Does family employment enhance MSEs performance?

This paper analyzes the effect of family employment on performance in micro and small enterprises (MSEs) by combining two research perspectives that, until now, have been conducted separately: the family embeddedness perspective of entrepreneurship (Aldrich and Cliff, 2003) and the socioemotional wealth (SEW) approach to family business (Gomez-Mejia et al 2007). Our integrated perspective allows us to highlight how the nature of the employment relationships in MSEs enhances the benefits derived from the socioemotional endowment associated with family labor, and reduces the opportunity costs of employing relatives. Moreover, we assert that this relationship is moderated by specific family characteristics that determine the firm's ability to preserve the SEW, while at the same time pursuing financial goals. Our results provide partial support to the enhancing role of family labour on MSEs performance: employing family members increases sales but decreases profitability as measured by ROA. This effect also results in improved performance for women-led firms and for firms that have received family funding, but impairs MSEs performance when the business is the main source of the owner´s household income.