IDEAS home Printed from https://ideas.repec.org/a/sae/entthe/v32y2008i6p1007-1026.html
   My bibliography  Save this article

Affiliate Directors and Perceived Risk Bearing in Publicly Traded, Family–Controlled Firms: The Case of Diversification

Author

Listed:
  • Carla D. Jones
  • Marianna Makri
  • Luis R. Gomez–Mejia

Abstract

The present study examines the influence exerted by affiliate directors in the diversification decisions of family–controlled, publicly traded firms. Using a relational view based on the development of social capital, we argue that affiliate directors play a different role in boards of family firms vis–à –vis nonfamily firms. Specifically, we develop a set of hypotheses proposing that affiliate directors stimulate family firms to pursue diversification strategies by sharing their knowledge and experience with family executives, and hence reducing the perceived risk that may be associated with growth strategies. Affiliates can play this advisory role without reducing the control of family owners, and this facilitates the firm's willingness to adopt growth–oriented strategies. Namely, affiliates who are business experts or support specialists would tend to encourage diversification. These effects are supported empirically.

Suggested Citation

  • Carla D. Jones & Marianna Makri & Luis R. Gomez–Mejia, 2008. "Affiliate Directors and Perceived Risk Bearing in Publicly Traded, Family–Controlled Firms: The Case of Diversification," Entrepreneurship Theory and Practice, , vol. 32(6), pages 1007-1026, November.
    • Handle: RePEc:sae:entthe:v:32:y:2008:i:6:p:1007-1026
    DOI: 10.1111/j.1540-6520.2008.00269.x
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1111/j.1540-6520.2008.00269.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6520.2008.00269.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
    2. Michael Lubatkin & William S. Schulze & N Dino Richard, 2003. "Exploring the agency consequences of ownership dispersion among the directors of private family firms," Post-Print hal-02311676, HAL.
    3. Amy J. Hillman & Albert A. Cannella & Ramona L. Paetzold, 2000. "The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change," Journal of Management Studies, Wiley Blackwell, vol. 37(2), pages 235-256, March.
    4. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    5. Steen Thomsen & Torben Pedersen, 2000. "Ownership structure and economic performance in the largest european companies," Strategic Management Journal, Wiley Blackwell, vol. 21(6), pages 689-705, June.
    6. Brian Boyd, 1990. "Corporate linkages and organizational environment: A test of the resource dependence model," Strategic Management Journal, Wiley Blackwell, vol. 11(6), pages 419-430, October.
    7. Colli, Andrea & Pérez, Paloma Fernández & Rose, Mary B., 2003. "National Determinants of Family Firm Development? Family Firms in Britain, Spain, and Italy in the Nineteenth and Twentieth Centuries," Enterprise & Society, Cambridge University Press, vol. 4(1), pages 28-64, March.
    8. Baysinger, Barry D & Zardkoohi, Asghar, 1986. "Technology, Residual Claimants, and Corporate Control," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 339-349, Fall.
    9. Chandra S. Mishra & Daniel L. Mcconaughy, 1999. "Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt," Entrepreneurship Theory and Practice, , vol. 23(4), pages 53-64, July.
    10. Ronald C. Anderson & David M. Reeb, 2003. "Founding-Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1327, June.
    11. Brian K. Boyd, 1995. "CEO duality and firm performance: A contingency model," Strategic Management Journal, Wiley Blackwell, vol. 16(4), pages 301-312.
    12. Vasudevan Ramanujam & P. Varadarajan, 1989. "Research on corporate diversification: A synthesis," Strategic Management Journal, Wiley Blackwell, vol. 10(6), pages 523-551, November.
    13. Denis, David J. & Denis, Diane K. & Sarin, Atulya, 1994. "The Information Content of Dividend Changes: Cash Flow Signaling, Overinvestment, and Dividend Clienteles," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(4), pages 567-587, December.
