that this impact is indirect and bivalent:

• Family involvement has a positive impact as a moderator of the relationship between shared vision among owners and the mobilization of network resources. High family involvement stimulates owners who share the same vision to mobilize their network resources.

• Family involvement has a negative impact as a moderator of the relationship between mobilization of network resources and product innovation. Owners of firms with high family involvement are relatively passive in mobilizing their network resources to develop new products and services.

• Involvement of non-family members in copreneurial firms has a positive direct effect on the financial performance of those firms.

• Trans-generational succession has a positive effect on post-succession continuity. Furthermore, the tacit knowledge-transfer climate is less important during a trans-generational succession than during a non-family succession.

Other conclusions include the following:

• The role of ownership, role clarity between spouses, ownership-management overlap, and company size are contingency factors that are positively related to components of social capital and tacit knowledge.

• Bonding and bridging elements of ownership social capital are positively related to each other. A shared vision among owners and the quality of relationships among owners both have positive impacts on the mobilization of the owner group’s network resources. Furthermore, the combination of these bonding elements creates an additional stimulus for the mobilization of resources in the owners’ network.

Theoretical and practical implications

This study confirms the main proposition of the resource-based view (RBV), that strategic resources are valuable because they help firms develop a long-term competitive advantage. Spousal social capital, ownership social capital, and the knowledge-transfer climate are identified as strategic resources. The results do not consistently confirm the notion that family involvement alone acts as a strategic resource. Recently, attention has shifted within the RBV from a focus on static resources towards capabilities and competencies (Newbert, 2007). In line with Sirmon et al. (2011), who emphasize the need to explicitly address managers’ actions related to firm’s resources, researchers are advised to incorporate the business owners’ actions and family members’ actions related to firm resources.

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The results are in line with the propositions of social capital theory. Payne et al. (2011) highlight the multilevel challenges and opportunities in social capital research. This study shows that this multilevel aspect is particularly complex in the family firm context because of the overlaps among the ownership, business, and family systems. To obtain an in-depth understanding of the construct of social capital, it is necessary to gain more insight into this issue. This study contributes to the discussion on the interactions among the various dimensions of social capital (Zheng, 2010) by providing empirical support for the notion that the bonding and bridging elements of social capital interact. Furthermore, the results are in line with the theoretical frameworks suggested by Adler and Kwon (2002), Long (2011), and Lin (1999), which emphasize the sequential process in the development of social capital. Overall, the empirical results indicate that the effect of familiness can be both “distinctive” and “constrictive,” lending support to the theoretical discussion presented by Habbershon and Williams (1999). The findings also confirm Tagiuri and Davis’s (1996) argument on the bivalent characteristics of family firms. Another interesting research finding is that familiness does not seem to have a significant impact on firm performance. In this regard, it seems that scholars need to be very precise in defining the source of potential strategic resources. An important implication is the need to reconsider the concept of family social capital (Carr et al., 2011; Sorenson et al., 2009). When the focus is on ownership social capital, a distinction can be made between the ‘family’ effect and the ‘ownership’ effect. This dissertation has practical implications for stakeholders of private firms. Stakeholders should be encouraged to work on bonding elements of social capital, as firms benefit from investments in the quality of relationships and a shared vision among members of the business-owning groups and copreneurial couples. Business advisors can help by raising awareness of these “soft” issues when consulting with their clients. Business owners can also support their businesses by actively developing new contacts, opportunities, and resources. Family business owners, in particular, stand to benefit from focusing on this aspect because they score relatively low in this regard in relation to product innovation. The results also indicate that copreneurs should be encouraged to expand their networks by engaging capable and motivated non-family members in their businesses. Finally, the results reveal a positive effect of family succession on post-succession continuity. This implies that a focus on the development of next-generation leaders can be viewed as a valuable investment. The importance of a positive knowledge-transfer climate is also highlighted with respect to the success of a business transfer. All actors in this process need to pay attention to factors that support such a climate.

