The impact of socioemotional wealth on family firms’ financial performance

The authors study the effect on performance of family endowment on the business from the perspective of Socioemotional Wealth (SEW), i.e. the stock of affect-related value which the family attaches to the business. The researchers analyze the impact of ownership and board characteristics on profitability, taking into account the possible moderating factors of the family generational stage, firm size, qualified presence of non-family shareholders and firm risk. The authors analyze 2,884 medium-large Italian private firms comparing 1,944 family and 940 non-family firms using correlation and pooling GLS regressions during 2001-2010. It is shown that in the first generational stage family firms outperform non-family businesses. A family CEO, together with a board including numerous family members, positively affects performance in the first generational stage, but the effect is reversed in the later generational stages. The findings suggest developing by further research the relationship between performance and the emotional links among family members belonging to a nuclear family or to family branches. Moreover it would be advisable to check our findings by a cross-national study, in order to test how institutional and cultural context may affect SEW and performance. The study suggests that family businesses must be able to adapt firm management and the structure of the board, taking into account the moderating effects that these conditions have on SEW and performance