Antecedents and consequences of top management team's power structure in a family business context

Abstract

There are differences in the goals and motivations of the family managers vis-a-vis the nonfamily managers of a family firm that lead to power struggles between the two cohorts. Power distribution among family and non-family managers' cohort of a family firm's top management team (TMT) determine the TMT's interaction and dynamics that further determine the quality of strategic decisions and consequently, the firm's financial performance. Despite the prevalence of family firm across the world, there are limited studies on the impact of power distribution within family firm's TMT and firm’s performance and internationalization, especially in an emerging economy context. The first essay examined the impact of the TMT's structural (or formal) power concentration on a family firm's performance and how this relationship gets moderated by environmental dynamism and TMT diversity. The second essay examined the impact of family power concentration on a family firm's internationalization and moderating effect of environmental dynamism, competition intensity, and institutional quality. The third essay examined the causal relationship between past performance shock of a family firm and power concentration within the family firm's TMT. Using a longitudinal dataset of Indian family firm, this study finds that power concentration in family firm's TMT leads to low financial performance and low internationalization. However, concentrated power in the TMT might not be bad for financial performance if the environment is dynamic, but it further decreases family firm internationalization. Also, TMT diversity, an informal source of power complements the formal source of power and the negative effect of concentrated power on a firm's performance is mitigated by TMT diversity. Further high competition intensity and weaker institutional quality of host country mitigate the negative relationship between family power concentration and internationalization. In the third essay, we find that past performance shock of the family firm will decrease the structural power concentration within the family firm TMT. When the family firm's performance shock deviates further away from the average industry performance, the firm will witness a decrease in family power concentration and a decrease in the proportion of compensation, status, and representation for family members in TMT.