The impacts of family involvements on the firm’s short-term behaviour and Its consequences

Zhang, X. ORCID: https://orcid.org/0000-0001-9517-4692 (2023) The impacts of family involvements on the firm’s short-term behaviour and Its consequences. PhD thesis, Zhejiang University.

Abstract/Summary

Family firms occupy an important position in both the Chinese and worldwide economic markets and possess significant academic research value. Research family business field has often argued that family firms have inherent characteristics that make them more conservative and risk-averse in their operations and more inclined to make longer-term investments in their reputation than non-family firms. The explanation for integrating these characteristics is the desire of family firms to maintain family control and pass on the business to future generations, i.e., they have a more long-term orientation. However, the current accumulation of research is mainly based on a sample of family firms in developed economies, where mature market-based institutions better protect ownership and investment in family firms. In the transition market economies represented by China, there is still a lack of examination of the institutional environment in which family firms are located. Based on the above queries, this paper examines whether Chinese family firms have the opposite tendency to engage in two types of short-termism behavior, namely, operational and reputational, under the logic of the organizational institutional theory. Specifically, this paper adopts the legitimacy perspective in institutional theory to analyze that Chinese family firms are often caught in a psychological or substantive dilemma of the insufficient scarcity of resources due to long-term insufficient legitimacy and thus tend to implement short-termism behaviors in pursuit of short-term resource abundance or to save the survival of the firm. To further validate the logic of this paper’s reasoning within the legitimacy framework, the tendency of family firms to engage in short-termism behavior when they face different survival pressures, have different levels of family social support, and have changes in the intensity of the external monitoring environment is further explored. Finally, in further dialogue with the long-term perspective of family firms, this paper examines the consequences of different short-termism behaviors on firm output at different lag intervals in different types of firms from the perspective of legitimacy and signaling. Based on publicly available data on Chinese listed private firms, this study conducts three interconnected and progressive empirical studies to explore and validate the above issues. The empirical results show that Chinese family firms tend to engage in operational and reputational short-termism more than other forms of private firms, both from the perspective of family ownership and family management, supporting the theoretical conjecture of this paper. Further, this paper find that Chinese family firms prefer operational short-termism and discourage reputational short-termism when performance and lending pressures are low. In addition, family social support that gives family firms non-market resources and plays a certain supervisory role inhibits both types of short-termism behavior of Chinese family firms. Examining the monitoring mechanisms from the institutional environment, this paper also finds that both formal and informal external monitoring environments exert some inhibitory effects on Chinese family firms’ short-termism behavior. Still, the formal monitoring environment exerts limited effects on reputational short-termism behavior. Finally, this paper examines the effects of two types of short-termism on subsequent firm performance and market value within different sample groups of family and non-family firms and finds that operational short-termism can bring short-term performance and market value increases within the family firm group but cannot be maintained in the long run, while non-family firms do not; reputational short-termism behavior brings long-term performance declines to family firms, while non-family firms do not change significantly. This illustrates the detrimental effect of family firm short-termism on the subsequent development of the firm. The main theoretical contributions of this study are as follows: first, it theoretically enriches and develops the implicit assumption of long-term orientation in family business research, and for the first time, systematically focuses on and categorizes the short-termism behavior of family business research. A large number of important current studies in family business field use this implicit hypothesis to perceive family firms as having a longer-term time perspective compared to other firms. However, this study provides a new conditional boundary to this perception that while families possess the goal of pursuing long-term survival, they still engage in short-termism behavior when faced with resource-based challenges or existential crises. Second, rooted in the local Chinese context, this study reveals the mechanisms underlying the adoption of short-termism by family firms based on an institutional perspective. This paper enriches the research from the organizational institutional theory perspective by discussing that Chinese family firms tend to implement more short-termism than long-term behavior due to their altered time preferences in a transition economy regime with limited legitimacy, providing empirical evidence for the particular institutional logic of firm behavior in transition economies. Third, this paper also examines the consequences of short-termism behavior across time, which helps to improve the understanding of firms’ time preferences. While past research has focused on a simple dichotomy of the long-term or non-long-term orientation of firms, this study introduces the concept of short-termism and examines the consequences of firms in different periods in a balanced manner, expanding the study of the classification of family firms’ time preferences and the duration of consequences. Finally, based on the findings of this study, further references are provided for management theory and policy, and this study’s limitations and future directions are noted.