Strategic Persistence in Family Business

Abstract

Using a behavioral theory framework, we argue that family firms are more persistent (less likely to engage in the strategic renewal form of corporate entrepreneurship) in their strategic behaviors over time than nonfamily firms owing to their goals of maintaining family tradition and parsimony. We also argue that family firms controlled by founders or having a family member as Chairman or CEO are more likely to be persistent in their strategies than family firms with different governance structures. Panel regression based on a sample of 8,748 firm-year observations of S&P 1500 manufacturing firms from 1996 to 2013 support our hypotheses.

Keywords

family business strategic management time/temporal aspects strategic change behavioral theory

Introduction

It has long been recognized that family firms tend to avoid change even when it might be necessary for superior performance (Chandler, 1990; Chrisman & Patel, 2012; Gómez-Mejía et al., 2007; König et al., 2013).¹ Nevertheless, there remain gaps in the literature regarding the propensity for strategic change or strategic renewal, and its direct opposite, strategic persistence, in family firms.² Specifically, questions concerning the extent to which family firms are persistent in maintaining their strategies over time have been overlooked. This is in spite of the relevance of these questions to the owning family’s desire of sustainable prosperity for the family and the firm (Miller & Breton-Miller, 2005), as well as the long-term orientation of family firms (Lumpkin & Brigham, 2011). When these issues have been investigated, a narrow set of strategic decisions such as R&D investments have been the focus (Block, 2012), but this does not necessarily extrapolate to a broader perspective of corporate entrepreneurship as strategic change nor the reality family firms face as they, like other firms, attempt to manage multiple, potentially competing goals simultaneously. Furthermore, the dimension of “time” or temporality has been neglected, although being persistent or not has strong implications for that dimension. Thus, it is unclear if family firms are more persistent in following a given strategy over time than nonfamily firms. Moreover, we do not know if some family firms are more persistent than other family firms.

We draw on behavioral theory (Cyert & March, 1963) to describe how family goals and governance influence strategic persistence in family firms (Chrisman et al., 2013; Fang et al., 2018). Through our primary analysis and robustness tests of strategic persistence, we provide a direct look at the long-term orientation of family firms relative to nonfamily firms. We also examine two aspects of family business heterogeneity: founder control and family Chairman/CEO control. To test our hypotheses, we study 798 manufacturing firms (8,748 firm-year observations) from the S&P 1500 index between 1996 and 2013. We find that family firms are more likely to make persistent strategic decisions, especially when they are under the control of founders or a family Chairman and/or CEO.

We contribute to the literature by providing a theoretical explanation of why family firms are generally more persistent in their strategies than nonfamily firms and why some family firms are more persistent than others. By studying this topic, we also extend the scope of the behavioral theory of the firm, which has typically focused on organizational change (e.g., Gavetti, 2012) rather than organizational stability. Finally, by placing emphasis on the temporal dimension, we provide empirical evidence of the long-term orientation of family firms.

Strategic Persistence

In this study, strategic persistence is defined as the continuation of patterns of resource allocations in key strategic dimensions over time (Finkelstein & Hambrick, 1990; Hambrick et al., 1993). Overall, firms have a tendency and an incentive to be persistent in their strategies (Ford et al., 2008).³ However, firm strategy does not necessarily enhance a firm’s survival and performance unless aligned with the firm’s historic pattern of resource allocations (Flammer & Bansal, 2017; Zajac et al., 2000). Strategic persistence emphasizes resource allocation as a key indicator of strategic decisions (Barney, 1991; Sirmon et al., 2007, 2011) and is a multidimensional construct (Carpenter, 2000; Zhang, 2006) that represents a dynamic pattern of strategic decisions that are internally consistent over time rather than static at a point in time (Finkelstein & Hambrick, 1990). Compared to constructs such as “strategic conformity” which focus on how firms differ from competitors (Miller et al., 2013), strategic persistence focuses on temporal variation within firms. While strategic variations (Smith & Grimm, 1987), dynamics (Zajac et al., 2000), deviations (Carpenter, 2000) and change (Zhang, 2006) from one year to the next have been explored, the question of persistence over longer time windows has been overlooked. In essence, the literature, which largely looks at short-term, year-to-year change, neglects decision-making dynamics over longer-periods or, put differently, the advantages and disadvantages that arise from strategic persistence.

However, strategic persistence can be a “two-edged sword.” On one hand, persistence can lead to positive outcomes such as uncertainty avoidance, economies of scale and scope, learning, and reduced coordination costs (Sydow et al., 2009). Scholars note that larger and older firms with more consistent historical patterns of behavior, especially those embedded in environments featured by higher stability and/or predictability, might be inclined to continue past strategies, because doing so can activate self-reinforcing mechanisms aligned with increased levels of legitimacy and economic return (Schreyögg & Sydow, 2011; Vergne & Durand, 2010). On the other hand, an excessive level of strategic persistence might be detrimental, leading to escalating commitment, lack of creativity, and even organizational inertia and rigidity (Sydow et al., 2009; Vergne & Durand, 2010).

