Should My Spouse Be My Partner? Preliminary Evidence From the Panel Study of Income Dynamics

Abstract

This study examines how firm performance and family income are affected when an “owner-managed” firm transitions to a “copreneurial” business. Data from the Panel Study of Income Dynamics were used to track changes in firm performance and family income from 1996 to 2006 during which time an owner-manager decided to partner with his spouse. The findings suggest that (a) involvement of one’s spouse in the business had no significant impact on firm profits and (b) working with one’s spouse had a significant impact on family income. The authors hypothesize that the lack of spousal influence on firm performance is because of their inability to influence their spouses, their lack of education and skills needed by the firm, and organizational “imprinting.” Moreover, since it is hypothesized that many spouses work for little or no pay, there would not be a significant impact on family income as the result of one’s partnering with a spouse. However, this hypothesis was not confirmed.

Keywords

copreneurship family effect founder effect

Introduction

In the process of managing a business, firm owners attempt to gain a competitive advantage by developing various types of capital. One of the most important sources of capital needed is human capital—the experience, motivation, and skills of those who the owner-manager decides to employ or partner with. Previous research has shown that finding competent partners and employees is one of the critical keys to business success (Beckman, 2006; Eisenhardt & Schoonhoven, 1990; Dyer, 2006). Given the difficulty of finding good people to work with, owner-managers often turn to the person they know the best—their spouse—who may be willing and able to help them operate their businesses. In this study, we focus on what has been called “copreneurial businesses”—firms where husbands and wives jointly own or work in a business together (Barnett & Barnett, 1988; Marshack, 1998). Firms employing family members represent between 80% and 90% of firms worldwide, and copreneurial firms represent about one third of all family businesses according to various surveys (www.FFI.org; Fitzgerald & Muske, 2002; National Federation of Independent Business [NFIB], 2002). Thus, copreneurial firms are a significant force in the world economy.

One main question facing the owner-manager who contemplates working with his or her spouse is the following: How will working with my spouse affect my business and my family? Although this is a rather straightforward and important question with both theoretical and practical implications, unfortunately there has been little empirical research done to answer it rigorously. Previous work has largely been anecdotal in nature (e.g., Barnett & Barnett, 1988; Jaffe, 1990; Nelton, 1986), has largely focused on the boundaries between work and family (e.g., Jennings & McDougald, 2007; Marshack, 1993, 1994, 1998), has used cross-sectional data (e.g., Marshack, 1993), or has examined the demographic characteristics of coprepreneurial firms with an emphasis on the sustainability of such enterprises (Fitzgerald & Muske, 2002; Muske & Fitzgerald, 2006). In contrast to prior research, this study attempts to answer the question regarding the impact of spousal involvement by examining the performance of an “owner-managed firm” (a firm owned and managed by an individual) before spousal involvement in the business and then after the spouse becomes involved in the enterprise as an owner, a manager, or both. We also propose to examine the effect of spousal involvement on the family—in particular, family income—in the same way by examining family income before the owner-manager begins working with his or her spouse and then after the spouse joins the business. By doing such longitudinal research, we can better understand the impact of spousal involvement in the business on the family over time. More important, this study suggests that research regarding family businesses needs more “contextualized theorizing” in order to generalize results to a particular population (Westhead & Cowling, 1998).

Theory and Hypotheses

Previous research and theorizing on the impact of a spouse’s involvement on firm performance has yielded competing hypotheses. One view asserts that family ownership and management—and by extension, spousal involvement—has a positive effect on the firm. These arguments are based on the assumption that family involvement reduces agency costs, since firm and family goals are aligned (Chrisman, Chua, & Litz, 2004; Fama & Jensen, 1983; Jensen & Meckling, 1976) and that family members bring with them unique resources to the firm that gives it a competitive advantage (Barney, 1991; Chrisman, Chua, & Kellermanns, 2009; Dyer, 2006; Gomez-Mejia, Cruz, Berrone, & Castro, 2011; Habbershon & Williams, 1999; Muske & Fitzgerald, 2006; Sirmon & Hitt, 2003). Thus, Muske and Fitzgerald (2006) note that spouses working together

have been viewed as utopian, having created a perfect blend of work and family. The couple is anticipated to have a stronger marriage and business because of this intertwining. Both the family and business relationship are strengthened by a shared vision and true team effort—two individuals with shared goals, dreams, and ideals. (p. 195)

Furthermore, a recent study by Belenzon and Zarutskie (2011) reported that family firms with married partners perform better than those family firms composed of nonmarried family members because

married couples . . . jointly own many common resources outside the firm [and] they may be better able to monitor one another as well as be better to enforce implicit contracts between themselves relative to other types of family shareholders. (p. 8)

Other scholars, however, have suggested that spousal involvement will have a negative impact on the firm and family. This view is based on the belief that family members inherently bring with them unhealthy conflicts to the workplace (e.g., Eddleston & Kellermanns, 2007; Hilburt-Davis & Dyer, 2003; Kaye,1991; Levinson, 1971), or that nepotism breeds mediocrity in management and a lack of accountability. Thus, various studies have noted that family involvement in business is correlated with poor firm performance (Gomez-Mejia, Nuñez-Nickel, & Gutierrez, 2001; Haynes, Walker, Rowe, & Hong, 1999; Shulze, Lubatikin, & Dino, 2003; Shulze, Lubatkin, Dino, & Buchholtz, 2001).

