SMEs: Family Corporate Governance, Emotions and Financial Capital Dynamics
16th – 17th October 2017, UNIVERSITY PARIS NANTERRE & AUDENCIA BUSINESS SCHOOL
Deadlines: July 31st for intentions of submissions (extended abstract of 3 pages max)
Notification of acceptance: August 15th
Expected or possible formats: Power-point presentations for advanced work-in-progress papers or poster presentations for idea testing.
- Torsten Piepper, Kennesaw University, USA
- Vijay Singal, Pamplin College of Business, Virginia Tech, USA
- Cristina Bettinelli, University of Bergamo, Italy
- Céline Barrédy
- Miruna Radu-Lefebvre
Aim of the Conference
The aim of this conference is to develop the understanding of the tensions between emotional and financial issues on SMEs, with a special focus on family businesses, business families, and family business groups.
Traditionally, emotions have been considered as opposed to logic (William James, cited in Dolan et al., 2002: 1191), leading to less rational decision making (idem: 1194). Family business literature, strongly anchored in the agency and stewardship theory (Madison et al., 2016) often considers emotions as detrimental to family firm performance and survival (La Porta et al., 2002). This tradition sees the management of family firms as emotional and intuitive, whereas the management of non-family firms is rational and analytical (Stewart and Hitt, 2012; Zellweger and Astrachan, 2008) and argues that family firms should try to neutralize the effect of emotions on the family business, in particular relative to decisions such as governance and finance (Tagiuri and Davis, 1996).
More recently, we are witnessing an emerging focus on how emotions can actually be beneficial in any firm (Goleman, 1995, 1998), and even contribute to a better understanding of multi-generational family firm longevity and growth (Zellweger, 2014). But this approach is still over-simplified: indeed, emotions are “messy” (Brundin and Sharma, 2011) – a single event can often trigger several emotions simultaneously. Emotional ambivalence is potentially even more prevalent in the family business context, first because the three systems (family, business and ownership) overlap (Gersik et al., 1997) meaning that individuals belong simultaneously to at least two of the systems, and second because in multi-generational family firms, individuals are at the same time daughter/mother/grandmother or son/father/grandfather. The successful management of several identities and of ambivalent emotions emerging from role conflict situations can lead to more creative decisions (Gifford, 2002; Hui et al., 2009). The notion of “dialogical self” can be useful to help us understand, on the individual level, how these paradoxes can be effectively managed (Ingram et al., 2016; Hermanns et al., 1992). On the organizational level, the family business meta-identity (Shepherd and Haynie, 2009), or the collective mindfulness of the controlling family (Zellweger, 2014) can help us understand the resolution of such paradoxes.
Indeed, the literature shows that both economic and non-economic considerations affect diverse aspects of finance and governance in the family business context such as firm value, choice of investment, choice of financing, valuation, corporate governance, accounting behaviors, or failure processes. Returns and costs influence the firm value on the entrepreneurs, on the executive side (Astrachan and Jaskiewicz, 2008). Moreover, concerning the investor side, the choice of investment is not always rational and could be motivated by emotions like it is the case of family shareholders but also for any investor selecting investment through a psychology run by emotions (White and Koonce, 2016).
Therefore, the issue of potential rivalry between the maximization of those returns or an objective of trade-off between them, or specific contexts and mechanisms that leads to support one over the other needs to be addressed. The field of finance is particularly interesting concerning the role of emotions. As Pieper (2010) mentioned, the agency theory has played a very interesting role in understanding better family business governance and financing choice (Lubatkin et al., 2007; Lubatkin et al., 2005 ; Schulze et al., 2003b), but there is a need to go deeper in the family psychology to increase the power of our understanding of what pushes decisions in family businesses and business families. This is particularly the case in failure situations (Shepherd et al., 2009; Byrne and Shepherd, 2015). Therefore, the way families frame the organization(s) and the governance mechanisms to compensate or leverage on emotions (Abdullah et al., 2016) is an interesting avenue of research. The issue of emotions reveals also the choices made by the family at the time of raising funds. First, as the literature considers the financing needs of firms, the question arises about what for those funds are raised. In the case of business families, this question is particularly interesting because they can be used for the business itself or for the family, particularly in the case of ownership transmission. The consequences on the business in the second case need to be clarified. Then, although Leitterstorf and Rau (2014) show that in the context of an IPO, families tend to prefer to leaving more money on the table to preserve the family’s socioemotional wealth, the mechanism remains complex (Cirillo et al., 2017) and deserves further investigation. Moreover, considering the emotions coming from long term relations with historical partners of the firms, part of the social capital (Habbershon et al., 1999; 2003; Nahapiet and Goshal, 1998) like providers and customers for instance, the way the family deals with them and generates specific short term financial issues is of interest. How do these relations work? Are business families more cash dependent because they are very flexible with their partners or on the contrary, do they reinforce their bargaining power through long term relationships? Very little has been done concerning working capital management in family businesses (James, 1999). Last but not least, are the stock of family-controlled firms good investments? Anderson and Reeb (2003) found that family firms perform better than nonfamily ones. Any recent investigation of such a relationship would be welcome.
Therefore, more research is needed in understanding how business family members experience emotions and emotional ambivalence and how they resolve these contradictory emotions, roles and identities, as well as how emotions affect entrepreneurial behaviors at the individual, family and firm levels, and how emotions interfere positively or negatively in financial decisions on the long run and the short run, financial distress and business failure.
Given these assumptions, several aspects can be developed and investigated. Any empirical or theoretical paper on the conference topics is welcomed.
Papers submitted could consider for example:
- Emotions and emotional ambivalence in business families
- Mechanisms to resolve emotional ambivalence / role conflict (dialogical self, family business meta-identity, collective mindfulness, for example)
- Emotional response to financial information
- Emotions and family business failure
- Emotional skills of executives and shareholders in financial decision making
- Family governance issues and their impact on financial decisions and vice versa
- Governance issues between family and external investors
- Family business short term and long term financing issues
- Family firm’s stocks risk and reward
- The quality of financial and extra financial reporting in family businesses
- Earnings management strategies in family businesses
- Voluntary disclosure policies in family businesses
- Tax behavior in family businesses and business families
- Audit of financial and extra financial information in family businesses
Submission and Registration
CEROS Research Center & Audencia Business School – Chair Family Entrepreneurship and Society.
celine.barredy @ gmail.com; mradu @ audencia.com
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Astrachan, J.H., and Jaskiewicz, P. (2008). ‘Emotional Returns and Emotional Costs in Privately Held Family Businesses: Advancing Traditional Business Valuation’, Family Business Review, 21 (2), 139–149.
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