In family owned and managed firms, strategic persistence can be particularly important for at least two reasons. First, besides its economic ramifications, strategic persistence might be related to the creation and accumulation of non-economic endowments for the owning family (Berrone et al., 2012), given that these endowments are embedded in history (Sasaki et al., 2020), and the family desires to preserve its history through control of the business across generations (Miller & Breton-Miller, 2005). Second, planning in family firms is thought to occur over longer time horizons than in non-family firms (Casson, 1999; James, 1999; Lumpkin & Brigham, 2011), which suggests that strategic persistence is needed. However, this proposition has never been empirically explored. We use a behavioral theory approach to shed light on possible presence of strategic persistence in family business.

Behavioral Theory and Family Firms

Behavioral theory suggests that the combination of goals and governance is critical to any strategic action, including strategic persistence. According to the theory, firm behavior is heavily dependent upon past goals, as well as the historical performance of the firm and its competitors (Cyert & March, 1963). Some organizations, for instance, place higher priority on growth while others emphasize efficiency (Greve, 2008); relative to nonfamily firms, family firms are known to place high priority on family-centered noneconomic (FCNE) goals that preserve aspects of their socioemotional wealth (SEW) such as maintaining current control and transgenerational sustainability and identity (e.g., Berrone et al., 2012; Chrisman & Patel, 2012; Gómez-Mejía et al., 2007). Behavioral theory also assumes that actors may have conflicting goals that cannot be entirely reconciled. Thus, the importance placed on different goals is largely determined by the composition of the firm’s dominant coalition, how decision making is divided among key organizational actors, and how problems are defined by decision makers (Cyert & March, 1963). This implies that firm governance determines which goals turn into strategic actions (Williamson, 1999).

Because behavioral theory addresses major factors that influence strategic decision-making, it has been embraced by family business researchers in distinguishing family firms from nonfamily firms as well as distinguishing among family firms (Chua et al., 2012). In alignment with behavioral theory, we argue that family firms should exhibit higher strategic persistence than nonfamily firms, because of the features of their goals and governance systems. In other words, family firms are expected to be more persistent in the strategies they follow than nonfamily firms because strategic persistence is more consistent with the goals of the dominant family coalition, and family governance provides the dominant coalition greater discretion to act unilaterally (Carney, 2005).

Theoretically and empirically, family firms have been found to behave differently from nonfamily firms and one another partially because of family owners’ idiosyncratic goals (Gómez-Mejía et al., 2007, Gómez-Mejía et al., 2010). As noted, family owners and managers may have FCNE goals, which generate SEW, related to maintaining control, tradition, and the pursuit of trans-generational succession (Berrone et al., 2012; Chrisman, Chua, et al., 2012; Zellweger et al., 2012) as well as family-centered economic goals such as parsimony and survival (Carney, 2005). Thus, family firms tend to favor strategies that can help achieve these goals and oppose strategies that might hinder their achievement (Gómez-Mejía et al., 2007). As a result, it is often observed that family firms are risk averse as reflected in lower R&D investments (Chrisman & Patel, 2012), diversification (Gómez-Mejía et al., 2010), internationalization (Fang et al., 2018), and debt financing (Chua et al., 2011), as pursuing these strategic options might potentially harm the joint creation of economic and noneconomic value.

While there may be several family goals that influence the strategic behavior of family firms, we focus on those of maintaining family tradition and parsimony. Family tradition likely influences persistence because it represents a family’s emotional attachment to and identification with a firm in the past, present, and future (Berrone et al., 2012). Furthermore, in family firms, tradition should be directly linked to current and trans-generational continuity of family control, which have been identified as fundamental drivers of family firm behavior (Chua et al., 1999). By contrast, parsimony is an economic driver that is apt to influence persistence because change is expensive and risky. Because family owners are spending their own rather than other people’s money, parsimony often characterizes the family’s approach to managing resources (Carney, 2005). Simply put, we posit that family owners and managers will be persistent in strategic decision-making because they want to adhere to their traditions, and because they are motivated to conserve their resources and avoid costs associated with change. In the terminology of behavioral theory, the FCNE goals of family firms increase the importance of past strategy, and the economic goals of parsimony and survival reduce the attractiveness of strategic change.

Family tradition consists of the preservation, constancy, and durability of the family’s heritage (Lumpkin & Brigham, 2011), resulting from long social histories. For family owner-managers, the firm is not just an asset to be bought and sold but is rather an institution with enduring economic and noneconomic value. Hence, family tradition may work as a carrier of family-centered values which are espoused, strengthened, elaborated, recalibrated, and then transferred between and across genrations (Sasaki et al., 2020), often through rhetorical reconstructions and stories of the experiences of earlier family generations (Erdogan et al., 2020; Jaskiewicz et al., 2015). Some even argue that family firms “innovate through tradition” (De Massis et al., 2016), as traditions can embody the entrepreneruial spirit behind the firm’s initial founding, motivating later-generations to explore and innovate (Jaskiewicz et al., 2015).

Note that family tradition is not necessarily in conflict with innovation and corporate entrepreneurship. Some family firms, for instance, may persistently make substantial R&D investments or frequent product modifications over time (Rondi et al., 2019), even though this may not be the typical behavior of family firms (Chrisman & Patel, 2012). However, the point is not whether they behave conservatively or agressively, but that practices that deviate from past strategy may be perceived as violating traditions and history, and be shunned by family owner-managers (Kieser, 1989). Although some situations, such as when firm survival is at risk, may cause family owners to forego tradition (Gómez-Mejía et al., 2010), family owner-managers are expected to continue with past strategies as long as economic and noneconomic outcomes remain within some level of acceptability (Lumpkin & Brigham, 2011).