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Recommendations for future research

The research presented in this dissertation does not answer every question regarding the impact of family involvement on the development of strategic resources in private firms and how these resources affect firm performance. There are several possible avenues for future scientific inquiry:

• Qualitative research, such as case studies with a longitudinal timeframe, would be a valuable addition, as such research would make it possible to empirically investigate the process of investing in social capital from its initiation until a return on investments is realized (Lin, 1999). Case studies would also make it possible to take multiple perspectives into account, which would generate additional insights.

• Future research could combine components of social capital with components of human capital, thereby adding value to the general research question defined for this dissertation. This is particularly true because it can be argued that bonding aspects of social capital may act as building blocks for the development of tacit knowledge.

• Research into additional sources of strategic resources, such as “patient financial capital” and “survivability capital” (Sirmon & Hitt, 2003), would improve the understanding of the mechanisms behind the development and impact of strategic resources in private firms. The role of family involvement in relation to these strategic resources is also worthy of investigation.

• Family business scholars are encouraged to take both the family system and the ownership system into account. Such an approach would make it possible to identify the specific antecedents of the various strategic resources and clarify how these resources develop in family firms. Furthermore, it would add to the knowledge of how family firms can be distinguished within the group of private firms.

• In general, more research into the role of ownership is recommended. In particular, a dynamic approach that looks at “acting” and “doing” forms of ownership (Hall et al., 2012) would be a valuable contribution to the field of ownership research.

• Finally, it seems promising for family business researchers to investigate the impact of active ownership in the context of the succession process, especially as actors within the family business system are likely to change positions during the course of a succession. This will lead to situations of shared ownership.

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Samenvatting (in Dutch)

De meerderheid van de private bedrijven in Nederland kunnen worden bestempeld als familiebedrijven (volgens de GEEF definitie (Mandle, 2008); Flören et al., 2010). Dit proefschrift richt zich op deze groep bedrijven en onderzoekt meer specifiek de strategische resources waarmee familiebedrijven een concurrentievoordeel voor de lange termijn kunnen ontwikkelen. Bezien als model kan het familiebedrijf beschouwd worden als een open systeem, bestaande uit drie van elkaar afhankelijke subsystemen die elkaar overlappen en op elkaar reageren: de eigenaren, de familie, en de directie (Tagiuri & Davis, 1996). Dit model staat bekend als het drie-cirkelmodel. Zoals ook weergegeven in dit model benadrukken Tagiuri en Davis (1996) dat familiebedrijven door de overlap van de subsystemen unieke middelen (strategic resources) bezitten die positieve en negatieve effecten voor de onderneming genereren. Dit onderscheidende kenmerk wordt aangeduid als de familiness van de onderneming (Sirmon et al., 2003). In dit proefschrift wordt de theorie van de resource-based view (RBV) als basis gebruikt om de rol van familiness in het familiebedrijf verder te onderzoeken (Habbershon & Williams, 1999). Met de RBV als het primaire theoretisch kader, zal in dit proefschrift worden gekeken naar de strategische resources in private ondernemingen in het algemeen. Meer in het bijzonder zal worden bestudeerd hoe de ontwikkeling van deze resources beïnvloed wordt door de betrokkenheid van de familie en wat vervolgens het effect daarvan is op de economische prestaties van bedrijven. De focus ligt hierbij op een tweetal strategische resources en hoe die zich ontwikkelen: tacit knowledge en social capital. Onder tacit knowlegde wordt impliciete kennis verstaan, dit is kennis die ‘in het hoofd’ zit en moeilijk overdraagbaar is. Bij social capital gaat om de meerwaarde die sociale netwerken tussen mensen opleveren, niet alleen voor hen zelf maar ook voor de organisaties waarvan ze deel uit maken. Er is voor deze focus gekozen omdat uit voorgaande onderzoeken is gebleken dat juist bij deze resources de betrokkenheid van de familie op het bedrijf een sterke en positieve invloed heeft (onder andere Arregle et al., 2007a). Een inventarisatie van bestaand empirisch onderzoek laat zien dat er nog weinig onderzoek is gedaan op het gebied van social capital en tacit knowledge bij private ondernemingen. Het bestaande onderzoek toont tevens enkele specifieke onderwerpen die nader onderzoek behoeven: de rol van de eigenaren, de rol van de familie, de interacties tussen de verschillende dimensies van social capital en de opbouw van tacit knowledge. Voor wat betreft tacit knowlegde betreft dit met name de overdracht van tacit knowledge in de context van de bedrijfsopvolging. De centrale onderzoeksvraag van dit proefschrift luidt: Hoe beïnvloedt de betrokkenheid van de familie de ontwikkeling van componenten van social capital en tacit knowlegde in niet-beursgenoteerde bedrijven en in welke mate is de ontwikkeling van deze strategische resources van invloed op de prestaties van die bedrijven?

