Not all family firms are equal: The moderating effect of family involvement on the political risk exposure of the foreign direct investment portfolio. Preliminary evidence from Spanish multinational enterprises

• Date: 01 March 2019
• Author: Bice Della Piana,Alfredo Jimenez,Antonio Majocchi
• DOI: http://doi.org/10.1002/tie.22032
• Published date: 01 March 2019

AREA PERSPECTIVES: EUROPE

Not all family firms are equal: The moderating effect of family

involvement on the political risk exposure of the foreign direct

investment portfolio. Preliminary evidence from Spanish

multinational enterprises

Alfredo Jimenez

1

| Antonio Majocchi

2

| Bice Della Piana

3

1

Kedge Business School, Grenoble, France

2

Department of Economics and Management,

University of Pavia, Pavia, Italy

3

Department of Management and Innovation

Systems, University of Salerno, Fisciano, Italy

Correspondence

Alfredo Jimenez, Kedge Business School,

680, cours de la Liberation, 33405 Talence,

France.

Email: alfredo.jimenez@kedgebs.com

We investigate the effect of political risk (PR) exposure and family control on the internationali-

zation strategy of multinational enterprises (MNEs) using social capital theory. Our results from

a negative binomial cross-sectional analysis in 2007 of Spanish MNEs show family ownership or

the limited presence of family members on the board has no effect on internationalization.

However, when the conceptualization of family firms (FFs) includes majority ownership and

board presence, we find a direct negative effect on their internationalization scope but a posi-

tive moderating effect on the relationship between the exposure to PR and internationalization

scope. FFs have some specific advantages suitable to be employed in their corporate political

activity allowing them to develop long-lasting relationships with relevant political actors. By dis-

entangling the effects of family control on internationalization and PR, this article explains how

FFs can be simultaneously risk-willing and risk-averse.

KEYWORDS

experience by exposure, family firms, foreign direct investments, internationalization, political

risk, social capital theory

1|INTRODUCTION

Family firms (FFs) are traditionally considered more risk-averse than

other types of companies. Family owners typically have most of their

wealth tied up in the business and are thus less likely to pursue high-

risk strategies (Casillas & Acedo, 2005; Naldi, Nordqvist, Sjöbergand, &

Wiklund, 2007). Moreover, FFs are managed with longer time hori-

zons compared to non-FFs because their goal is to preserve the busi-

nesses for subsequent generations (Arregle, Hitt, Sirmon, & Véry,

2007). This approach fosters the typical long-term orientation of FFs

and promotes a risk-averse approach to internationalization (Schulze,

Lubatkin, & Dino, 2003).

Among the different risks generated by internationalization, politi-

cal risk (PR) stands out as one of the most significant (Alon, Guru-

moorthy, Mitchell, & Steen, 2006; Jiang, Peng, Yang, & Mutlu, 2015;

Osabutey & Okoro, 2015). Expropriation, nationalization, or unilateral

modifications of the agreed conditions are some examples of harmful

measures that governments can implement to appropriate the rents of

multinational enterprises (MNEs). Governments have an incentive to

behave opportunistically especially when technological obsolescence

or sunk costs gradually erode the bargaining power that MNEs enjoy

before deploying the investment (Kobrin, 1987).

However, a new stream of literature drawing on corporate politi-

cal activity and nonmarket strategy (Baron, 1995; Doh, Lawton, &

Rajwani, 2012; Hillman & Hitt, 1999; Mellahi, Frynas, Sun, & Siegel,

2016) emphasizes PR is also partially endogenous and the nonmarket

environment may be a potential source of opportunities (Jiang et al.,

2015). MNEs can learn how to interact more profitably with host

country authorities and gain advantages in locations characterized by

higher levels of PR as in the European air transport sector (Lawton,

Rajwani, & Doh, 2013), the US electrical sector (Holburn & Zelner,

2010), and in the case of Spanish MNEs (García-Canal & Guillén,

2008; Jiménez, 2010).

The goal of this article is to study precisely the interaction

between FFs, PR, and internationalization strategy. Specifically, we

argue: (a) MNEs can build on their accumulated experience acquired

by exposure to PR to manage their Foreign Direct Investment (FDI)

location portfolio and a broad range of environments, leading to a

DOI: 10.1002/tie.22032

Thunderbird Int. Bus. Rev. 2019;61:309–323. wileyonlinelibrary.com/journal/tie © 2018 Wiley Periodicals, Inc. 309