Family tradition also leads to concern for the long-range implications of decisions and actions with respect to family-centered goals of the economic and noneconomic varieties (Lumpkin & Brigham, 2011; Miller & Breton-Miller, 2005). This suggests that strategies will change less frequently in family firms than in nonfamily firms. Maintaining family tradition also requires continuity of family control over time (Berrone et al., 2012). Findings indicate that the ability of family owners to pass control and wealth to the next generation has a stronger relationship with the perceived value of the firm than the family’s extent or duration of family ownership and control (Zellweger et al., 2012). Indeed, conformity to family traditions is often a criterion used to select successors (De Massis et al., 2008; Gersick et al., 1997), suggesting that persistence is a value passed from one generation to another.

Besides desiring to uphold family tradition, family owner-managers are motivated to be parsimonious in resource utilization (Carney, 2005), which is more than just risk aversion. For example, family firms tend to provide lower compensation to family executives (Combs et al., 2010; Gómez-Mejía et al., 2003), as well as lower dividends and profit sharing (Miller & Breton-Miller, 2005). This suggests that family owner-managers are inclined to minimize administrative costs and avoid unnecessary expenditures. Since change entails both, parsimony also suggests family owner-managers will less frequently embark on entrepreneurial efforts associated with strategic renewal.

Parsimony also relates to the owning family’s reluctance to acquire resources from external sources because such sources are inherently more costly than internal sources (Chua et al., 2011). Changing a firm’s strategy inevitably involves new financial and human capital investments. To implement a new strategy, family firms may have to employ more nonfamily managers, which can increase agency costs, and may require the family to obtain external investments, which can increase the cost of capital. Strategic change is generally not favored by family owner-managers unless the family is under significant threat (Chrisman & Patel, 2012; Gómez-Mejía et al., 2007) or has no other way of fulfilling their objectives (Chrisman et al., 2014). Thus, family firms may favor continuing their current strategy rather than pursuing new strategies because new strategies usually require new human and/or financial investments.

Consistent with behavioral theory, family governance is necessary for family owner-managers to achieve family-centered economic and noneconomic goals because without it they would not have the authority and legitimacy to manage the firm in particularistic ways (Carney, 2005). Governance represents patterns of incentives, authority, and norms of legitimacy that determine the deployment of resources and resolution of conflicts among organizational participants (Daily et al., 2003). In family firms, governance emanates from the owning family’s personalized control and particularistic pursuit of its goals (Carney, 2005). The extent to which family-centered goals influence firm decisions is dependent upon the concentrated decision-making power of the dominant coalition of family owners (Gómez-Mejía et al., 2007, Gómez-Mejía et al., 2010). Without governance control, the family is less likely to receive economic and noneconomic benefits that flow from strategic persistence. Family governance permits the achievement of family-centered goals, but also protects the rights of the family to benefit from goal achievement. Thus, owing to their unique goals and governance systems, family firms are more likely to persist with their strategic decisions over time than nonfamily firms.

Hypothesis 1: Family firms exhibit greater strategic persistence than nonfamily firms.

Family business scholars have long emphasized that in addition to a difference between family and nonfamily firms, there are fundamental distinctions between firms run by founders and later generation family members (e.g., Pérez-González, 2006). Founding family owners who have invested time, energy, and capital in the firm since its inception tend to have stronger emotional attachments, commitment, and identification with the firm than later generation family members. Thus, founders are expected to ensure that traditions they helped establish are passed on to members of their immediate family (Gómez-Mejía et al., 2007), and to favor strategic persistence more than later generation family members, although family firms run by later generations are still likely to favor strategic persistence more than nonfamily firms. Founders also have control over key resources and, because they built the firm, are expected to be more parsimonious in resource utilization (Hambrick & MacMillan, 1984), which may further increase their propensity for strategic persistence. Finally, control is usually at its peak when the firm is owned and managed by the family’s founding generation, whereas it tends to weaken as the business is passed onto subsequent generations (Chua et al., 1999; Gersick et al., 1997; Gómez-Mejía et al., 2007). This implies that founders have greater discretion in governing the firm in accord with the goals of the dominant family coalition than later generations.

Hypothesis 2: Family firms controlled by founding generation family members exhibit greater strategic persistence than those controlled by later-generation family members.

The distinction between family firms that have a family member serving as Chairman of the Board and/or CEO is another important source of heterogeneity (e.g., Fang et al., 2018; Naldi et al., 2013). Concerning strategic persistence, family control and authority is a necessary condition for family-centered goals such as maintaining family tradition and parsimonious investment to be translated into firm behaviors (Lin et al., 2007). Hence, having a family CEO or Chairman should facilitate the family’s pursuit of its vision through the governance control they exercise over the firm’s strategic direction. Since, as argued above, that vision is expected to be consistent with strategic persistence, we hypothesize:

Hypothesis 3: Family firms with a family chairman and/or CEO exhibit greater strategic persistence than family firms that do not have a family chairman and/or CEO.