The Impact of Spousal Involvement on Firm Performance

What these theories regarding the impact of family involvement on both firm and family tend to ignore is the specific nature of family involvement in a firm—such as husbands and wives working together—which should be more predictive of how the inclusion of a family member in a business might affect firm and family performance. In the specific case of an owner-manager deciding to work with his or her spouse, there are likely to be three contextual factors that will determine whether or not the addition of one’s spouse will influence firm performance. These are (a) the susceptibility of the owner-manager to a spouse’s influence, (b) the “imprinting” on the firm by the initial decisions regarding business strategy and the deployment of firm resources, and (c) the education of the spouse. We will briefly discuss each of these in turn.

The Owner-Manager and Spousal Influence

Schumpeter (1934) argued that the most significant asset for any firm is the vision, drive, and motivation of the founder. However, previous research on founders’ personalities has noted that they tend to be rather secretive and not easily influenced (Bird, 1989; Dyer, 1992; Kets de Vries, 1977; Schein, 1983). We would expect firm performance to significantly improve after a spouse joins the business only to the extent that the spouse is able to influence the owner-manager to make positive improvements in the business. Early research by Merei (1949) regarding the influence of newcomers to a group noted that individuals, even those with strong personalities, that entered an intact group that had established its own traditions, had great difficulty influencing the norms, values, and processes of the group. In the case of a spouse joining the family business, research by Ponthieu and Caudill (1993) on copreneurial decision making noted that 76% of the husbands in their sample (who are generally the founder) reported that they “often make important decisions concerning the business without consulting my spouse” (p. 13). Copreneurial wives (65%) were less willing to make important business decisions without consulting their husbands. Marshack (1998) notes that “copreneurial wives adhere to a very traditional feminine sex-role orientation, while their husbands demonstrate a more traditional masculine sex-role orientation” (p. 97), making it unlikely that the wife would challenge her husband’s authority. Thus, Ponthieu and Caudill conclude that “the husband tends to be the primary decision maker in copreneurial ventures” (p. 15) and Marshack (1994) reports from her seminal study that wives are “invisible in terms of leadership” in copreneurial firms (p. 64). It is less clear how well husbands who work with their founder-wives are able to influence business decisions. However, to the extent that one’s spouse has little or no influence on the decision making in the firm, it is unlikely that working with one’s spouse will have an impact on the performance of the firm. Thus, consistent with this line of reasoning we posit the following hypothesis:

Hypothesis 1: The addition of an owner-manager’s spouse as his or her partner will not have a significant impact on firm performance.

Organizational Imprinting and Firm Performance

Previous research and theorizing about the founding of organizations suggests that the initial decisions on the deployment of assets and strategic decisions have a long-term impact on firm performance (e.g., Baron, Burton, & Hannan, 1996; Boeker, 1989; Child, 1972; Eisenhardt & Schoonhoven, 1990). This view of the firm suggests that the growth trajectory of any business is likely to be constrained by the organization’s environment as well as the resources available to the firm’s management (Pfeffer & Salancik, 1978). An owner-manager’s choice of industry, for example, is likely to be the most significant predictor of success or failure (Morris, 2009). Stinchcombe (1965) suggests that organizations are “imprinted” during their founding because of environment, resources, and managerial decisions that place constraints on future actions and options for management. As a result of such imprinting, no matter how hard working or motivated one might be to initiate change, it may be difficult, if not impossible, to change a firm’s fortunes. Along this same line of reasoning, Scott (1992, p. 171) notes that a firm’s “mix of initial resources . . . has lasting effects” on firm structure and performance. Similarly, Beckman and Burton (2008) and others posit a “path-dependence” framework suggesting that initial composition and decisions of the founding team constrain firm behavior over time. This view is also consistent with Hannan and Freeman’s (1984) “structural inertia” theory of organizational evolution, which argues that initial organizational forms predict future forms. Given that new organizations experience such imprinting early in their evolutionary cycle, it is unlikely that the addition of one’s spouse will significantly alter the firm’s developmental trajectory. If organizational imprinting and other such factors that mitigate against change are present in the owner-managed firm, it is unlikely that the amount of time a spouse devotes to working in the business will have any significant impact on firm performance.

Hypothesis 2: The addition of an owner-manager’s spouse as his or her partner and the number of hours the spouse works in the business will not have a significant impact on firm performance.

The Spouse’s Education

Other factors that would be important for firm performance are the education and skills that the spouse brings to the firm. Previous work on partnerships and entrepreneurial teams has noted that successful partnerships and teams are the result of each person bringing a unique education and skill set to the business that helps the business gain a competitive advantage (Beckman, 2006). Much like the Bill Hewlett and Dave Packard partnership that formed HP or the Bill Gates and Paul Allen duo that launched Microsoft, successful partners typically have complementary skills that supplement each other’s strengths and provide the firm with the education and skills that are needed for the firm to grow (Dyer, 1992). Previous work by Marshack (1993) on copreneuerial couples has noted that most of the spouses (typically the wife) are brought into the business to do the bookkeeping or relatively low-level administrative work, indicating that the spouse has a fairly rudimentary education and skill set related to the business. She writes, “when asked what was their formal title in the business, copreneurial husbands would state ‘owner,’ ‘president,’ and even ‘co-owner.’ Their wives, on the other hand, would state their title as ‘secretary,’ ‘bookkeeper,’ or ‘treasurer’” (Marshack, 1998, p. 101). Such work by the wife, while certainly necessary, is unlikely to spur the company to grow significantly or generate above-normal profits, regardless of how many hours she works in the business. In new firms, education related to sales, marketing, and product development along with acquiring financial resources, tend to be the most relevant and important to grow a new business (Dyer, 1992). While a strong work ethic and commitment to the business are certainly important, and are often-found qualities in copreneurial spouses, they will likely not compensate for a lack of education needed to grow a successful enterprise. Moreover, a spouse’s formal education, unless it is related directly to the needs of the business, is not likely to have an impact on the firm’s performance. And as Ruef, Aldrich, and Carter (2003) have noted, in new firms, employment decisions—such as the hiring of one’s spouse—are often based on convenience and not for strategic reasons.