    14. Michael Lubatkin & William S. Schulze & Richard N. Dino, 2003. "Exploring the agency consequences of ownership dispersion among the directors of private family firms," Post-Print hal-02276698, HAL.
    15. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    16. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    17. Brian K. Boyd & Steve Gove & Michael A. Hitt, 2005. "Consequences of measurement problems in strategic management research: the case of Amihud and Lev," Strategic Management Journal, Wiley Blackwell, vol. 26(4), pages 367-375, April.
    18. Richard Reed & George A. Luffman, 1986. "Diversification: The growing confusion," Strategic Management Journal, Wiley Blackwell, vol. 7(1), pages 29-35, January.
    19. Wendy C. Handler, 1990. "Succession in Family Firms: A Mutual Role Adjustment between Entrepreneur and Next-generation Family Members," Entrepreneurship Theory and Practice, , vol. 15(1), pages 37-52, October.
    20. Anderson, Ronald C & Reeb, David M, 2003. "Founding-Family Ownership, Corporate Diversification, and Firm Leverage," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 653-684, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Caiazza, Rosa & Phan, Phillip H. & Simoni, Michele, 2023. "Theoretical and empirical differences between the interlocked boards of family and non-family firms," Journal of Family Business Strategy, Elsevier, vol. 14(2).
    2. Davila, Jessenia & Duran, Patricio & Gómez-Mejía, Luis & Sanchez-Bueno, Maria J., 2023. "Socioemotional wealth and family firm performance: A meta-analytic integration," Journal of Family Business Strategy, Elsevier, vol. 14(2).
    3. Carney, Richard W. & Child, Travers Barclay & Li, Xiang, 2020. "Board connections and crisis performance: Family, state, and political networks," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Marco Pini, 2019. "Corporate social responsibility, family firms and territorial institutions in Italy: an empirical analysis," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 73(2), pages 99-110, April-Jun.
    5. Debicki, Bart J. & Ramírez-Solís, Edgar Rogelio & Baños-Monroy, Verónica Ilián & Gutiérrez-Patrón, Lilia Magali, 2020. "The impact of strategic focus on relational capital: A comparative study of family and non-family firms," Journal of Business Research, Elsevier, vol. 119(C), pages 585-598.
    6. Justin R. Hall & Selen Savas-Hall & Eric H. Shaw, 2023. "A deductive approach to a systematic review of entrepreneurship literature," Management Review Quarterly, Springer, vol. 73(3), pages 987-1016, September.
    7. Christensen-Salem, Amanda & Mesquita, Luiz F. & Hashimoto, Marcos & Hom, Peter W. & Gomez-Mejia, Luis R., 2021. "Family firms are indeed better places to work than non-family firms! Socioemotional wealth and employees’ perceived organizational caring," Journal of Family Business Strategy, Elsevier, vol. 12(1).
    8. Britney Pisani & Peter J. Baldacchino & Norbert Tabone & Lauren Ellul & Simon Grima, 2023. "Board Diversity in Selected Large Maltese Family-Controlled Businesses and its Implications on Corporate Governance," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 13(3), pages 14-49.
    9. Schierstedt, Bennet & Henn, Marisa & Lutz, Eva, 2020. "Diversified acquisitions in family firms: Restricted vs. extended family priorities," Journal of Family Business Strategy, Elsevier, vol. 11(2).
    10. Craig, Justin B. & Newbert, Scott L., 2020. "Reconsidering socioemotional wealth: A Smithian-inspired socio-economic theory of decision-making in the family firm," Journal of Family Business Strategy, Elsevier, vol. 11(4).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Defrancq, Corneel & Huyghebaert, Nancy & Luypaert, Mathieu, 2016. "Influence of family ownership on the industry-diversifying nature of a firm’s M&A strategy: Empirical evidence from Continental Europe," Journal of Family Business Strategy, Elsevier, vol. 7(4), pages 210-226.
    2. Luis R. Gomez‐Mejia & Marianna Makri & Martin Larraza Kintana, 2010. "Diversification Decisions in Family‐Controlled Firms," Journal of Management Studies, Wiley Blackwell, vol. 47(2), pages 223-252, March.
