Performance implications of family firms’ idiosyncratic responses to recessionary pressures : a comparative study on family firm and non-family firm behaviour over the business cycle in Norway

Abstract

In recent years, the body of research around family firm behaviour has grown continuously. This paper reviews this literature by examining how family firms differ from non-family firms. It takes the recent financial and economic crisis that started in 2007 as a unique exogenous shock to investigate the financial performance of family firms in steady-state conditions as opposed to situations of severe economic distress. The literature proposes socioemotional wealth to be the key differentiator between the two groups of firms. The preference for affective endowment of family owners, however, seems to manifest in steady-state situations only. When external hazard threatens the existence of the firm, family principals are believed to prioritise financial results by enhanced risk taking, which coincides with prospect theory predictions. Using a difference-in-difference model, the entire population of Norwegian profit-maximising companies over the period 2005 – 2012 was analysed. It was observed that family firms significantly outperformed non-family firms in the face of the economic crisis. Although the two supporting models for supposedly prerequisite behaviours are not significant, the study confirms that the advantage of family firms exactly manifests when ownership is at stake. This indicates that family firms are superior absorbers of exogenous shocks. In terms of theoretical implications, the study adds to the ongoing literature of family firms and speaks for the application of socioemotional wealth as tool for analysing family firm behaviour. Furthermore, it indicates policymakers the importance of family firms for national economies.