Hypothesis 3: The addition of the owner-manager’s spouse as his or her partner and the spouse’s formal education will not have a significant impact on firm performance.

In summary, these three factors: the susceptibility of the owner-manager to the spouse’s influence, organizational imprinting from the firm’s initial resources and decisions, and the education of the spouse, will likely mitigate against the spouse’s ability to influence the performance of the firm.

The Impact of Spousal Involvement on Family Income

Another issue to consider in partnering with one’s spouse is the impact of such a partnership on the family. One area to consider is the impact of spousal involvement on family income. Spouses may be given tangible assets (e.g., a car or a computer) and/or wages as compensation for working in the business. However, previous work on the role of spousal involvement in a business has indicated that wives, in particular, often work for free in the business. Rosenblatt, de Mik, Anderson, and Johnson (1985) describe this phenomenon in their seminal work on family business dynamics:

A wife, for example, may work for years without pay in the family business and come to resent what has happened only later on . . . The problems of wives’ feelings of burden and lack of appreciation from husbands are symbolized and intensified by a fairly common pattern of nonpayment or underpayment of a wife who works in the family business. (pp. 68, 77).

In one interview conducted by Rosenblatt et al. (1985), a male owner-manager noted, “It helps me, her, and the business out to pay her less” (p. 77). Thus, Rosenblatt et al. conclude that a “pattern of unpaid work by a woman . . . was not uncommon in the interview reports” (Rosenblatt et al., 1985, p. 77). And if the spouse is paid, the likelihood will be that such pay will reduce the profits from the business that would eventually go to the spouse’s partner and subsequently to the family. Hence, by paying the spouse the couple would “Rob Peter to pay Paul,” with the spouse’s wages from the business having a negligible impact on family income. Thus, we posit the following hypothesis:

Hypothesis 4: The addition of the owner-manager’s spouse as his or her partner will not change family income significantly.

Furthermore, if partnering with one’s spouse will not significantly affect family income, we would also hypothesize the following:

Hypothesis 5: The number of hours worked by the spouse who becomes the partner of the owner-manager will not significantly affect family income.

Hypothesis 6: The formal education of the spouse who becomes the owner-manager’s partner will not significantly affect family income.

We recognize that it is somewhat unconventional to hypothesize no differences between groups as we have done in our six hypotheses, but in the present case this best fits our theoretical model. One limitation of accepting the null hypothesis is that, in a statistical sense, one cannot confirm that there are no differences. One can only fail to find differences. Despite this limitation and recognizing the exploratory nature of the study, we offer this expectation of failing to find differences as the most plausible outcome of our analyses. Cortina and Folger (1998) discuss instances where accepting the null hypothesis is appropriate (e.g., Staw, 1976), and other areas of research in the field of family science often expect to find few or no differences between groups (e.g., research on differences between children raised in heterosexual vs. homosexual households, Wainright, Russell, & Patterson, 2004).

Method

Data Set

In this study, we investigate two dependent variables: firm performance and family income. We identified a data set that measures both firm performance as well as the family income of copreneurial businesses: the Panel Study of Income Dynamics (PSID). The PSID is a data set collected by the University of Michigan, which includes interviews with more than 10,000 families in the United States since 1968 concerning their sources of income. From this longitudinal data set we are able to determine (a) families that owned a business that was their primary source of income, (b) if it was the husband or wife who owned the business, and (c) if their spouse also owned or worked in the business.

Definitions of “Copreneurial” and “Owner-Managed” Businesses

We broadly define a “copreneurial business” as a business where the husband or wife owns the business and the spouse co-owns and/or works in the business. We would have liked to have been able to ascertain the exact nature of the spousal involvement in the business (e.g., percentage of ownership by each spouse, what specific roles they played, etc.) but such data were not available in the PSID. As noted earlier, copreneurial firms are estimated to be about one third of all family businesses (Fitzgerald & Muske, 2002; NFIB, 2002). An “owner-managed business” is one that is primarily owned and operated by a single individual.

Sample

To test our hypotheses, we looked at five different time periods: 1996-1998, 1998-2000, 2000-2002, 2002-2004, and 2004-2006 (data on spousal involvement in the business began to be collected in the PSID in 1996). To be included in the sample, an individual must have owned a business that was his or her primary source of income at the beginning of the time period. The PSID only captures business profits for businesses that were unincorporated, thus these businesses were relatively small and their profits were generally modest.

