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Family Management and Internationalization: The Impact on Firm Performance and Innovation

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Abstract

  • Researchers in international business have long been interested in understanding the impact of internationalization on firm performance and innovation. However, because international diversification offers both advantages and agency problems, prior studies of this research stream offer mixed results.

  • Based on a sample of Taiwan’s publicly listed firms during the period of 2000–2009, this study contributes to this research stream by examining the impact of family management on firm performance and innovation implications of internationalization.

  • This study finds that family management positively moderates the relation between internationalization and performance/innovation. These findings suggest that family management helps mitigate the agency problems associated with internationalization so that family firms experience positive benefits from internationalization in terms of innovation and performance.

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Notes

  1. For the performance impact of internationalization, empirical evidence supports a positive a linear relation (e.g., Bausch and Krist2007; Contractor2007; Daniels and Bracker1989), a negative linear relation (e.g., Collins1990), an inverted U-shaped relation (e.g., Elango and Sethi2007), a U-shaped relation (e.g., Ruigrok and Wagner2003), a S-shaped relation (e.g., Ruigrok et al.2007), and even no relation between internationalization and firm performance (e.g., Buhner1987; Hennart2007). For the innovation impact of internationalization, empirical evidence supports a linear relation (e.g., Kogut and Chang1991), a negative relation (e.g., Egelhoff1988), and an inverted U-shaped relation (e.g., Hitt et al.1997; Hitt and Keats1992).

  2. Prospectuses not only disclose the names and immediate holdings of the 10 largest shareholders but also present the director and supervisor board compositions, the top management, and related party transactions.Business Group in Taiwan is a book published annually by the China Credit Information Services Ltd., which provides group family tree information that allows us to ascertain whether the key executives, directors, supervisors, or blockholders are family members.

  3. Our sample is restricted to multinational firms because they are likely to provide the most complex managerial contexts, which tend to produce the most severe agency problems.

  4. Specifically, thepatent variable is a measure of patents per million dollars of total assets.

  5. We check and update family firm classification year by year; this approach makes our results more reliable. Conversely, several prior studies adopt an analogy approach to identify family firm, which uses only one year for classification and extends it to other years (see Anderson and Reeb2003a,2003b); this approach might result in classification errors for firms that change their status throughout the sample period.

  6. Because our data are structured as a pooled cross-sectional (across firms) and time series (over years), we use a panel data method. We use Breusch and Pagan Lagrangian multiplier test to test whether random effects are present. In addition, we employ Hausman specification test to use fixed effects estimator or random effects estimators. Both tests indicate that a generalized least squares random effects model is appropriate for all regression models we use in our analysis.

  7. Not all family firms are the same. We observe considerable variation in family involvement in management and cash–vote divergence across family firms. These characteristics may affect the severity of agency problems and thus the performance and innovation impacts of internationalization. Families’ involvement in business operations can have two implications. It can either reduce the classic owner–manager agency conflict or increase the conflicts of interest between family owners and the minority shareholders. In addition, family owners’ incentives to extract private benefits increases as the separation of their cash flow and voting rights become larger. Anderson and Reeb (2003a) and Villalonga and Amit (2006) find that family firms are subject to less severe agency problems relative to nonfamily firms in terms of better performance. In addition, they find that family firms with a family CEO (rather than family firms with a hired CEO) and family firms without cash–vote divergence (rather than family firms with cash–vote divergence) are primarily responsible for family firms exhibiting better firm performance relative to nonfamily firms. Their result suggests that family firms with a family CEO (without cash–vote divergence) exhibit less severe agency problems relative to family firms with hired CEO (with cash–vote divergence). Using a sample of Taiwan’s listed firms, we find that the results of Anderson and Reeb and Villalonga and Amit still hold on Taiwan’s listed firms, suggesting that for Taiwan’s listed firms, family firms with family CEO (family firms without cash-vote divergence) exhibit less severe agency problems relative to family firms with hired CEO (family firms with cash-vote divergence).

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  1. Department of Business Administration, National Central University, Tauyon County, Taiwan

    Shou-Min Tsao &  Wei-Hao Lien

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Tsao, SM., Lien, WH. Family Management and Internationalization: The Impact on Firm Performance and Innovation. Manag Int Rev 53, 189–213 (2013). https://doi.org/10.1007/s11575-011-0125-9

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