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De onderzoeksvraag wordt beantwoord aan de hand van verschillende deelonderzoeken die in dit proefschrift worden gepresenteerd. Al deze studies maken gebruik van kwantitatieve onderzoeksmethoden. De bedrijfsprestaties worden op verschillende manieren gemeten: bedrijfscontinuïteit, innovatie en behaalde financiële resultaten. Hoofdstuk 2 beschrijft en onderzoekt de rol van ownership social capital. Dit is social capital toegespitst op de eigenaren van de onderneming. Twee typen van social capital kunnen worden onderscheiden, bonding en bridging. Vertaald naar ownership social capital betreft de bonding dimensie het aspect van de interpersoonlijke relaties binnen de groep van eigenaren die een positieve invloed uitoefenen op het benoemen en behalen van gezamenlijke doelen (de intern-georiënteerde, verbindende functie). De bridging dimensie omvat de overbruggende verbanden vanuit het sociale netwerk van de eigenaren waarmee toegang verkregen wordt tot informatie en voorzieningen (de extern-georiënteerde, overbruggende functie). Het onderzoek richt zich op een aselecte steekproef van 708 niet-beursgenoteerde familie en niet-familiebedrijven, allen met meerdere eigenaren. De resultaten van deze studie tonen aan dat een positieve score op de bonding dimensie van ownership social capital (in het bijzonder een gedeelde visie op het bedrijf en goede relaties tussen de eigenaren) een positief effect heeft op de bridging dimensie. Het gaat dan vooral om het mobiliseren van resources die het netwerk van de eigenaren te bieden heeft. Opmerkelijk is dat – in tegenstelling tot de verwachting vanuit de literatuur – de resultaten niet wijzen op een significant direct effect van de familiebetrokkenheid op de ontwikkeling van ownership social capital. Er is wel een indirect effect van de familiebetrokkenheid vast te stellen: de context van het familiebedrijf blijkt een vruchtbare omgeving voor de mobilisatie en het gebruik van de bridging dimensie van ownership social capital indien de groep van eigenaren het eens is over de visie voor het bedrijf. Hoofdstuk 3 onderzoekt de relatie tussen ownership social capital en productinnovatie. Literatuur over innovatieprocessen in familiebedrijven wordt aan eigenaren een cruciale rol toegedicht bij het realiseren van radicale innovatie binnen een onderneming. Onder radicale innovatie wordt verstaan innovatie die leidt tot nieuwe producten en diensten die tevens nieuw zijn voor de markt. De resultaten tonen een direct positief effect van de bridging dimensie van ownership social capital: de mate waarin het netwerk van de eigenaren wordt ingezet ten behoeve van het bedrijf heeft een positief effect op het realiseren van nieuwe producten en diensten. Daarnaast blijkt een indirect positief effect van de kwaliteit van de interpersoonlijke relaties binnen de groep van eigenaren op de gerealiseerde productinnovatie te bestaan. Opvallend is dat de familiebetrokkenheid werkt als een negatieve moderator in de relatie tussen de mobilisatie van het netwerk en productinnovatie: in bedrijven met een grote mate van familiebetrokkenheid is het positieve effect van het mobiliseren van het netwerk van de eigenaren zwakker dan in bedrijven met een lage mate van familiebetrokkenheid. Dit kan betekenen dat de familiale ondernemers de potentiële waarde van het externe netwerk onderschatten bij de ontwikkeling van nieuwe producten en diensten.