For each of the five time periods, we identified owner-managed firms where the spouse either had or had not partnered with their spouse during that time period. Given the relatively few instances where the owner-manager partnered with his or her spouse, we collapsed the data over the 10-year time period. Thus, we had 813 owner-manager businesses that did not partner with their spouse and 71 that did.

Measures

Profits

We used net profits as the measure of firm performance. Profitability is a commonly used measure for firm performance in family business research (Daily & Dollinger, 1992; Maury, 2006). Because differences in profits are less meaningful at the higher end of the scale (e.g., the conceptual and practical difference between 50,000 profit and 100,000 profit is much larger than the difference between 500,000 and 550,000 profit), we used the logarithm of profits. For those businesses that made a loss instead of a profit, we took the logarithm of the absolute value of the net loss and then multiplied it by −1 to indicate a net loss.

Total family income

We also predicted the effect of bringing the spouse into the business on the income of the family. This variable is a compilation of Taxable Income of Head and Wife, Transfer Income of Head and Wife, Taxable Income of Other Family Unit Members (OFUMs), Transfer Income of OFUMs, and Social Security Income. In the regression analyses, we treat this variable similarly to firm profits in that we transformed the variable to the log of total family income. Although this income variable is a compilation of various sources of income, we assumed, ceteris paribus, that the various sources of income would remain fairly constant across the 2-year period and across our sample, and thus the impact of the spouse’s involvement in the business on family income would therefore be detectable.

Partnering spouse

To indicate whether a transition from an owner-managed firm to a coprenuerial business occurred during the time period we created a dichotomous variable coded 0 or 1 named “Copreneurial Spouse.” A firm that is coded 0 is an owner-managed firm whereas a 1 indicates that the spouse was brought into the business sometime during the 2-year time period. In all cases of businesses becoming coprenuerial, it was the wife that joined the business; there were no instances of a wife bringing her husband into the business.

Education of spouse and hours worked by the partnering spouse

Both the husband’s and the wife’s education was measured in years of education. While we would have liked to have known what type of education the partnering spouse had (e.g., business vs. humanities), the PSID only had data on the number of years of education. “Number of hours worked” was the average number of hours worked per week by the partnering spouse. The average number of hours the partnering spouse worked in the business per week was 29.2 with the range being 0 to 70 hours (only one partnering spouse worked 0 hours).

Controls

We controlled for previous firm performance and industry. The PSID classified these industries according to the 2000 Census of Population and Housing: Alphabetical Index of Industries and Occupations issued by the U.S. Department of Commerce and the Bureau of the Census. Because this list of industries is lengthy, we only included the industries in which at least 10 of the businesses were in a particular industry. These industries include agriculture, construction, retail, finance (includes insurance, real estate, and cemeteries), business services (excluding publishing, rentals, theater/movie, commercial labs), personal services (such as photo services), and professional services (such as scientific consultants and artists but excludes medical/educational services). There were several other control variables that we would have liked to have included in our models (e.g., firm age) but they were not available in the PSID database.

Analysis Plan

To test our hypotheses, we fit models for both of our dependent variables, business income and total family income. In particular, we were interested in the impact of a copreneurial relationship on the dependent variables during a 2-year time period. The PSID did not report precisely when during that time period the spouse began working in the business, only that the spouse was not working in the business at the beginning of the time period in question but was at the end of the time period. We chose a 2-year time period since we anticipated that it would take some period of time (a maximum of 2 years) for the spouse’s involvement in the firm to have an impact on the dependent variables, and the PSID collects data in 2-year increments. Data were available from years 1996 to 2006 for a total of five time periods available to analyze. Given that multiple time periods are represented in the data, we examined whether time period moderated the relationship between partnering and the dependent variables.

Another issue considered was endogeneity, that is, we controlled for the possibility that unobserved omitted variables explain the relationship between partnering with one’s spouse and the dependent variables. We addressed this by including an instrumental variable predicting partnering and then correlating the error of partnering and the dependent variables. The instrumental variable selected was “spouse’s age,” since it was related to whether or not they partnered with their spouse but not related to the dependent variables (see Antonakis, Bendahan, Jacquart, & Lalive, 2010 for addition details on endogeneity and instrumental variables). We fit our models using Mplus 6.12 (Muthén & Muthén, 2010), which allows for such model flexibility. Given that we tested this model in the structural equation modeling framework, we were able to assess model fit. We report the relative model fit indices comparative fit index (CFI) and root mean square error of approximation (RMSEA). Among the many relative fit indices, we chose these two as they varyingly emphasize aspects of model fit. The generally accepted cutoff for a good model fit is a CFI of .95 or higher and an RMSEA of .06 or lower (see Hu & Bentler, 1999).

To test whether the hours the partnering spouse worked had an impact on the dependent variables, we included an interaction term between the copreneurial variable and the spouse’s work hours. Three models were fit, the first omitting spouses’ work hours, the second including spouse work hours, and the third including the interaction term. In the same manner, models were fit testing the interaction between education of the spouse and the copreneurial variable to examine whether spousal education moderated the effect of partnering.

We used multiple imputation to handle missing values (see Acock, in press; McKnight, McKnight, Sidani, & Figueredo, 2007; Rubin, 1987). This well-established method has become a “gold standard” to handle missing values. Multiple imputation was implemented in the program Mplus 6.12 with 100 imputed data sets.

Results

Descriptive Statistics

Table 1 provides the descriptive statistics as well as the correlation matrix for the collapsed sample of 884 firms.

