At the intersection of corporate governance and performance in family business settings: Extant knowledge and future research
| Author | Virginia Bodolica,Martin Spraggon,Daniel Dupuis |
| DOI | http://doi.org/10.1111/beer.12254 |
| Published date | 01 January 2020 |
| Date | 01 January 2020 |
Business Ethics: A Eur Rev. 2020;29:143–166. wileyonlinelibrary.com/journal/beer
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© 2019 John Wiley & Sons Ltd
1 | INTRODUCTION
Family firms repr esent the most p opular form of cor porate owner‐
ship worldwide a nd a major contribu tor to economic deve lopment
and national weal th generation (Bodolica, Sp raggon, & Zaidi, 2015;
Lude & Prugl, 2018). T he prevalence of family fi rms across the globe
has fueled heig htened interest f rom scholars ai ming to investigat e
the effect s of family contro l on organizatio nal outcomes (Ever t,
Sears, Mar tin, & Payne, 2018; Rou yer, 2016). Yet, after several de‐
cades of resea rch in the field, t he results rem ain inconclusive w ith
the literature u ncovering both pos itive and negati ve performan ce
consequences of f amily involveme nt in firm managem ent and con‐
trol. It appear s that family fir ms are not only distin ct but also intric ate
entities, in wh ich a complex web of relations a mong stakeholders i n‐
tertwine and a multiplicity of conflicting interests are at play.
One of the most pro minent outcome s of the mainstrea m re‐
search is that fa mily firms produce cer tain distinc tiveness, compare d
to their non‐famil y counterpart s, precisel y because they a re fam‐
ily firms (Dupu is, Spraggon, & Bodolica , 2017). However, to explain
the inconsistencies in current empirical findings, scholarly efforts
started to g ravitate toward the exam ination of underlyin g character‐
istics as sour ces of differentiation amon g family firms. According to
the socioemot ional wealth (SEW) persp ective, family firms are to rn
between two s ets of realities that in duce them to balance fami ly and
business trade‐offs and engage in a simultaneous pursuit of financial
and non‐financia l objectives (Samara & Paul , 2019). Being originall y
deployed to unveil th e idiosyncrasi es of family versu s non‐family
firms, this pe rspective was expand ed to contribute to the debate o n
the variation in o rganizationa l attributes a nd behavioral ch aracter‐
istics withi n family firm se ttings. Alt hough researc hers have come
Received:11Janua ry2019
|
Revised:22Oc tober2019
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Accepted:24Octo ber2019
DOI: 10 .1111/bee r.12254
ORIGINAL ARTICLE
At the intersection of corporate governance and performance
in family business settings: Extant knowledge and future
research
Virginia Bodolica1 | Daniel Dupuis1 | Martin Spraggon2
1School of Busi ness
Administration, American University of
Sharjah, Sharjah, United Arab Emirates
2Dean of Schoo l of Business and Qual ity
Management, Hamdan Bin Mohammed
Smart Unive rsity (HBMSU), Du bai, United
Arab Emirates
Correspondence
Virginia Bodolica, School of Business
Administration, American University of
Sharjah, P.O. Box 26666 , Sharjah, United
Arab Emirates.
Email: virginia.bodolica@hec.ca
Abstract
Despite the prolife ration of research on govern ance and perfor mance of family
firms over the past de cades, the ex tant empirical evi dence remains inconcl usive.
Acknowledging multiple sources of family firm variation, scholars started explain‐
ing the observed d ifferences in governa nce structure s and performan ce outcomes
by taking into consider ation the heterogeneit y among family f irms. In this paper,
we undertake a revie w of the literature at the inte rsection of governan ce and per‐
formance in family f irms to elucidate (a) the role of var ious governance attri butes
as performance d rivers; and (b) the variab ility of governance eff ects across dif fer‐
ent performan ce indicators. By t aking stock of what is alrea dy known and discuss‐
ing avenues for furt her investigation, we s eek to contribute to a more f ine‐grained
understand ing of the intricate governa nce–performance relat ionship in light of the
heterogeneous nature of f amily firms. The key p riorities for futur e inquiry consist
in: the identificat ion of missing mediating and moderating var iables; the inclusion of
currently undere xplored governance dete rminants of family f irm performa nce; and
the analysis of complem entarity and su bstitution effe cts among mult iple attributes
of monitoring and thei r changing dynamic s over time to secure an optima l govern‐
ance–performance alignment in family firms.
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BODOLICA et AL.
to the realizatio n that family fi rm specificit ies in terms of goals ,
governance, and resources can generate different outcomes (Chua,
Chrisman, Steie r, & Rau, 2012), the extant under standing of the het‐
erogeneous nature of family firms remains limited (Memili & Dibrell,
2018). This field of inq uiry is moving toward exp laining the obser ved
differences i n governance stru ctures and f irm perform ance (FP) by
taking into acco unt the heterogene ity among family firms (Fehre &
Weber, 2019).