Methods

The sample was composed of manufacturing firms listed in the S&P 1500 index. The strategies of these firms from 1996 to 2013 were examined to ensure an adequate period for variations to emerge. To preserve homogeneity of the sample, utility and service firms were excluded because of differences in government regulations and methods of operation that may cause systemic variations in the strategic actions of these firms compared to manufacturing firms. Firms with less than 5 years of continuous information were also excluded. In total, the sample included 798 firms representing 8,748 firm-year observations.

To identify owning families and their roles in a firm, we examined Hoover’s, ExecuComp, Fundinguniverse.com, ancestry.com, firm websites, and company proxy statements. Measures related to family involvement and governance such as family ownership and family management were obtained from annual firm proxy statements and ExecuComp. Other variables, including strategic persistence, are calculated based upon Compustat data. These data sources and methods are consistent with those used in other studies of family firms (e.g., Anderson & Reeb, 2003; Miller et al., 2013, 2007; Pérez-González, 2006).

Variables

To ensure the direction of causality, 1-year lags between the dependent variable and other variables were used. For all models, the dependent variable was adjusted by industry averages to mitigate industry-specific effects.

Family Business

Family business was measured as a binary variable where “1” denotes a family business. To be deemed a family business, a firm had to, at a minimum, have: (1) 5% family ownership, (2) two family members who were either owners, on the top management team (TMT), and/or on the board of directors sometime during the firm’s history, with (3) one family member currently on the TMT (cf., Anderson & Reeb, 2003; Chrisman & Patel, 2012). Firms not meeting these conditions were considered nonfamily firms (i.e., coded “0”). This measure required the involvement of multiple family members in the firm and suggests intra-family succession is desired and/or occurred in the past (Chrisman & Patel, 2012). This measure also differentiates family firms from (1) lone-founder firms (Miller et al., 2007), which, by definition, do not have multiple family members involved and (2) firms controlled by nonfamily blockholders. We used a variety of other measures of family involvement to test for robustness.

To test H2, we considered founder-controlled family firms as those where all family owners and managers are members of the founding generation. All other family firms are coded as later-generation family firms. To test H3, we distinguish family firms according to whether they have a family member who is Chairman and/or CEO of the firm. We test these hypotheses using only the family firms in the sample, where each of the two conditions were measured using a binary variable with founder control and family member Chair and/or CEO given values of “1.”

Strategic Persistence

Given our definition of strategic persistence, multiple strategic areas were measured including (Carpenter, 2000; Finkelstein & Hambrick, 1990; Zhang, 2006): (1) advertising intensity (advertising/ sales), (2) research and development intensity (R&D/sales), (3) plant and equipment newness (net P&E/gross P&E), (4) non-production overhead (selling, general, and administrative [SGA] expenses/sales), (5) inventory levels (inventories/ sales), and (6) financial leverage (debt/equity). The standard deviations (SD) of each dimension over the most recent 5-year period were calculated (i.e., year t to year t + 4), ensuring the measure reflected a long window of time.

Consistent with others (e.g., Finkelstein & Hambrick, 1990), the variance scores were standardized (Mean = 0 and SD = 1) across the sample. Then, the average of the six standardized variance scores was calculated for each individual firm-year observation. We also, as a test of robustness, disaggregated the measure to test each dimension separately for each hypothesis. Because persistence, by definition, is the opposite of variation, the signs of the observed values for strategic persistence were reversed (e.g., −0.5 was reversed into 0.5). This ensured that the sign for above-average strategic persistence was positive, and vice versa.

Control Variables

Following others (e.g., Anderson & Reeb, 2003; Miller et al., 2007), several control variables were included because of their potential influences on firm behaviors. We used lone-founder firm as a control measured by a binary variable where “1” denotes a firm with a single founder that has at least 5% ownership and no other family members involved in the firm (Miller et al., 2007). Nonfamily blockholder ownership, measured as the overall percentage of blockholder ownership, was used as a control as nonfamily owners may have concerns that are incompatible with the owning family’s interests (Carney, 2005).

Firm age (the number of years that a company has been in operation), firm size (log of sales), and firm risk (the standard deviation of stock returns for the previous 3 years) were also used as controls, as these factors often affect the decision-making process (Hitt & Tyler, 1991). Furthermore, we controlled for the mean values of all six strategic actions employed to construct the measure of strategic persistence mentioned above. These included the 1-year lagged means of advertising intensity (advertising/ sales_t-1), R&D intensity (R&D/sales _t-1), plant and equipment newness (net P&E/gross P&E _t-1), non-production overhead (SGA expenses/sales _t-1), financial leverage (debt/equity _t-1), and inventory level (inventories/sales _t-1). By contrast, the variable of strategic persistence was derived from the combined standard deviations of these variables over the 5-year window. Because corporations often diversify into foreign markets, we controlled for international sales, which was calculated as the percentage of sales coming from foreign domains in year t-1. Per behavioral theory, past performance and the performance of competitors may affect firm goals and strategic decisions. Therefore, we controlled for past performance using the firm’s return on assets (i.e., ROA in t-1) and for average industry performance, measured as average industry ROA at the four digit SIC code level in year t-1. Finally, as described below, the inverse Mills ratio, was included to control for endogeneity.