Table 1.

Descriptive Statistics and Correlations.

Variable	Mean	SD	1	2	3	4	5	6	7	8	9	10	11	12	13
1. Business income (log)	7.39	5.73
2. Family income (log)	11.11	1.27	.38*
3. Copreneurial	.07	.25	−.03	.05
4. Wife age	34.19	20.07	.09*	.30*	.16*
5. Wife hours worked	.37	20.60	.04	.24*	.08*	.39*
6. Husband years of education	14.01	2.22	.06	.23*	−.10*	−.06	−.13*
7. Wife years of education	10.78	5.95	.10*	.28*	.06	.69*	.40*	.08*
8. Agricultural industry	.08	.27	−.07*	.00	.15*	−.05	.03	−.01	−.07*
9. Construction industry	.22	.41	.12*	−.02	−.06	.12*	.04	−.20*	.12*	−.15*
10. Retail industry	.11	.31	−.17*	−.05	.03	−.04	.01	.00	.00	−.10*	−.18*
11. Finance industry	.07	.25	.09*	.09*	.02	.02	−.00	.15*	.03	−.08*	−.14*	−.09*
12. Business services industry	.08	.28	.02	.01	.02	−.00	−.01	.09*	.02	−.09*	−.16*	−.10*	−.08*
13. Personal services industry	.10	.31	−.08*	−.10*	−.05	−.10*	−.01	−.07*	−.10*	−.10*	−.18*	−.12*	−.09*	−.10*
14. Professional industry	.07	.25	.05	.09*	−.07*	−.10*	−.09*	.25*	−.06	−.08*	−.14*	−.09*	−.07*	−.08*	−.09*

Note. n = 884.

p < .05.

Table 2 shows the multiple regression results for business income. In each of the models, partnering with one’s spouse does not affect the firm’s income, consistent with Hypothesis 1. We found support for Hypothesis 2 as the interaction between spouse work hours and partnering with spouse was nonsignificant. Hypothesis 3 was likewise supported as the interaction between spouse’s education and partnering with one’s spouse was also nonsignificant. We also found no evidence that time period influenced the relationship between partnering and business income as none of these interactions were significant.

Table 2.

Ordinary Least Squares Estimation of Business Income (Log).

	Business income
Variable	Baseline	Spouse hours Model 1	Spouse hours Model 2	Spouse education
Constant	2.76^†	2.65	2.65	2.61
Previous family business income (log 2 years previous)	0.46***	0.46***	0.46***	0.47***
Agricultural industry	−1.21	−1.18	−1.19	−1.20
Construction industry	0.79	0.75	0.79	0.70
Retail industry	−1.24^†	−1.22^†	−1.24^†	−1.26*
Finance industry	0.96	0.96	0.97	0.91
Business services industry	−0.11	−0.14	−0.09	−0.18
Personal services industry	−0.73	−0.81	−0.73	−0.83
Professional industry	0.21	0.22	0.23	0.16
Owner-manager education	0.10	0.12	0.12	0.11
Spouse education	−0.05	−0.06	−0.06	−0.04
Copreneurial (partnered during time period)	1.05	1.04	0.93	0.70
Spouse hours		0.01	0.01	0.01
Spouse work hours × Copreneurial			−0.00
Spouse education × Copreneurial				−0.32^†
RMSEA	.03	.03	.04	.04
CFI	.97	.97	.95	.94
R ²	.26	.26	.26	.22
n	884

Note. RMSEA = root mean square error of approximation; CFI = comparative fit index.

†

p < .10.*p < .05. ***p<.001.

Table 3 shows results for Hypothesis 4, which states that partnering with a spouse will have no effect on total family income. Results indicate that partnering with the spouse does have significant effect on the family income (b = .49, p < .05), contrary to our hypothesis. Consistent with findings on business income, neither the interaction between spouse hours and partnering nor the interaction between spouse’s education and partnering were significant. This lends support for Hypotheses 5 and 6. However, not surprisingly, in our entire sample of owner-managed firms, where the spouses worked both in and outside the family business, total family income was significantly influenced by the number of hours worked by the owner-manager’s spouse.

Table 3.

Ordinary Least Squares Estimation of Family Income (Log).

	Family income
Variable	Baseline	Spouse hours Model 1	Spouse hours Model 2	Spouse education
Constant	6.81***	6.87***	6.88***	6.90***
Previous family income (log 2 years previous)	.23***	.22***	.22***	.22***
Agricultural industry	.21	.15	.15	.15
Construction industry	.07	.06	.06	.05
Retail industry	−.12	−.14	−.14	−.15
Finance industry	.29	.30	.31	.31
Business services industry	.04	.04	.05	.03
Personal services industry	−.18	−.20	−.20	−.21
Professional industry	.10	.10	.11	.10
Owner-manager education	.09**	.10***	.10***	.10***
Spouse education	.02	.01	.01	.01
Copreneurial (partnered during time period)	.49*	.42†	.38*	.33*
Spouse hours		.011**	.01***	.01**
Spouse work hours × Copreneurial			.00
Spouse education × Copreneurial				−.06
RMSEA	.04	.04	.04	.04
CFI	.93	.92	.90	.90
R ²	.15	.185	.191	.241
n	884

Note. RMSEA = root mean square error of approximation; CFI = comparative fit index.

