James G. Combs

Does Human Capital Matter? A Meta-Analysis of the Relationship between Human Capital and Firm Performance.

Theory at both the micro and macro level predicts that investments in superior human capital generate better firm-level performance. However, human capital takes time and money to develop or acquire, which potentially offsets its positive benefits. Indeed, extant tests appear equivocal regarding its impact. To clarify what is known, we meta-analyzed effects drawn from 66 studies of the human capital-firm performance relationship and investigated 3 moderators suggested by resource-based theory. We found that human capital relates strongly to performance, especially when the human capital in question is not readily tradable in labor markets and when researchers use operational performance measures that are not subject to profit appropriation. Our results suggest that managers should invest in programs that increase and retain firm-specific human capital.

Modeling Levels and Time in Entrepreneurship Research: An Illustration with Growth Strategies and Post-IPO Performance

New ventures lack resources, are buffeted by environmental factors, and often experience rapid growth and organizational transformations that can have profound effects on performance and survival. This indicates that factors at multiple levels and across time affect new venture outcomes. Research examining these outcomes often address relationships that cross levels or time, but rarely both. Because scholars potentially can make rich theoretical contributions by simultaneously investigating temporal relationships that cross levels, the authors illustrate multiyear, multilevel model building with random coefficient modeling (RCM) using language that is accessible to entrepreneurship scholars. Specifically, they model the effects of strategic growth actions on new venture performance using a longitudinal data set of young, IPO-stage firms. Their illustration demonstrates the statistical advantages of modeling levels and time simultaneously and offers a roadmap for entrepreneurship scholars interested in examining these effects, including a step-by-step guide with SAS code for working with these data. They also describe some specific research questions to help advance theory development using RCM.

Using Resource‐Based Theory to Help Explain Plural Form Franchising

Agency theory is the dominant explanation for entrepreneurs’ decisions about how much to grow through franchising vis–à–vis company ownership. We introduce a resource–based explanation and submit that the proportion franchised is influenced by efforts to organize franchisor–owned and relational strategic assets so that their value can be best leveraged to meet key strategic goals. Using data from 168 franchisors, we found that relational (i.e., interfirm trust and knowledge–sharing routines), but not franchisor–owned (i.e., brand reputation and operating routines), strategic assets influence the proportion franchised. The study offers preliminary evidence that resource–based theory has merit as a complementary explanation for franchising.

Insights from Family Science: The Case of Innovation

By explaining processes through which familiness affects innovation, Carnes and Ireland take an important step toward explaining prior mixed findings. Their research also underscores the heterogeneity of families in that different family firms have different innovative outcomes. We adapt the circumplex model from family science research to help explain which families might innovate. Our larger purpose, however, is to offer a small example of the kind of theory building that we believe will be necessary for family businesses researchers to fully leverage insights from family science.

Competence- and Integrity-Based Trust in Interorganizational Relationships Which Matters More?

Trust is an important factor for managing transaction costs within interorganizational relationships (IORs). Research on trust indicates that separate dimensions of trust arise from a partner’s competence (i.e., technical skills, experience, and reliability) and integrity (i.e., motives, honesty, and character), and that these dimensions have potentially unique effects. Because scholars rarely apply this distinction within IOR research, past studies may have masked important relationships involving competence- and integrity-based trust. In response, we build and test theory that explains how competence- and integrity-based trust have asymmetric effects on different kinds of transaction costs. In particular, we build on theory that describes how parties process positive and negative information about others’ behavior to predict that integrity-based trust in IORs is more potent for reducing transaction costs than is competence-based trust. We also theorize that building strong IORs requires more up-front investment with competence-based but not with integrity-based trust. By applying meta-analytic structural equation modeling to data on 37,366 IORs drawn from 150 samples, we find that integrity-based trust is about 10 times more effective at reducing these costs. A key implication is that managers seeking to improve the efficiency of their IORs may do well by performing competently, but they can do even better by building perceptions of integrity.

Founder Versus Family Owners’ Impact on Pay Dispersion Among Non-CEO Top Managers Implications for Firm Performance

Emerging evidence suggests that pay dispersion among non-CEO top management team (TMT) members harms firm performance, which raises questions about why firms’ owners tolerate or even support it. Prior research shows that the key distinction between founder and family owners is that in addition to firm performance and growth goals, family owners pursue socioemotional goals. On the basis of this distinction, we develop and test theory linking founders’ and families’ ownership to TMT pay dispersion. Consistent with our theory, a Bayesian panel analysis of Standard & Poor’s 500 firms shows that founder owners use less TMT pay dispersion and that family owners, relative to founder owners, use more, although that declines across generations. We also provide evidence that TMT pay dispersion harms firm performance. Our theory and results are significant because they help to explain why some owners favor compensation practices that cause TMT pay dispersion, despite evidence that this harms firm performance.

The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance

Although large owners monitor managers effectively, they differ in important ways. Whereas founder owners focus on firm performance, family owners also pursue socioemotional goals. We leverage this distinction to theorize that family owners offer hired CEOs more incentive pay—to attract nonfamily CEOs, signal good governance, and achieve better firm performance. Without socioemotional wealth distractions, founder owners do not need high incentives and overusing them is counterproductive. Bayesian regressions using a panel of 335 S&P 500 firms support our theory. A key implication is that founder and family owners approach governance differently and these differences affect firm performance.

The Effect of Transgenerational Control Intention on Family-Firm Performance: It Depends Who Pursues it:

Transgenerational control intention (TCI) is a pivotal characteristic of many family firms. Yet, it remains unclear whether TCI benefits family-firm performance by instilling a long-term view, or hurts performance by fueling harmful socioemotional wealth (SEW) goals. We posit that it depends who pursues it. When faced with TCI, family managers are known to suffer from cognitive biases that, we submit, do not similarly apply to nonfamily managers. Thus, only family managers harm performance when pursuing TCI. An empirical investigation of 107 private German family firms supports our theory; the effect of TCI on firm performance depends on who pursues it.

Successful scaling in social franchising: The case of Impact Hub

Social entrepreneurs increasingly use franchising to scale social value. Tracey and Jarvis described how social franchising is like commercially-oriented franchising, but noted critical challenges arising from dual goals. We investigate a social franchisor that overcame these challenges and describe how the social mission became the source of business model innovation. We show that the social mission fostered a shared identity that guided the search for adaptations to the franchise model. The shared mission-driven identity created pressure toward (1) decentralized decision-making, (2) shared governance, and (3) a role for the franchisor as orchestrator of collaborative knowledge sharing among franchisees. Findings should help social franchisors avoid common pitfalls and suggest future research questions for social entrepreneurship and franchising scholars.