Controlling for Endogeneity

To control for endogeneity, a 1-year lag was used between the dependent variable and other variables to ensure the direction of causality and mitigate the probability of reverse causality. Furthermore, Heckman (1979) two stage technique was used as a further control for endogeneity. To do this, three instrumental variables were identified that were highly related to the independent variable, family business, but unrelated to strategic persistence.

The first instrumental variable was the presence of a family trust, measured as a binary variable in which “1” indicated that the owner of the family firm had either a trust or foundation set up for family members and “0” indicated the owner did not. Family owners often use trusts or foundations to take care of their family members (Zellweger & Kammerlander, 2015). Therefore, the presence of a trust, obtained from annual proxy statements, should be strongly related to whether a firm is family-owned but should not be directly related to strategic persistence. Consistent with previous studies (Amit et al., 2015; Campa & Kedia, 2002), the ratio of industry sales that comes from family firms and the ratio of advertisement expenditures made by family firms in a given industry were also included as instrumental variables. Both should be related to the probability that a firm in the industry is a family firm yet should not be related to strategic persistence, which was industry-adjusted. Using Heckman’s two stage procedure, we estimated a probit model in which the variable measuring family business (1 = family firms; 0 = nonfamily firms) was regressed against the instrumental variables and the controls. According to the estimation results, we calculated the inverse Mills ratio for each firm-year observation and included it as a control in all the models.

Results

Table 1 reports descriptive statistics and correlations. Family firms were 22% of the sample. Among the family firms, 45% were in the founding-generation with the remaining in later-generations. Moreover, 86% of the family firms had a family Chairman and/or CEO while 14% had neither. These numbers were comparable with other studies exploring publicly traded family firms (e.g., Miller et al., 2007). Furthermore, consistent with Chrisman and Patel (2012), as well as Miller et al. (2007), the family business variable was negatively correlated with R&D investments, while the lone-founder variable was positively correlated with R&D investments.

Table 1

Descriptive Statistics and Correlation.

	Mean	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21
1. Strategic persistence (5-year)	0.00	0.47	1.00
2. Family business	0.21	0.40	−0.03	1.00
3. Founding-generation-controlled family firms	0.08	0.27	−0.05	0.57	1.00
4. Family firms with family chairman/CEO	0.19	0.40	−0.04	0.97	0.57	1.00
5. Lone-founder firm	0.09	0.28	−0.10	−0.16	−0.09	−0.15	1.00
6. Blockholder ownership	2.37	7.99	−0.04	0.00	0.04	0.00	0.07	1.00
7. Firm age	52.86	61.84	0.12	−0.06	−0.10	−0.06	−0.15	−0.03	1.00
8. Firm size	7.21	1.64	0.24	−0.13	−0.13	−0.13	−0.14	−0.18	0.20	1.00
9. Firm risk	8.81	11.25	−0.09	−0.04	−0.02	−0.07	0.09	−0.02	−0.01	0.09	1.00
10. Advertisement ratio	0.01	0.04	−0.21	0.09	0.05	0.09	0.04	0.04	−0.02	0.03	0.11	1.00
11. RD ratio	0.04	0.08	−0.33	−0.12	−0.02	−0.11	0.15	−0.02	−0.15	−0.25	0.09	0.18	1.00
12. Plant newness	0.51	0.14	−0.02	0.11	0.07	0.11	0.05	0.07	−0.04	0.05	0.06	0.06	−0.16	1.00
13. Non-production overhead	0.30	4.55	−0.07	0.02	0.04	0.02	0.00	0.00	−0.02	−0.08	0.02	0.02	0.04	0.04	1.00
14. Leverage	0.25	1.96	−0.03	−0.01	−0.02	−0.01	−0.02	0.00	0.02	0.09	0.00	−0.01	−0.02	0.03	0.00	1.00
15. Inventory	0.12	0.20	−0.20	0.09	0.08	0.09	−0.01	0.01	0.02	−0.05	−0.02	−0.03	0.18	0.05	0.22	0.07	1.00
16. International sales	0.20	13.16	0.00	0.00	0.00	0.00	0.00	−0.01	0.00	0.01	0.00	0.00	0.02	0.00	0.00	0.00	0.00	1.00
17. Past performance	0.43	0.24	−0.01	0.04	0.03	0.04	0.03	0.11	−0.03	−0.08	0.02	0.27	−0.07	−0.08	−0.01	−0.04	−0.11	0.00	1.00
18. Industrial average performance	0.43	0.19	−0.01	0.08	0.05	0.07	0.04	0.06	−0.02	−0.01	0.01	0.26	−0.07	−0.02	0.00	−0.04	−0.09	0.00	0.78	1.00
19. Family trust-holdings	0.34	0.47	−0.05	0.64	0.34	0.63	0.24	0.15	−0.09	−0.16	−0.01	0.10	−0.06	0.07	0.02	−0.02	0.04	0.00	0.07	0.10	1.00
20. Family firm sales ratio by industry	0.17	0.29	−0.03	0.53	0.24	0.52	−0.09	−0.01	−0.03	−0.06	0.00	0.11	−0.17	0.15	0.02	0.00	0.07	0.00	0.08	0.09	0.36	1.00
21. Family firm advertisement ratio by industry	0.17	0.33	−0.01	0.37	0.19	0.36	−0.08	−0.03	−0.02	0.01	−0.01	0.13	−0.15	0.08	0.02	0.01	0.08	0.01	0.09	0.10	0.24	0.60	1.00

Note. All correlations above |0.03| are significant at .10 or better for a two-tailed test.