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Hoofdstuk 4 gaat in op het effect van spousal social capital op de financiële prestaties van bedrijven van copreneurs. Copreneurs zijn levenspartners die gezamelijk een bedrijf runnen. Deze ondernemingen, ook wel man-vrouwfirma’s genoemd, vormen een belangrijke subgroep onder de familiebedrijven. Spousal social capital – echtelijk sociaal kapitaal – staat voor de meerwaarde die de relatie niet alleen henzelf, maar ook de onderneming oplevert. De studie is gebaseerd op een steekproef van 167 copreneurs. De resultaten geven aan dat het betrekken van externen bij de strategische besluitvorming een aanzienlijke, positieve invloed heeft op de prestaties van het bedrijf. Een gedeelde visie onder de copreneurs zorgt voor een direct positief effect op de financiële prestaties. De kwaliteit van de relatie van de copreneurs heeft een indirect positief effect op de financiële prestaties. Bovendien blijkt dat duidelijkheid over de rolverdeling tussen de echtgenoten een belangrijke voorwaarde is voor de ontwikkeling van de binding dimensie van spousal social capital. Hoofdstuk 5 onderzoekt de relatie tussen de overdracht van tacit knowledge en bedrijfscontinuïteit na een overdracht. Tacit knowledge wordt in de literatuur erkend als een belangrijke strategische resource voor bedrijven. De literatuur over familiebedrijven voert verder aan dat tacit knowlegde die wordt overgedragen van de ene generatie naar de andere een bron kan zijn voor een langdurig concurrentievoordeel bij familiebedrijven. Het onderzoek is gebaseerd op een steekproef van 81 familiebedrijven waar recentelijk een bedrijfsoverdracht plaatsvond. De bevindingen tonen aan dat het hebben van een opvolger uit de familie een positief effect heeft op de continuïteit van het bedrijf. Bovendien laten de resultaten zien dat een positief klimaat met betrekking tot de kennisoverdracht een positief effect heeft op de bedrijfscontinuïteit in het algemeen. Overigens blijkt het klimaat waarin kennisoverdracht plaatsvindt een nog belangrijkere factor bij niet-familiale bedrijfsopvolging. Conclusies Het onderzoek dat is uitgevoerd voor dit proefschrift bevestigt dat bepaalde strategische resources, zoals componenten van social capital en tacit knowledge, een positieve relatie hebben met de prestaties van bedrijven:

• Bonding en binding elementen van ownership social capital hebben een positief effect op de realisatie van productinnovatie. De mobilisatie van het netwerk van de eigenaren heeft een direct positief effect, terwijl de kwaliteit van de relaties tussen de eigenaren een indirect effect laat zien.

• Een gedeelde visie en het betrekken van niet-familieleden zijn beide direct en positief gerelateerd aan de financiële prestaties van bedrijven van copreneurs. De kwaliteit van de copreneurial relatie heeft een indirect positief effect op de financiële prestaties.

• Een positief kennisoverdrachtklimaat bij de bedrijfsopvolging heeft een positief effect op de bedrijfscontinuïteit.

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De belangrijkste conclusie met betrekking tot de impact van de familiebetrokkenheid op de ontwikkeling van strategische resources is dat deze invloed indirect en bivalent is: • Familiebetrokkenheid heeft een positieve invloed als moderator van de relatie tussen

de gedeelde eigenaarsvisie en de mobilisatie van het netwerk van de eigenaren: hoge familiebetrokkenheid stimuleert eigenaren die dezelfde visie delen om hun netwerk te mobiliseren.

