Cultural alignment and intergenerational succession in family firms: a game-theoretical experiment

Abstract

PurposeThe study aims to investigate the effect of cultural alignment and value congruency between children and founder on intergenerational succession and on the observation of family optimal outcomes.Design/methodology/approachA game-theoretical approach is used to develop a sequential game modeling the strategic interactions behind successor selection. The authors test its main predictions by conducting an experiment with 75 subjects.FindingsA theoretical prediction that misalignment between children and founder leads to outcomes without intergenerational succession, or to outcomes with intergenerational succession that are not family optimal. These predictions are buttressed by our experiment, which also found evidence that the family optimal outcome is focal when there are multiple equilibria.Research limitations/implicationsNo light is thrown on the sources of cultural (mis)alignment, but only on some of its consequences. Further studies of a different nature are needed to better understand the former.Practical implicationsCultural diffusion and value congruency within the family should be timely fostered to promote harmony during the succession process and raise the chances of successful succession.Originality/valueThe cultural alignment and value congruency between incumbent and successors is treated as shaping the incentives that both types of agents face in the successor-selection process. Further, experimental techniques have not been used to test the results obtained in games exploring issues in family firm succession. This paper aims to begin filling this gap.