Multicollinearity was not a concern (i.e., the highest variance inflation factor was 2.78). A Hausman test indicated that a fixed-effect longitudinal regression model was more appropriate for our data than a random-effect model (χ²= 522.80, p = .000). To control for serial correlation and heteroscedasticity, the Huber-White estimator, clustered at the firm level, was used (Judson & Owen, 1999).

As noted, we used Heckman’s two stage approach to control for endogeneity. Table 1 shows that all three instrumental variables were positively related to the family business variable, with correlations much higher (from 0.37 to 0.64) than the correlations between the instrumental variables and strategic persistence (from −0.01 to −0.05). Thus, the instrumental variables appeared to be effective endogeneity controls. Model 1 in Table 2 was the first stage probit treatment model in which the binary family business variable was regressed against the instrumental variables and controls. The lone-founder variable was not included in this model as it is mutually exclusive from the family business variable. Overall, the instrumental variables were significantly and positively related to the family firm variable.

Table 2

Fixed-Effect Longitudinal Regression Analysis.

Dependent variable	Family businessbinary variable	Strategic persistence(5 years)	Strategic persistence(5 years)
Sample	Whole sample	Whole sample	Family business only
	Model 1	Model 2	Model 3
Constant	−1.666***	−0.439	−1.980
Family business (H1)		0.058***
Founding-generation-control (H2)			0.235*
Family chairman/CEO (H3)			0.133*
Lone-founder firm		−0.023
Blockholder ownership	−0.020***	0.004*	0.010
Firm age	0.000	−0.007	−0.069
Firm size	−0.152***	0.169	0.798†
Firm risk	−0.007***	−0.002**	0.003†
Advertisement ratio	0.543	−1.015*	0.413
RD ratio	−2.027***	−0.876***	−0.677
Plant newness	0.531***	−0.428***	−1.078*
Non-production overhead	−0.004**	0.004	−0.0003
Inventory ratio	0.370***	0.001	−0.034
Leverage ratio	0.001	0.201†	2.162
International sales	0.001	−0.0001†	−0.0002
Past performance	−0.561***	−0.008	0.035
Industrial average performance	0.442*	−0.338***	−0.145
Inverse Mills ratio		0.001	0.025
Family trust-holdings	2.201***
Family sales ratio by industry	1.821***
Family advertisement ratio by industry	0.359***
Sample size	8,748	8,748	1,796
Within R ²	0.57	0.15	0.13
F-statistics		8.77***	3.65***
Absolute log likelihood	2315.28

Note. 1. † p < .10; * p < .05; ** p < .01; *** p < .001. Two-tailed tests.

2. Unstandardized estimation coefficients are reported.

3. Mills ratio calculated by Model 1.

In support of Hypothesis 1 (Table 2, Model 2), the family business variable was positively (β = .058, p < .001) related to strategic persistence, indicating that family firms tend to be more persistent in strategic decision-making than nonfamily firms (or lone founder firms). After limiting our sample to family business observations only, Model 3 reports the tests of H2 and H3 as these hypotheses explore family business heterogeneity by comparing family firms with different governance characteristics. H2 and H3 are supported. The founder-control variable (β = .235, p < .05) and the family Chairman/CEO variable (β = .133, p < .05) were both positively related to strategic persistence in the expected direction.

Robustness Tests

Several robustness tests were conducted to ensure that the results were not methodological artifacts. To begin, instead of a 5-year time window, we used a 10-year time window to calculate the strategic persistence variable (Table 3, Model 4). Furthermore, we used several alternative measures of family involvement including (1) a 10% family ownership cutoff (Table 3, Model 5); (2) at least two family managers currently serving on the top management team with a 5% ownership threshold (Table 3, Model 6); (3) a continuous family ownership variable with a 5% ownership threshold (Table 3, Model 7); and (4) a continuous variable of the number of family managers in the TMT with a 5% ownership threshold (Table 3, Model 8). In all cases (Table 3), the results were consistent with our primary tests, indicating the results were robust to alternative specifications of the family business and strategic persistence variables.

Table 3

Robustness Tests.

Dependent variable:	Strategic persistence (10 years)	Strategic persistence (5 years)	Strategic persistence (5 years)	Strategic persistence (5 years)	Strategic persistence (5 years)
	Model 4	Model 5	Model 6	Model 7	Model 8
Constant	0.042	−0.447	−0.424	−0.439†	−0.443
Family business	0.031*
Family business (family ownership >= 10%)		0.061*
Family business (>=2 family managers)			0.046**
Family ownership (%)				0.0019*
Family management (# of family managers)					0.038***
Lone-founder firm	−0.022	−0.023	−0.026	−0.024	−0.022
Blockholder ownership	0.001*	0.004*	0.004*	0.003*	0.004*
Firm age	0.000	−0.007	−0.007	−0.007	−0.007
Firm size	0.028**	0.170	0.169	0.169	0.169
Firm risk	−0.002***	−0.002**	−0.002**	−0.002**	−0.002**
Advertisement ratio	−1.465***	−1.017*	−1.015*	−1.021*	−1.015*
R&D ratio	−0.087	−0.873***	−0.879***	−0.876***	−0.878***
Plant newness	−0.255***	−0.424***	−0.423***	−0.424***	−0.427***
Non-production overhead	0.037***	0.004	0.004	0.004	0.004
Inventory ratio	−0.003	0.001	0.001	0.001	0.001
Leverage ratio	−0.069	0.201†	0.202†	0.202	0.202†
International sales	−0.0001***	0.000†	−0.0001†	−0.0001†	−0.0001†
Past performance	0.034	−0.008	−0.008	−0.009	−0.009
Industrial average performance	−0.133***	−0.339***	−0.341***	−0.340**	−0.340***
Inverse Mills ratio	0.019***	0.002	0.005	0.0001	0.001
Sample size	5,017	8,748	8,748	8,748	8,748
Within R ²	0.14	0.14	0.14	0.14	0.15
F-statistics	26.34***	8.76***	8.77***	8.76***	8.77***