• Familiebetrokkenheid heeft een negatieve invloed als moderator van de relatie tussen enerzijds de mobilisatie van het netwerk van de eigenaren en anderzijds productinnovatie. Eigenaren van bedrijven met een sterke familiebetrokkenheid zijn relatief passief in het mobiliseren van hun netwerk als ondersteuning bij het ontwikkelen van nieuwe producten en diensten.

• Het betrekken van niet-familieleden in bedrijven van copreneurs heeft een direct positief effect op de financiële prestaties van deze bedrijven.

• Familiale opvolging heeft een positief effect op de bedrijfscontinuïteit. Bovendien is het kennisoverdrachtklimaat minder belangrijk tijdens een familiale opvolging dan bij een niet-familiale opvolging.

Aanvullende conclusies zijn:

• Vier belangrijke contextuele factoren die positief gerelateerd zijn aan de ontwikkeling van social capital en tacit knowledge zijn: de rol van eigenaarschap, een duidelijke rolverdeling tussen echtgenoten, overlap tussen eigendom en management en de omvang van de onderneming.

• Interne en externe elementen van ownership social capital zijn positief gerelateerd aan elkaar. Een gedeelde visie onder eigenaren en de kwaliteit van de relaties tussen de eigenaren hebben beide een positief effect op de mobilisatie van het netwerk van de eigenaren. Bovendien blijkt dat een combinatie van de interne elementen zorgt voor een extra stimulans op de inzet van het netwerk van de eigenaren ten behoeve van het bedrijf.

Theoretische en praktische implicaties Deze studie ondersteunt de belangrijkste stelling van de resource-based view (RBV), namelijk dat strategische resources waardevol zijn omdat bedrijven hiermee een concurrentievoordeel voor de lange termijn kunnen ontwikkelen. Spousal social capital, ownership social capital en het kennisoverdrachtklimaat zijn geïdentificeerd als strategische resources die een positief effect hebben op de gemeten bedrijfsprestaties. Opvallend is dat de resultaten niet het veel gehoorde idee bevestigen dat familiebetrokkenheid uit zichzelf zou werken als een strategische resource. De laatste jaren is de aandacht binnen de RBV verschoven van een focus op de aanwezigheid van strategische resources naar de capaciteiten en competenties die nodig zijn om vanuit

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strategische resources een concurrentievoordeel te ontwikkelen (Newbert, 2007). In lijn met Sirmon et al. (2011), die de nadruk leggen op de noodzaak om expliciet aandacht te besteden aan initiatieven die managers ondernemen met betrekking tot de strategische resources, is het aan te bevelen om ook de handelingen die eigenaren en familieleden verrichten met betrekking tot de ontwikkeling van strategische resources, te onderzoeken. De resultaten van deze studie zijn tevens in overeenstemming met de proposities uit de social capital theorie. Social capital kan dienen als strategische resource voor ondernemingen. Om het onderzoek naar social capital verder te brengen, stellen Payne et al. (2010) dat er uitdagingen en kansen voortvloeien uit het gegeven dat het fenomeen van social capital op meerdere niveaus kan worden onderzocht (zoals de maatschappij, de organisatie, het team en de familie). De complexiteit van het familiebedrijf als gevolg van de overlappende subsystemen, namelijk eigendom, bedrijf en familie, laat duidelijk zien dat social capital zich op verschillende niveaus kan manifesteren. Voor het verkrijgen van een diepgaand inzicht in het construct social capital, is het noodzakelijk om meer inzicht te krijgen in deze complexiteit. Dit onderzoek levert verder een bijdrage aan deze discussie over de interacties tussen de verschillende elementen van social capital (Zheng, 2010). De empirische resultaten onderbouwen het theoretische idee dat interne en externe elementen van social capital elkaar kunnen versterken. Bovendien zijn de resultaten in lijn met de theoretische kaders die voorgesteld zijn door Lin (1999), Adler en Kwon (2002) en Long (2011), die het sequentiële karakter benadrukken bij de ontwikkeling van social capital. In het algemeen kan worden gesteld dat de empirische resultaten de theoretische beschouwing van Sharma (2008) ondersteunen. Sharma stelt dat het effect van familiness zowel distinctive als constrictive kan zijn. Met ander woorden, de familiebetrokkenheid kan zowel een onderscheidend als beperkend effect op de onderneming hebben. De bevindingen bevestigen daarmee ook het argument van Tagiuri en Davis (1996) betreffende de bivalente eigenschappen van familiebedrijven. Een ander interessant resultaat van dit proefschrift is de vaststelling dat familiebetrokkenheid geen direct significant positieve invloed heeft op de financiële prestaties van bedrijven. In dit verband lijkt het erop dat onderzoekers zeer precies moeten zijn in het bepalen van de antecedenten van potentiële strategische resources. Zo lijkt het noodzakelijk om het concept van family social capital (Carr et al., 2011; Sorenson et al., 2009) te heroverwegen. Deze studie laat namelijk zien dat als de focus ligt op ownership social capital, er een onderscheid gemaakt kan worden tussen een 'familie' effect en een 'eigendom' effect. Bij het meten van family social capital zou de rol van de eigenaren meegenomen moeten worden. Hiermee kan een duidelijker onderscheid gemaakt worden tussen enerzijds familiebedrijven en anderzijds private bedrijven waar geen familieband is tussen de eigenaren. Dit proefschrift heeft praktische relevantie voor de eigenaren van niet-beursgenoteerde bedrijven. Eigenaren worden aangemoedigd om te werken aan de verbindende elementen van social capital. De resultaten leveren een indicatie dat investeren in het opbouwen van inter-persoonlijke relaties binnen de groep van eigenaren een positief effect zal hebben op de bedrijfsresultaten. Dit geldt ook voor levenspartners die samen een bedrijf runnen. Adviseurs

