Business and Management INK

What Happens to Family Firms’ Entrepreneurial Behavior After a Major Crisis?

December 14, 2021 1477
Crisis against blue background

With the current pandemic creating continuing crises for firms around the planet, Ana M. Moreno-Menéndez, a professor of business organization at the Universidad de Sevilla, Unai Arzubiaga of Universidad del País Vasco, Vanessa Díaz-Moriana of Vanessa Díaz-Moriana and Vanessa Díaz-Moriana, also at the Universidad de Sevilla looked at “The Impact of a Crisis on Family Firms’ Entrepreneurial Orientation: The Role of Organisational Decline and Generational Change,” in the International Small Business Journal. In the essay below, which appears below the article’s abstract, Moreno-Menéndez details the thinking behind their research.

This article critically analyses entrepreneurial orientation (EO) in family firms after a major crisis, to investigate how firms with equal initial levels of EO reach different levels over time. Based on two alternative hypotheses (stability and convergence), we analysed whether the EO of family firms remains intact, strengthens, or weakens after a crisis. Based on an examination of a database of 151 family firms collected in 2004 and 2017, our findings reveal that compared to firms with higher pre-crisis EO levels, those with lower levels saw a larger increase post crisis. Furthermore, unlike the latter group, the former was able to maintain high pre-crisis levels even after the crisis. In addition, we also we found this relationship between pre-crisis and post-crisis EO levels to be influenced by two key periodic discontinuities, namely, organisational decline and generational change contingencies. These findings advance our understanding of temporal aspects of EO and heterogeneous entrepreneurial behaviour among family firms with significant implications for both theory and practice.

Our study was motivated to investigate what occurs to family firms’ entrepreneurial behavior after a major crisis. Is it strengthened or weakened versus pre-crisis levels? Does it remain intact? Based on an examination of a database of 151 family firms collected in 2004 and 2017, our findings revealed that compared to firms with higher pre-crisis entrepreneurial orientation levels, firms with lower levels saw a larger increase post crisis. Furthermore, unlike the latter group, the former was able to maintain their pre-crisis high levels even after.

We studied two data points: 2004, before a major crisis, and another in 2017, a few years after the recovery is in full effect, which provided us with an opportunity to observe variance in their entrepreneurial orientation. Interestingly, we also found that the relationship between pre-crisis and post-crisis entrepreneurial orientation levels is influenced by two of the main periodic discontinuities faced by family firms, namely, organizational decline and generational change contingencies. Firstly, organizational decline may moderate the relationship because an experiencing economic decline significantly affects both firm performance and strategic posture. In fact, family firms which face organizational decline to their overall wealth usually alter their risk perception and management. Secondly, a change in leadership in general, and generational change in particular, are regarded as an internal shock to family firms, which may impact their entrepreneurial orientation. For this reason, we focus on generational change as a potential moderator as the complexity of succession processes, characteristics of a new CEO, and deep transformations within the firm may significantly alter strategic decision-making in the organization.

Our findings advance understanding about the temporal aspect of entrepreneurial orientation and heterogeneous entrepreneurial behavior among family firms, and have significant implications for both theory and practice. More specifically, since companies all around the world (where family firms are majority) are in the midst of recovering from a major crisis such as that of COVID-19, the findings and implications shown in this study may be highly applicable for both scholars but also for current practitioners and business owners. In this vein, since we relied on data from a sole country, Spain, we invite researchers to replicate our study in other geographic contexts to determine the generalizability of our findings. Although we do not expect significant variation in the results between Spain and other Western countries, the fact that entrepreneurial orientation is contextual in nature turns cultural and institutional variables into key factors that may influence our arguments, especially in countries with cultures that significantly differ from Spain’s.

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