Family Control, Regulatory Environment, and the Growth of Entrepreneurial Firms: International Evidence

• Author: Wanli Li,Craig Wilson,Wenxuan Hou,Zhenyu Wu,Qiu Chen
• Date: 01 March 2014
• Published date: 01 March 2014
• DOI: http://doi.org/10.1111/corg.12060

Family Control, Regulatory Environment, and

the Growth of Entrepreneurial Firms:

International Evidence

Qiu Chen, Wenxuan Hou, Wanli Li, Craig Wilson, and

Zhenyu Wu*

ABSTRACT

Manuscript Type: Empirical

Research Issue: We investigate the joint effects of family control and the regulatoryenvironment on entrepreneurial growth

through the lens of socio-emotional wealth (SEW) theory.

Research Findings: Taking into consideration both economic and non-economic goals of entrepreneurial f‌irms, measured

by sales growth and employment growth respectively, we f‌ind that, compared to their non-family-controlled counterparts,

family-controlled f‌irms tend to have lower sales growth rates, but higher employment growth rates. Furthermore, less

favorable regulatory environments reduce both sales and workforce growth rates to a greater extent for family-controlled

f‌irms than for non-family-controlled f‌irms.

Theoretical/Academic Implications: We add to the corporate governance and family business management literature by

documenting that the regulatory environment moderates the corporate governance effect of family control on the economic

and non-economic goals of family-controlled f‌irms. The f‌indings also contribute to the family business management

literature by enriching and providingstrong evidence in favor of the SEW theory through our exploration of the moderating

role that macro-governance plays in the family control-SEW relation. This research also makes contributions to the entre-

preneurship literature, laying a foundation for future empirical studies on entrepreneurial growth by separating its

economic from its non-economic dimensions.

Practitioner/Policy Implications: Our f‌indings provide practical implications for both policy makers and entrepreneurs.

They not only help entrepreneurs better understand growth strategies in various macro-governance settings, but also

provide governments and policymakers with potential policy implications to encourage entrepreneurial and economic

growth. Policies that improve the macro-governance environment can help family f‌irms to prosper by contributing to their

economic and non-economic growth, both of which are important for economic development.

Keywords: Corporate Governance, Family Control, Regulatory Environment, Entrepreneurial Growth

INTRODUCTION

Entrepreneurial f‌irms serve as the engine of global eco-

nomic growth, which is especially important in light of

the 2008 f‌inancial crisis and the subsequent recession. Both

effective corporate governance mechanisms and a fair regu-

latory environment are importantfactors for entrepreneurial

f‌irm growth. The former helps mitigate agency conf‌licts

within entrepreneurial f‌irms and improves their eff‌icient

use of resources (Hillman & Dalziel, 2003), and the latter

helps protect the legal rights and benef‌its that arise from

entrepreneurial risk-taking (Cressy, Cumming, & Mallin,

2010; Cumming, Dai, & Johan, 2013). Family involvement

has been found to affect corporate governance mechanisms

(Schulze, Lubatkin, & Dino, 2003; Schulze, Lubatkin, Dino, &

Buchholtz, 2001; Villalonga & Amit, 2006).

Using international data from the World Business Envi-

ronment Survey 2000 (WBES) conducted by the World Bank,

we explore the joint effects of family control and a country’s

regulatory environment on the growth of entrepreneurial

*Address for correspondence: Zhenyu Wu, Asper School of Business, University of

Manitoba, Winnipeg, Manitoba, Canada. Tel. 204-474-8425; E-mail: Zhenyu_wu@

umanitoba.ca

132

Corporate Governance: An International Review, 2014, 22(2): 132–144

© 2014 John Wiley & Sons Ltd

doi:10.1111/corg.12060