Luis R. Gomez-Mejia

Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

This paper challenges the prevalent notion that family-owned firms are more risk averse than publicly owned firms. Using behavioral theory, we argue that for family firms, the primary reference point is the loss of their socioemotional wealth, and to avoid those losses, family firms are willing to accept a significant risk to their performance; yet at the same time, they avoid risky business decisions that might aggravate that risk. Thus, we propose that the predictions of behavioral theory differ depending on family ownership. We confirm our hypotheses using a population of 1,237 family-owned olive oil mills in Southern Spain who faced the choice during a 54-year period of becoming a member of a cooperative, a decision associated with loss of family control but lower business risk, or remaining independent, which preserves the familys socioemotional wealth but greatly increases its performance hazard. As shown in this study, family firms may be risk willing and risk averse at the same time.

Socioemotional Wealth in Family Firms Theoretical Dimensions, Assessment Approaches, and Agenda for Future Research

This article makes the case for the socioemotional wealth (SEW) approach as the potential dominant paradigm in the family business field. The authors argue that SEW is the most important differentiator of the family firm as a unique entity and, as such, helps explain why family firms behave distinctively. In doing so, the authors review the concept of SEW, its different dimensions, and its links with other theoretical approaches. The authors also address the issue of how to measure this construct and offer various alternatives for operationalizing it. Finally, they offer a set of topics that can be pursued in future studies using the SEW approach.

Socioemotional Wealth and Corporate Responses to Institutional Pressures: Do Family-Controlled Firms Pollute Less?

This paper compares the environmental performance of family and nonfamily public corporations between 1998 and 2002, using a sample of 194 U.S. firms required to report their emissions. We found that family-controlled public firms protect their socioemotional wealth by having a better environmental performance than their nonfamily counterparts, particularly at the local level, and that for the nonfamily firms, stock ownership by the chief executive officer (CEO) has a negative environmental impact. We also found that the positive effect of family ownership on environmental performance persists independently of whether the CEO is a family member or serves both as CEO and board chair.

The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.

Diversification Decisions in Family-Controlled Firms

This study examines diversification decisions of family firms and suggests that on average family firms diversify less both domestically and internationally than non-family firms. When they do diversify, family firms tend to opt for domestic rather than international diversification, and those that go the latter route prefer to choose regions that are ‘culturally close’. Lastly, we find that family firms are more willing to diversify as business risk increases. The hypotheses are tested using a sample of 360 firms, 160 of them being family-controlled and the rest (200) non-family-controlled.

Socioemotional Wealth and Proactive Stakeholder Engagement: Why Family-Controlled Firms Care More about Their Stakeholders

While family business research has prominently recognized that family firms are motivated by nonfinancial factors, the literature has remained relatively silent about whether or not these firms are more likely than others to engage actively with their stakeholders, who often have nonpecuniary demands. This paper argues that family firms are more prone to adopt proactive stakeholder engagement (PSE) activities because by doing so they preserve and enhance their socioemotional wealth (SEW). We explore the impact of the different dimensions of SEW on PSE and identify distinctive logics that explain the adoption of such practices. Finally, we offer a set of topics for future studies.

Towards a Social Theory of Agency

We challenge critics of agency theory who suggest that agency theorys value does not extend outside a narrow context dominated by egocentric agents seeking only to maximize wealth at the expense of the principal. Instead, we argue that agency theorys flexibility allows for its application to a variety of non‐traditional settings where the key elements of agency theory, such as self‐interest, information asymmetry, and the mechanisms used to control agency costs can vary beyond the narrow assumptions implied in traditional agency‐based research. We suggest that extending agency theory to diverse settings using a deductive approach can be accomplished by formally recognizing and incorporating the institutional context surrounding principal–agent (P–A) relations into agency‐based models. Thus, criticisms that agency theory fails to acknowledge the social context in which P–A relations occur provides not a barrier but an opportunity for extending our understanding of P–A relations to a variety of diverse contexts.

Socioemotional Wealth as a Mixed Gamble: Revisiting Family Firm R&D Investments with the Behavioral Agency Model

Theoretical explanations for family firm underinvestment in R&D relative to nonfamily firms remain nascent. We revisit this question using a refinement to the behavioral agency model (BAM)—the mixed gamble—that allows us to examine the socioemotional trade–offs that R&D represents for the family firm and how this differentiates their R&D investment decision from nonfamily firms. We do so in an empirical context where R&D investment is of greatest importance—high–technology industries. Moreover, we examine three contingencies that allow us to explore heterogeneity across family firms in their R&D decisions due to their effect upon the familys socioemotional wealth mixed gamble: institutional investor ownership, related diversification, and performance hazard.

Preserving Socioemotional Wealth in Family Firms: : Asset or Liability? The Moderating Role of Business Context

We ask whether choices aimed at preserving socioemotional wealth (SEW) represent an asset or a liability in family–controlled firms. Specifically, we consider one major SEW–preserving mechanism—having as chief executive officer (CEO) a member of the controlling family—and hypothesize that this choice is (1) an asset in business contexts, such as industrial districts, in which tacit rules and social norms are relatively more important, but (2) a potential liability in contexts like stock exchange markets, where formal regulations and transparency principles take center stage. The results from our empirical analysis confirm these hypotheses.

The Decision of the Supply Chain Executive to Support or Impede Supply Chain Integration: A Multidisciplinary Behavioral Agency Perspective

Applying the behavioral agency model developed by Wiseman and Gomez-Mejia (1998), this paper analyzes human resource factors that induce supply chain executives (SCEs) to make decisions that foster or hinder supply chain integration. We examine two internal sources - compensation and employment risk - and one external source - environmental volatility - of risk bearing that can make SCEs more reluctant to make the decision of promoting supply chain integration. We argue and empirically confirm the notion that an employment and compensation system that increases SCE risk bearing reduces the SCE´s willingness to make risky decisions and thus discourages supply chain integration. We also reveal that this negative relationship becomes stronger under conditions of high environmental volatility. In addressing the “so what?” question, we find empirical support for the hypothesis that supply chain integration positively influences operational performance. Even though this decision has positive value for the firm, we found that SCEs discourage supply chain integration when they face higher risk bearing. Hypotheses are tested using a combination of primary survey data and archival measures in a sample of 133 Spanish firms.