    3. San Martin-Reyna, J.M. & Duran-Encalada, Jorge A., 2012. "The relationship among family business, corporate governance and firm performance: Evidence from the Mexican stock exchange," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 106-117.
    4. Alfredo De Massis & Josip Kotlar & Pietro Mazzola & Tommaso Minola & Salvatore Sciascia, 2018. "Conflicting Selves: Family Owners' Multiple Goals and Self-Control Agency Problems in Private Firms," Entrepreneurship Theory and Practice, , vol. 42(3), pages 362-389, May.
    5. Christophe J. Godlewski & Hong Nhung Le, 2024. "Family ties and firm performance empirical evidence from East Asia," Post-Print hal-04435944, HAL.
    6. Xiao Wei & Ling Chen, 2022. "Dispersion of Family Ownership and Innovation Input in Family Firms," Sustainability, MDPI, vol. 14(14), pages 1-20, July.
    7. Michael Carney & Marc Van Essen & Eric R. Gedajlovic & Pursey P.M.A.R. Heugens, 2015. "What do we know about Private Family Firms? A Meta–Analytical Review," Entrepreneurship Theory and Practice, , vol. 39(3), pages 513-544, May.
    8. King, Roger & Peng, Winnie Qian, 2013. "The effect of industry characteristics on the control longevity of founding-family firms," Journal of Family Business Strategy, Elsevier, vol. 4(4), pages 281-295.
    9. Garcia-Castro, Roberto & Aguilera, Ruth V., 2014. "Family involvement in business and financial performance: A set-theoretic cross-national inquiry," Journal of Family Business Strategy, Elsevier, vol. 5(1), pages 85-96.
    10. Pascual Berrone & Patricio Duran & Luis Gómez-Mejía & Pursey P M A R Heugens & Tatiana Kostova & Marc Essen, 2022. "Impact of informal institutions on the prevalence, strategy, and performance of family firms: A meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(6), pages 1153-1177, August.
    11. Lucía Garcés-Galdeano & Martín Larraza-Kintana & Carmen García-Olaverri & Marianna Makri, 2016. "Entrepreneurial orientation in family firms: the moderating role of technological intensity and performance," International Entrepreneurship and Management Journal, Springer, vol. 12(1), pages 27-45, March.
    12. Richard H. Lester & Albert A. Cannella Jr., 2006. "Interorganizational Familiness: How Family Firms Use Interlocking Directorates to Build Community–Level Social Capital1," Entrepreneurship Theory and Practice, , vol. 30(6), pages 755-775, November.
    13. Breuer, Wolfgang & Knetsch, Andreas, 2022. "Informal authority and economic outcomes of family firms: An issue of national power distance," International Review of Financial Analysis, Elsevier, vol. 81(C).
    14. Muñoz-Bullón, Fernando & Sánchez-Bueno, Maria J., 2012. "Do family ties shape the performance consequences of diversification? Evidence from the European Union," Journal of World Business, Elsevier, vol. 47(3), pages 469-477.
    15. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    16. Lin, Wen-Ting, 2012. "Family ownership and internationalization processes: Internationalization pace, internationalization scope, and internationalization rhythm," European Management Journal, Elsevier, vol. 30(1), pages 47-56.
    17. Mike Peng & Yi Jiang, 2006. "Family Ownership And Control In Large Firms: The Good, The Bad, The Irrelevant ??? And Why," William Davidson Institute Working Papers Series wp840, William Davidson Institute at the University of Michigan.
    18. Chen, I-Ju & Wang, David K., 2019. "Real option, idiosyncratic risk, and corporate investment: Evidence from Taiwan family firms," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    19. Erbetta, Fabrizio & Menozzi, Anna & Corbetta, Guido & Fraquelli, Giovanni, 2013. "Assessing family firm performance using frontier analysis techniques: Evidence from Italian manufacturing industries," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 106-117.
    20. Adhikari, Hari P. & Sutton, Ninon K., 2016. "All in the family: The effect of family ownership on acquisition performance," Journal of Economics and Business, Elsevier, vol. 88(C), pages 65-78.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:entthe:v:32:y:2008:i:6:p:1007-1026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.