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kunnen daarbij helpen door het verhogen van het bewustzijn aangaande het belang van deze "zachte" factoren. Eigenaren kunnen het bedrijf ondersteunen door het actief ontwikkelen van nieuwe externe contacten en het identificeren en benutten van mogelijkheden vanuit hun bestaande netwerk (de brugfunctie van social capital). Familiale ondernemers in het bijzonder, zijn gebaat bij aandacht voor dit aspect, omdat ze bij het ontwikkelen van nieuwe producten en diensten relatief laag scoren op deze brugfunctie van social capital. De resultaten suggereren verder dat het een goede strategie is voor copreneurs om niet-familieleden te betrekken bij hun bedrijven. Tot slot blijkt uit de resultaten een positief effect van een opvolging door een familielid op de bedrijfscontinuïteit na bedrijfsoverdracht. Dit betekent dat tijdige aandacht voor de ontwikkeling van de volgende generatie als toekomstige leiders van het familiebedrijf kan worden gezien als een waardevolle investering. Het belang van een positief kennisoverdrachtklimaat wordt ook benadrukt met betrekking tot het succes van een bedrijfsoverdracht. Alle actoren in dit proces doen er goed aan om aandacht te besteden aan de factoren die een dergelijk klimaat ondersteunen. Aanbevelingen voor toekomstig onderzoek Uiteraard kan het onderzoek in dit proefschrift niet alle vragen beantwoorden met betrekking tot strategische resources in familiebedrijven. Mogelijkheden voor toekomstig onderzoek kunnen als volgt worden samengevat:

• Kwalitatief onderzoek, zoals case studies met een longitudinaal karakter, zou een waardevolle aanvulling zijn, omdat dergelijk onderzoek het mogelijk kan maken om empirisch te onderzoeken hoe het proces verloopt van investering in social capital tot en met het realiseren van een rendement op deze investering (Lin, 1999). Case studies maken het tevens mogelijk om dit proces vanuit meerdere perspectieven (bijvoorbeeld eigenaar, familielid en management) te belichten, hetgeen aanvullende inzichten kan genereren.

• Toekomstig onderzoek zou de onderlinge relaties tussen de verschillende strategische resources kunnen bestuderen. Dit zal de kennis over strategische resources verder verdiepen. Dit geldt in het bijzonder omdat vanuit eerder onderzoek is aangeven dat de verbindende elementen van social capital kunnen fungeren als bouwstenen voor de ontwikkeling van tacit knowledge.

