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Long-term orientation, family-intensive governance arrangements, and firm performance: an institutional economics perspective

Author

Listed:
  • Michele Pinelli

    (Ca’ Foscari University)

  • Francesco Debellis

    (University of Vienna)

  • Alfredo Massis

    (Free University of Bolzano
    IMD Business School
    Lancaster University
    Institute of Family Business and Institute for Entrepreneur, Zhejiang University)

Abstract

In this study, we examine the effect of cultural long-term orientation on the likelihood of adopting more family-intensive governance arrangements (FGAs) and the impact on firm performance. FGAs may impose various costs on the firm, including the extraction of private benefits, conflicts with professional managers, paternalistic human resource management practices, and lower legitimacy. Drawing on institutional economics, we theorize that cultural long-term orientation reduces some of these costs, thereby increasing the relative efficiency of FGAs as a governance option. Thus, we expect FGAs to be adopted more frequently in countries with a more long-term orientation. We also expect FGAs to have a less negative impact on performance in these countries as a result of these lower costs. The results of mixed-effects regressions on a cross-sectional sample of 3221 listed family and nonfamily firms in 19 countries confirm that FGAs are more likely to be adopted in more long-term oriented countries. We also find that FGAs have a negative effect on firm performance, but not that cultural long-term orientation weakens this relationship. However, an interesting mediating effect emerges whereby cultural long-term orientation increases the likelihood of adopting FGAs but negatively affects firm performance.

Suggested Citation

  • Michele Pinelli & Francesco Debellis & Alfredo Massis, 2024. "Long-term orientation, family-intensive governance arrangements, and firm performance: an institutional economics perspective," Small Business Economics, Springer, vol. 63(2), pages 731-754, August.
  • Handle: RePEc:kap:sbusec:v:63:y:2024:i:2:d:10.1007_s11187-024-00877-4
    DOI: 10.1007/s11187-024-00877-4
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    More about this item

    Keywords

    Family business; Governance; Culture; Institutional economics; Long-term orientation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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