Given the prolif eration of scholarly invest igations located at the
intersecti on of corporate governance (CG) and FP i n family firm set‐
tings, the tim e is right to take stock of what is known and h as been
accomplished to d ate. In this paper, we advance the fam ily firm het‐
erogeneity de bate by conducting a review of empir ical research on
the CG–FP relationship in family firms to draw meaningful interpre‐
tations, exp lain the contrad ictory evid ence, and sugges t promising
avenues for fur ther inquir y. Since concerns for at taining tang ible
financial results and emotional family‐related goals simultaneously
(although at vari ous degrees) are typica l for the population of fami ly
firms (Deeph ouse & Jaskiewic z, 2013), analyzing a ll types of FP is
likely to dilute the d iscussion around source s of family firm differ en‐
tiation. The re lational strength bet ween governance structure s and
financial per formance bears more potentia l for uncovering spe cific
causes of variat ion among family firms. H ence, we focus exclusively
on objective me asures of family FP that have relevan ce to financial
outcomes. In our a nalysis of relevant studies, we ar e guided by the
two following re search quest ions: (a) what major att ributes of CG
constitute sign ificant drive rs of FP in family fir ms? and (b) how the
effect of CG att ributes differs acros s different metrics of FP? W hile
our attempt is not u nique in the literature , there is ample of scope to
contribute to a mor e fine‐grained understa nding of the convoluted
interactio n between governance an d performance in li ght of the het‐
erogeneous nature of family firms.
Our paper dif fers from other recent review s on the topic in sev‐
eral respec ts. On the one h and, some sur veys on family fir ms limit
their discussio n to either specif ic aspects of CG, such as stru ctural
issues (Azil a‐Gbettor, Honyen uga, Berent‐Brau n, & Kil, 2018), or
certain ind icators of per formance, such a s corporate socia l perfor‐
mance (Canavati , 2018). On the other hand, prior lite rature reviews
that integrate CG an d FP consideration s in the context of fa m‐
ily firms fall b eyond the scope of ou r analysis. They a re either too
comprehensive, covering broader topics related to ownership struc‐
ture, corpora te decision makin g and succession pr ocess (Pindado
& Requejo, 2015), or over tly specifi c, focusing on the a ssessment
of theoretica l perspect ives deployed in th e study of family g over‐
nance (Siebels & K nyphausen‐Aufs eß, 2012). Our sur vey of the lit‐
erature draws uniquely on empirical research in which performance
was gauged throu gh objective, q uantitative, a nd financial me trics
(Hearn, 2011; Lien & Li, 2 013), as opposed to subjective , qualitative,
and social indic ators (Brenes, Madrigal, & Req uena, 2011). In many
studies resp ondents are asked to share their p erceptions about the
financial outco mes of their orga nization relati ve to the competi‐
tion by answering a s et of survey ques tions (e.g., Bere nt‐Braun &
Uhlaner, 2012). Since subj ective perf ormance assess ments bear
many limitation s for comparative purposes , we excluded these arti‐
cles from further consideration.
The contribut ions of our survey of t he literature are t hree‐fold.
First, we ide ntify several popular s treams of CG mechanisms and F P
indicators th at provide the foundation of our ana lytical framework.
When examinin g common ways of assessing objec tive performance
in extant stu dies, we go beyond th e conventional consi deration of
financial per formance ind icators (i.e., ac counting and mar ket mea‐
sures) by including i n the discussion of the role played by co rporate
policy choices. Earnings, dividends, and cash holdings, among oth‐
ers, also const itute object ive performa nce metrics th at are heavily
dependent on sp ecific policy choices mad e by the corporation. Our
research framework permits emphasizing the idiosyncratic nature
of these polic y‐driven perfo rmance indica tors that bear imp ortant
financial implications for family firm outcomes.
Second, we repo rt the result s of our analysis in a s ystematic
fashion, st arting with various gover nance attributes to illus trate the
way they drive fami ly FP, and continuing with differe nt performance
metrics to uncove r the CG variability acro ss them. The ensuing two ‐
dimensional mat rix, that highlight s the nature of the relat ionship (i.e.,
positive, neut ral, or negative) betwe en CG and FP, allows identifying
“blind spots” th at represent pro mising oppor tunities for fur ther in‐
quiry. Third, del ving deeper int o the reasons of inco nsistencies in
current research findings permits approaching CG as a critical source
of differentiat ion among family firms . To advance the deb ate on the
antecedents and consequences of family firm heterogeneity, our
literature review delineates several strands of future research in
the field. We point to t he need of uncoveri ng relevant mode rators
and mediators of t he CG–FP relationship , studying othe r underex‐
plored CG drivers of family FP, and considering interdependencies
among alternative governance mechanisms and their changing dy‐
namics over time to s ecure the achieve ment of optimal fa mily firm
outcomes.
In the following se ction, we expl ain the adopted m ethodolog y
for conductin g the literature r eview. The articl e continues with a
comparative an alysis of the survey find ings that are presented al ong
the differen t streams inclu ded in our analy tical frame work. An in‐
depth discussio n of multiple avenue s for future inquiry to enhance
our underst anding of the CG–FP relationsh ip in family firms follow s.
The concluding s ection of this pa per summarizes o ur main contri‐
butions and advocates for further development of heterogeneity
research within family firms.
2 | METHOD AND ANALYTICAL
FRAMEWORK
We followed the five s teps of the end‐to‐end process of writ ing lit‐
erature reviews ( Bodolica & Spraggon, 2018). F irst, when delimiting
the topic of our revi ew, we decided to focus exclusively o n the fam‐
ily business lite rature which is located at th e intersection of CG and
objective FP met rics with dire ct relevance to f inancial outcom es.
To succeed in our effor ts of taking s tock of the broadly d iversified
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