• Onderzoek zou zich ook kunnen richten op andere potentiële strategische resources, zoals patient financial capital en survavibility capital (Sirmon & Hitt, 2003). De rol van de familiebetrokkenheid met betrekking tot deze strategische middelen is ook een interessante onderzoeksvraag.

• Onderzoekers worden aangemoedigd om zowel met het familiesysteem als met het eigendomsysteem rekening te houden. Een dergelijke aanpak zou het mogelijk

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kunnen maken om de specifieke antecedenten van de verschillende strategische resources te identificeren en te bepalen hoe de ontwikkeling van deze resources in familiebedrijven verloopt. Bovendien zou dit aanvullende kennis opleveren over de wijze waarop familiebedrijven kunnen worden onderscheiden binnen de totale groep van niet-beursgenoteerde bedrijven.

• Vervolgonderzoek naar de invloed van eigenaarschap is aan te bevelen. In het bijzonder zou een onderzoeksaanpak die zich richt op actieve vormen van eigendom (Hall et al., 2012) een waardevolle bijdrage kunnen leveren op het gebied van governance onderzoek.

• Tenslotte, het lijkt veelbelovend voor onderzoekers om de gevolgen van actief aandeelhouderschap te onderzoeken in relatie tot bedrijfsopvolging. Tijdens de bedrijfsopvolging zullen stakeholders van positie gaan veranderen en de verwachting is dat dit in toenemende mate zal leiden tot situaties van gedeeld eigendom.

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Curriculum Vitae Ilse A. Matser (1969) works since 1998 as an assistant professor at the Utrecht School of Economics of Utrecht University. In 2007 Utrecht University became the academic partner of the Dutch Centre for Family Business and Ilse became the managing director of this expertise centre for family firms. The centre combines practical experience with the results of scientific themes that are topical in family business. Ilse also has the position as Professor of Family Business Management at Windesheim University of Applied Sciences in Zwolle, the Netherlands. She is head of a new research group that is started in 2009 and which now consists of ten people. The focus is on research questions regarding ownership, governance and strategic entrepreneurship in family firms. The results of the research projects are, amongst others, used in Windesheim’s bachelor and executive programs. Ilse is an active member of an international network of family business scholars and practitioners. The research group is engaged in international research projects and collaborates with Belgium and South African partners. Ilse Matser obtained her Master’s degree in Economics & Business at Vrije Universiteit Amsterdam. Her primary research interests are in the field of strategic management and governance. She publishes in newspapers, professional and academic journals. She is married and has two children.

Past research has raised many interesting questions regar-

ding the effect of family involvement on businesses. With the

resource-based view as the primary theoretical framework,

this dissertation looks at strategic resources in private firms

and how those resources are influenced by family involve-

ment. Furthermore, the research investigates to what extent

the development of these strategic resources have an impact

on firm performance. The focus is on the development of

tacit knowledge and social capital, as these components of

strategic resources have been identified in the literature as

elements for which family involvement may have a strong,

positive influence.

Ilse A. Matser (1969) works since

1998 as an assistant professor at the

Utrecht School of Economics of

Utrecht University. In 2007 Utrecht

University became the academic

partner of the Dutch Centre for

Family Business and Ilse became

the managing director of this expertise centre for fami-

ly firms. Ilse also has the position as Professor of Family

Business Management at Windesheim University of Applied

Sciences in Zwolle, the Netherlands. Her primary research

interests are in the field of ownership, governance and strate-

gic entrepreneurship in family firms.


Ilse Anje Matser

Strategic Resources and Family Firm

Performance Ilse Anje M

atser

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2203925_Omsl Proefschrift Family FirmDEF.indd 1 05-12-12 11:12

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Windesheim University of Applied Sciences/media/files/windesheim/research... · Past research has raised many interesting questions regar-ding the effect of family involvement on