Note. 1.† p < .10; * p < .05; ** p < .01; *** p < .001. Two-tailed tests.

2. Unstandardized estimation coefficients are reported.

3. Mills ratio calculated by Model 1, Table 2.

4. The sample size in Model 4 is reduced because we use 10-year range in calculating strategic persistence.

In addition, we separated the strategic persistence variable into its six components using 5-year time windows for their measurement.⁴ Consistent with H1, family firms tend to be more persistent in advertisement, research and development, plant and equipment newness, and financial leverage. The coefficients for non-production overhead and inventory are positive but not significant. Furthermore, we replace the family CEO/Chairman moderator with family CEO duality, a binary variable in which 1 means the focal firm has family member(s) serving in both the chairman and CEO positions and 0 otherwise. The result is consistent with the primary test. The results displayed in Model 3 were also tested by including family business and nonfamily business in the sample. Results are consistent with the primary tests (p < .001), confirming that family firms are more persistent than nonfamily firms and firms run by founding generations and/or family CEOs or chairs are more persistent than other types of family firms.

As a final robustness test, we divided the sample by whether prior performance of the firms was above or below aspirations, which behavioral theory suggests can influence propensity for strategic change (Cyert & March, 1963). Indeed, research shows that family and nonfamily firms can react quite differently under these two conditions (e.g., Chrisman & Patel, 2012; Gómez-Mejía et al., 2010; Patel & Chrisman, 2014).

In Table 4, performance above and below aspirations was measured according to whether firm performance exceeded or was less than or equal to the performance of competitors using Tobin’s Q as an indicator. We find that the strategic persistence of family firms was higher than that of nonfamily firms in both scenarios, although the difference was significant only at the 10% level when performance was below aspirations. Thus, persistence, measured by multiple strategic variables over a 5-year time window does not seem to be as sensitive to differences between aspirations and performance as single variables such as R&D and diversification measured over a 1-year time window. In this respect, our findings are consistent with Fang et al. (2021) who show that family firms seem more inclined than nonfamily firms to consider current and future decisions as a group rather than in isolation (cf. Kahneman & Lovallo, 1993), regardless of whether prior performance is above or below aspirations.⁵

Table 4

Strategic Persistence of Firms with Performance Below and Above Aspirations.

Dependent variable: Strategic persistence (5 years)
Sample	Below aspiration(Tobin’s Q)	Above aspiration(Tobin’s Q)
Constant	−0.018	−0.071
Family business (H1)	0.038†	0.159**
Lone-founder Firm	−0.109**	0.042†
Blockholder ownership	0.003***	0.002
Firm age	0.005*	0.007†
Firm size	0.008	0.029
Firm risk	−0.002***	−0.002*
Advertisement ratio	−0.382	0.888
RD ratio	0.098	−1.469*
Plant newness	−0.338***	−0.376*
Non-Production overhead	−0.379***	−0.395***
Inventory ratio	0.001	0.000
Leverage ratio	0.207	0.717***
International sales	−0.0002***	0.012**
Past performance	−0.033	−0.274***
Industrial average performance	−0.118†	−0.045
Inverse Mills ratio	−0.008	0.015
Sample size	5,566	3,182
Within R ²	0.141	0.178
F-statistics	9.808***	14.010***

Note. 1. † p < .10; * p < .05; ** p < .01; *** p < .001. Two-tailed tests.

2. Unstandardized estimation coefficients are reported.

3. Mills ratio calculated by Model 1, Table 2.

4. Aspirations are calculated as the absolute difference between a firm’s Tobin’s Q in year t-1 and average industry (SIC2) performance in year t-2.

5. Below aspiration includes 15 firm-year observations whose performances was equal to average industry performance.

Discussion

Drawing upon the behavioral theory of the firm, we find that family firms are more persistent in adhering to their strategy than nonfamily firms under a variety of measurement approaches and conditions. Furthermore, family firms are heterogeneous in this regard. Thus, family firms controlled by the founding generation or with a family member as Board Chair, CEO, or both are more persistent than family firms without these governance characteristics.

We contribute to the family business and the behavioral theory literature by developing and testing a theoretical framework related to the goals and governance of family firms (Chua et al., 2012), which is more comprehensive than prevailing approaches. We extend, for instance, the SEW perspective, which considers only the causes and consequences of family business goals, to consider how family goals may interact with the dominant coalition’s ability to pursue them.

