Role of family firm heterogeneity in internationalization, earnings management, and entrepreneurial orientation

Abstract

Family firms (FFs) differ from non-FFs in that they have unique succession plans, nonfinancial goals, ownership structures, and strategic choices compared to non-FF. At the same time, FFs are a very heterogeneous group, and their preferences for socioemotional wealth (SEW), governance configurations, values, and generational involvement in business can vary greatly. In three independent essays, we examine the role of FF heterogeneity in FFs’ strategic choices. In the first essay, we examine the role of the FFs’ existing headquarters-subsidiaries (HQ-subs) network’s institutional distance on the post-entry speed of internationalization (PSI). We focus on HQ-subs governance, knowledge, and administrative distances on the FF’s PSI. Drawing on the organizational learning theory, we argue that existing HQsubs institutional distance negatively impacts an FF’s PSI. However, the relationship is weakened if family owners belong to the trading community and the founder occupies the CEO position. The second essay investigates the chief financial officer’s (CFO) role in earnings management in FFs. Drawing on the social exchange theory, we hypothesize that the CFO’s long tenure negatively affects earnings management. Using social identity theory, we hypothesize that CFO caste similarity with family owners is also negatively related to earnings management. We argue that these relationships are contingent on the CFO’s last year of tenure, such that earnings management increases in the last year of the CFO’s tenure. In the third essay, grounding our arguments in the SEW perspective, we bridge the conflicting findings in the FF’s entrepreneurial orientation (EO) literature by investigating the role of types of SEW in FFs. Using computer-aided text analysis, we validate the two-dimensional measurement of SEW (extended and restricted SEW) and report that family owners who value restricted SEW have a lower level of EO, while family owners who choose extended SEW have a higher EO. We further explore the contingent role of the FF’s internationalization status and find that it positively moderates the relationship between types of SEW and EO. We test the hypotheses of our three essays using panel data of the large-listed Indian FFs in the NSE 500 index from 2005-20.