†

p < .10. *p < .05. **p < .01. ***p<.001.

Discussion

The findings of this study indicate that spousal involvement had no impact on firm performance. Moreover, given that the vast majority of the firms in our sample were rather small, we might expect to see an impact on profits by involving one’s spouse in the business. Larger firms would probably be less affected by merely adding one additional family member. Still, no impact on profits was observed. The fact that spousal involvement had no impact on firm profits is consistent with theorizing that suggests that founders and owner-managers are unlikely to accept advice from their spouses and that the spouse will likely have education that will not have a significant impact on firm performance. Moreover, the findings are also consistent with the theories related to organizational imprinting and strategic choice. In our sample, the choice of industry by the owner-manager had a significant impact on firm profits. For example, those owner-managers who entered the retail industry did significantly worse than those who chose to enter other industries. Strategic choices appear to have more impact than involving one’s spouse in the enterprise. Choice of industry and structural inertia may constrain growth and profit opportunities, and such constraints are not overcome by involving one’s spouse in the business.

This finding is also consistent with the “founder effect” hypothesis described by Dyer (2006)—that business performance is largely driven by the founder and not by family involvement. As noted previously, founders bring with them a unique mix of skills, experience, and motivation that are largely responsible for firm performance and are not easily influenced (Bird, 1989). The positive family connection to firm performance as noted by some prior studies (e.g., Anderson & Reeb, 2003) may prove to be spurious when both the founder and family are involved in the business. However, our findings also noted that spousal involvement did have a positive impact on family income, although hours worked by the spouse and the spouse’s education were not correlated with higher family income. This suggests that in making the decision for the spouse to work in the business, the couple likely determined beforehand the impact of such work on family income. And they apparently decided that the family should benefit financially as a result of this involvement. Since the number of hours worked by the spouse and her education were not related to the family’s income, but joining the business was, it’s possible that altruism—allowing people to benefit for who they are not what they do—played a role in determining remuneration for the partnering spouse.

One of the most important lessons from this study, however, concerns the importance of examining the “type” of family business and its context when theorizing about the impact of a family on firm performance. For example, based on what we know, the firms in our sample were not founded by a family, but by an individual or individuals who were not related. Thus, “family-founded” firms—firms founded by several family members, including husbands and wives—may perform differently than the firms in our sample. Indeed, we may likely see different dynamics and outcomes in firms founded by husbands and wives together in contrast to the firms we studied where the spouse (husband) was already managing the business and brought his wife in later. We believe that such differences may explain the differential impact of families on firm performance. In the case of copreneurial ventures, additional research needs to be done to determine how spousal and family involvement in founding an enterprise affects both firm and the family. The temporal ordering of when family members enter the firm, who enters the firm, their education and skill set, and their relationship to those already working in the firm are likely to be key variables that need to be included in future family business studies. For example, we found in our data (not reported here) that often the wife would work only temporarily (a year or two) with her spouse and then go back to managing the home or working somewhere else. This creates a rather unique type of family firm, where a family’s human capital is accessed only periodically, probably based on need or preference. Thus, our findings suggest that unless researchers incorporate such family/firm dynamics in their studies of family businesses, their findings are likely to be spurious and are likely to attribute success to family involvement when the owner-manager/founder or some other factor is actually driving performance. Moreover, we believe that our study, which examines the impact of an action (having one’s spouse becoming a partner) on both firm and family, is an important exemplar for those doing research on family firms. Too often, research has only focused on the impact of family involvement on the firm rather than the impact on the family (Dyer & Dyer, 2009).

Limitations of the Study and Directions for Future Research

Although these findings provide a unique look at the impact of spousal involvement on families and firms, this study has several limitations but also provides direction for future research. First, we only looked at copreneurial firms. Although they do account for about one third of all family firms, it is not clear that we would see similar dynamics in father–son, mother–daughter, or other types of family firm partnerships. Second, the firms in our PSID sample were rather small and we had a relatively small sample size. Research that looks at the impact of spousal involvement on larger firms with larger samples also needs to be conducted to see if our findings hold. Third, while we were constrained by the data contained in the PSID, future research should be done by adding data from subsequent years in the PSID to see how family involvement in the firm at different stages of a family and firm’s development affects business and family outcomes. Moreover, the supplemental data found in the PSID in later years on a variety of family dynamics may provide fertile ground to study a number of important family firm questions, such as, how does the addition of one’s spouse to the business affect nonfinancial issues such as marital conflict, spousal support, and shared goals? Furthermore, better proxies might be found to test various hypotheses. For example, data that examined the power relationships between copreneurial husbands and wives would have been helpful for us to access along with data that measured the degree of “imprinting” in owner-managed firms. Unfortunately, such data were not available for us to use, but researchers on this topic should attempt to gather such data in the future. Fourth, future research should also study the impact of the husband partnering with the owner-manager wife. We were constrained by our data in this regard, having no cases of the husband joining the wife in her business. Finally, future research should examine possible moderators of the relationships between a transition to a copreneurial business and business/family success. The findings of this study indicate no effect of this transition on firm profits but a positive effect on family income. However, it is likely that for some couples, this transition will have a positive impact on firm performance but not on family income. It will be important to identify characteristics of couples, their families, and their businesses that moderate the effects of transitioning to a copreneurial firm.

