Innovation underperformance, socioemotional wealth and de-familization in family firms

Abstract

PurposeThe phenomenon of defamilization of family firms is gradually increasing for the growth of family firms, that is, nonfamily executives are increasingly present in the executive teams of family firms. Although previous scholars have identified various determinants of family firms' defamilization, whether and when innovation underperformance affects the decision to defamilize family firms has not been explore. This study aims to fill the aforementioned research gaps.Design/methodology/approachThis study empirically tests the theoretical view based on the data of Chinese A-share family listed companies from 2009 to 2017.FindingsThe authors found that innovation underperformance drives family companies to increase the percentage of nonfamily executives in their executive teams. Further, the authors found that family firms are less willing to hire nonfamily executives with an increase in socioemotional wealth, particularly when founders of such businesses serve as directors or are major shareholders, even when they are not directors.Originality/valueThis study shows that innovation underperformance and socioemotional wealth are important predictors of family firms’ defamilization decisions.