In addition, temporality is an area that is central to understanding the behavior of family firms. In strategy, temporality is about an organization’s strategic actions and performance across time (Langley et al., 2013). In family firms, temporality is an important concept to the development of theory because the continuity of a family’s control across generations is valued by family owners and has been highlighted as a distinguishing feature of their goals and governance systems (Chua et al., 1999). Nevertheless, although the literature has claimed that family firms have a longer time horizon, and certain constructs such as “long-term orientation” have been widely used in theorizing (e.g., Lumpkin & Brigham, 2011), no one, to our knowledge, has empirically explored long-term orientation in family firms using a portfolio of strategic actions over time. Instead, scholars use proxy measures such as R&D intensity to capture the owning family’s tendency to prepare and plan for the long-term. Such treatment can be misleading, as innovation in family firms might be driven by short-term performance discrepancies (Chrisman & Patel, 2012) and does not necessarily reflect the totality of strategic behavior. By contrast, strategic persistence, measured as the temporal continuity of important decisions across multiple strategic functions, may be a stronger measure of long-term orientation since strategic persistence is less sensitive to short-term performance discrepancies.

Finally, we contribute to an emerging discussion on the prominence that family tradition and history play in family firms. As suggested by behavioral theory, persisting strategic actions can be viewed as a direct reflection of the family’s intent to maintain tradition. This suggests that family firms are less likely to engage in corporate entrepreneurship through strategic renewal. However, as De Massis et al. (2016) argue, some family firms may “innovate through tradition.” Thus, for some family firms, strategic persistence might signal long-term dedication to innovation and corporate entrepreneurship of the corporate venturing variety and might positively contribute to performance (Duran et al., 2016). We emphasize some family firms because as Chrisman and Patel (2012) have shown, behavioral variations in family firms can be quite large. Work that looks beyond how family firms behave “on average” and examines behaviors of family firms at the tails of the distribution is needed.

Limitations and Future Research Directions

While our study makes important contributions, it also has limitations. First, family firms are defined by family control and a vision for how the firm will benefit the family and its members. Although several alternative measures of family business have been used, and some may indirectly capture aspects of the “family’s vision” (e.g., founding generation’s control), neither family vision nor the FCNE goals associated with vision have been directly measured. Second, we study publicly traded manufacturing firms in the S&P 1500. Although the relative homogeneity of the sample is conducive for analysis, it limits the ability to generalize the findings to other firms, such as small- and medium-sized privately, owned family firms in non-manufacturing industries or firms in other regions of the world. Finally, we have attempted to deal with endogeneity between family involvement and strategic persistence by using instrumental variables and the inverse Mills ratio, but such problems can never be eliminated.

Aside from addressing the limitations of this study, future work should examine how, why, and when strategic persistence influences the economic and noneconomic performance of family firms. Studies examining noneconomic outcomes such as SEW as a dependent variable are particularly rare. Furthermore, in the context of large family firms, it might be interesting to test the extent to which companies follow consistent strategies across business units (as opposed to persistent strategies over time). If consistency is deemed compatible with family tradition and parsimony, we might expect family firms to follow internally consistent strategies. However, it is more difficult to predict how the internal consistency of business unit strategies might influence other strategic behaviors such as innovation, diversification, and internationalization. Thus, more work on the impact of strategic persistence and consistency in family firms is needed.

Our findings should be compared with prior work using a prospect theory framework (e.g., Chrisman & Patel, 2012; Fang et al., 2021; Gómez-Mejía et al., 2010; Patel & Chrisman, 2014), which shows that family firms tend to react differently to loss situations (performance below aspirations) and gain situations (performance above aspirations). Although we analyze strategic behavior over a longer time window using a larger number of decision variables, future research is needed to help explain the similarities and differences in this body of work.

Finally, the time frame of our study covers two recessions, one mild (2001) and one severe (2007, 2008). However, the Covid-19 pandemic leads us to wonder how the strategic persistence of family firms, in comparison to nonfamily firms, would fare under extreme and unexpected conditions where the length and outcomes of the economic shocks are especially difficult to predict (De Massis & Rondi, 2020). Given the severity of the consequences to family and nonfamily firms as well as societies in general, future research on such situations is needed.

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 no financial support for the research, authorship, and/or publication of this article.

ORCID iD

James J. Chrisman

Notes

Author Biographies

Hanqing “Chevy” Fang (PhD, Mississippi State University) is an Assistant Professor at the Department of Business and Information Technology, Missouri University of Science and Technology. His research interests are family business and entrepreneurship.

James J. Chrisman (PhD, University of Georgia) is the Julia Bennett Rouse Professor of Management and Director of the Center of Family Enterprise Research at Mississippi State University. He also holds a joint appointment as Senior Research Fellow with the Centre for Entrepreneurship and Family Enterprise at the University of Alberta, School of Business, and is a Senior Editor of Entrepreneurship Theory and Practice.

Daniel T. Holt (PhD, Auburn University) is the Alvin C. Copeland and associate professor of entrepreneurship in the E. J. Ourso College of Business at Louisiana State University. Prior to his career as a faculty member, he served in the U.S. Air Force in Central America, Asia, and the Middle East. His research interests cover several areas of entrepreneurship to include issues related to family business and measurement methods.

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