Conclusion

There has been considerable confusion and lack of empirical studies in the literature related to the impact of spousal involvement in a firm on both the family and the firm. This preliminary study suggests that spousal involvement in a business has little or no impact on firm performance. It is likely that the impact of the owner-manager or industry constraints will have more impact on firm performance than the spouse, particularly in instances where the firm is small. But we also found a positive effect on family income when a couple begins working together in the business. Finally, this study is important because it examines the impact of family involvement on both the firm and the family and the data were longitudinal giving us the opportunity to study the impact of spousal involvement over time. Future research in the fields of entrepreneurship and family business should attempt to examine the impact of certain variables on both firm and family. Hopefully, this study will encourage future research along these lines.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received partial funding for this project from Grand Valley State University.

Author Biographies

W. Gibb Dyer is the O. Leslie Stone Professor of Entrepreneurship in the Marriott School at Brigham Young University.

W. Justin Dyer is an assistant professor in the School of Family Life at Brigham Young University. He specializes in quantitative research focusing on family dynamics and particularly on the role of fathers in families.

Richard G. Gardner is currently a doctoral student at Texas A&M University. He earned an MPA at Brigham Young University. His current research interests are organizational attachment, behavioral ethics, and role theory.

References

Acock

(in press). What to do about missing values. In Cooper

(Ed.), APA handbook of research methods in psychology. Washington, DC: American Psychological Association.

Andersen

R. C.

Reeb

D. M.

(2003). Founding-family ownership and firm performance: Evidence from the S & P 500. Journal of Finance, 58, 1301-1328.

Antonakis

Bendahan

Jacquart

Lalive

(2010). On making causal claims: A review and recommendations. Leadership Quarterly, 21, 1086-1120.

Barnett

(1988). Working together: Entrepreneurial couples. Berkeley, CA: Ten Speed Press.

Barney

(1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.

Baron

Burton

Hannan

(1996). The road taken: Origins and evolution of employment systems in emerging companies. Industrial and Corporate Change, 5, 239-275.

Beckman

C. M.

(2006). The influence of founding team company affiliations on firm behavior. Academy of Management Journal, 49, 741-758.

Beckman

C. M.

Burton

M. D.

(2008). Founding the future: Path dependence in the evolution of top management teams from founding to IPO. Organization Science, 19, 3-24.

Belenzon

Zarutskie

(2011). Family ownership and performance in new firms. (Working Paper). Durham, NC: Fuqua School of Business, Duke University.

10.

Bird

B. J.

(1989). Entrepreneurial behavior. Glenview, IL: Scott, Foresman.

11.

Boeker

(1989). Strategic change: The effects of founding and history. Academy of Management Journal, 32, 489-515.

12.

Child

(1972). Organizational structure, environment, and performance: The role of strategic choice. Sociology, 6, 1-22.

13.

Chrisman

J. J.

Chua

J. H.

Litz

R. A.

(2004). Comparing the agency cost of family and non-family firms. Entrepreneurship: Theory and Practice, 28, 335-354.

14.

Chrisman

J. J.

Chua

J. H.

Kellermanns

F. W.

(2009). Priorities, resource stocks, and performance in family and nonfamily firms. Entrepreneurship: Theory and Practice, 33, 739-760.

15.

Cortina

J. M.

Folger

R. G.

(1998). When is it acceptable to accept a null hypothesis: No way Jose? Organizational Research Methods, 1, 334-350.

16.

Daily

C. M.

Dollinger

M. J.

(1992). An empirical examination of ownership structure in family and professionally managed firms. Family Business Review, 5, 117-136.

17.

Dyer

W. G.

Jr. (1992). The entrepreneurial experience: Confronting career dilemmas of the start-up executive. San Francisco, CA: Jossey-Bass.

18.

Dyer

W. G.

Jr. (2006). Examining the “family effect” on firm performance. Family Business Review, 19, 253-273.

19.

Dyer

W. G.

Jr. Dyer

W. J.

(2009). Putting the family into family business research. Family Business Review, 22, 216-219.

20.

Eddleston

Kellermanns

F. W.

(2007). Destructive and productive family relationships: A stewardship theory perspective. Journal of Business Venturing, 22, 545-565.

21.

Eisenhardt

K. M.

Schoonhoven

C. B.

(1990). Organizational growth: Linking founding team, strategy, environment, and growth among US semiconductor ventures, 1978-1988. Administrative Science Quarterly, 35, 504-529.

22.

Fama

Jensen

M. C.

(1983). Separation of ownership and control. Journal of Law and Economics, 26, 301-325.

23.

Fitzgerald

M. A.

Muske

(2002). Copreneurs: An exploration and comparison to other family businesses. Family Business Review, 15, 1-16.

24.

Gomez-Mejia

L. R.

Cruz

Berrone

de Castro

(2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management Annals, 5, 653-707.

25.

Gomez-Mejia

L. R.

Nuñez-Nickel

Gutierrez

(2001). The role of family ties in agency contracts. Academy of Management Journal, 44, 81-95.

26.

Habbershon

T. G.

Williams

M. L.

(1999). A resource-based framework for assessing the strategic advantages of family firms. Family Business Review, 12, 1-25.

27.

Hannan

M. T.

Freeman

(1984). Structural inertia and organizational change. American Journal of Sociology, 49, 149-164.

28.

Haynes

G. W.

Walker

Rowe

B. R.

Hong

(1999). The intermingling of business and family finances in family-owned businesses. Family Business Review, 12, 225-239.

29.

Hilburt-Davis

Dyer

W. G.

Jr. (2003). Consulting to family businesses: A practical guide to contracting, assessment, and implementation. New York, NY: Wiley.

30.

Bentler

P. M.

(1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling, 6, 1-55.

31.

Jaffe

(1990). Working with the ones you love. Berkeley, CA: Conari Press.

32.

Jennings

J. E.

McDougald

M. S.

(2007). Work-family interface experiences and coping strategies: Implications for entrepreneurship research and practice. Academy of Management Review, 32, 747-760.

33.

Jensen

Meckling

(1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360.

34.

Kaye

(1991). Penetrating the cycle of sustained conflict. Family Business Review, 4, 21-44.

35.

Kellermanns

F. W.

Eddleston

(2004). Feuding families: When conflict does a family firm good. Entrepreneurship: Theory and Practice, 28, 209-228.

36.

Kets de Vries

M. F. R.

(1977). The entrepreneurial personality: A person at the crossroads. Journal of Management Studies, 14, 34-57.

37.

Levinson

(1971). Conflicts that plague family businesses. Harvard Business Review, March/April, 90-98.

38.

Marshack

K. J.

(1993). Copreneurial couples: A literature review on boundaries and transitions among copreneurs. Family Business Review, 6, 355-369.

39.

Marshack

K. J.

(1994). Copreneurs and dual career couples: Are they different? Entrepreneurship: Theory and Practice, 19, 49-69.

40.

Marshack

K. J.

(1998). Entrepreneurial couples: Making it work at work and at home. Palo Alto, CA: Davies-Black.

41.

Maury

(2006). Family ownership and firm performance: Empirical evidence from Western European corporations. Journal of Corporate Finance, 12, 321-341.

42.

McKnight

P. E.

McKnight

K. M.

Sidani

Figueredo

A. J.

(2007). Missing data: A gentle introduction. New York, NY: Guilford Press.

43.

Merei

(1949). Group leadership and institutionalization. Human Relations, 2, 23-39.

44.

Morris

J. R.

(2009). Life and death of businesses: A review of research on firm mortality. Journal of Business Valuation and Economic Loss Analysis, 4, 1-39.

45.

Muske

Fitzgerald

M. A.

(2006). A panel study of copreneurs in business: Who enters, continues, and exits? Family Business Review, 19, 193-205.

46.

Muthén

B. O.

Muthén

L. K.

(2010). Mplus user’s guide (6th ed.). Los Angeles, CA: Muthén & Muthén.

47.

National Federation of Independent Business. (2002). Small business poll: Families in business. Washington, DC: Author.

48.

Nelton

(1986). In love and in business: How entrepreneurial couples are changing the rules of business and marriage. New York, NY: Wiley.

49.

Pfeffer

Salancik

(1978). The external control of organizations. New York, NY: Harper & Row.

50.

Ponthieu

Caudill

(1993). Who’s the boss? Responsibility and decision making in copreneurial ventures. Family Business Review, 6, 3-17.

51.

Rosenblatt

P. C.

de Mik

Anderson

R. M.

Johnson

P. A.

(1985). The family in business. San Francisco, CA: Jossey-Bass.

52.

Rubin

D. B.

(1987). Multiple imputation for nonresponse in surveys. New York, NY: Wiley.

53.

Ruef

Aldrich

H. E.

Carter

N. M.

(2003). The structure of founding teams: Homophily, strong ties, and isolation among US entrepreneurs. American Sociological Review, 68, 195-222.

54.

Schein

E. H.

(1983). The role of the founder in creating organizational cultures. Organizational Dynamics, 12, 13-28.

55.

Schulze

W. G.

Lubatkin

M. H.

Dino

R. N.

(2003). Exploring the agency consequences of ownership dispersion among the directors of private family firms. Academy of Management Journal, 46, 179-194.

56.

Schulze

W. G.

Lubatkin

M. H.

Dino

R. N.

Buchholtz

A. K.

(2001). Agency relationships in family firms: Theory and evidence. Organization Science, 12, 99-116.

57.

Schumpeter

J. A.

(1934). The theory of economic development. Cambridge, MA.: Harvard University Press.

58.

Scott

R. W.

(1992). Organizations (3rd ed.). Englewood Cliffs, NJ: Prentice Hall.

59.

Sirmon

D. G.

Hitt

M. A.

(2003). Managing resources: Linking unique resources, management, and wealth creation in family firms. Entrepreneurship: Theory and Practice, 27, 339-358.

60.

Staw

(1976). Knee-deep in the big muddy: A study of escalating commitment to a chose course of action. Organizational Behavior and Human Performance, 16, 27-44.

61.

Stinchcombe

A. L.

(1965). Social structure and organizations. In March

J. G.

(Ed.), Handbook of organizations (pp. 142-193). Chicago, IL: Randy McNally.

62.

Wainright

J. L.

Russell

S. T.

Patterson

C. J.

(2004). Psychosocial adjustment, school outcomes, and romantic relationships of adolescents with same sex parents. Child Development, 75, 1886-1898.

63.

Westhead

Cowling

(1998). Family firm research: The need for a methodological rethink. Entrepreneurship: Theory and Practice, 23, 31-56.

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.01 MB

15.73 MB