Socio-Economic Wealth and Financial Performance of Family Businesses

This report conducts a thorough analysis of socio-economic wealth (SEW) within the context of family businesses. It examines the unique characteristics of family firms, differentiating them from other profit-making organizations, and explores the influence of SEW on their financial performance. The report delves into the relationship between SEW and factors such as diversification, technology adoption, and environmental performance. It also investigates the impact of family influence, control, and emotional attachment on business decisions, risk-taking, and corporate governance. The research employs a range of methodologies including literature review, thematic analysis and aims to address key research questions regarding the impact of SEW on family business outcomes. The report also provides recommendations for future research directions in this field.

Running head: SOCIO-ECONOMIC WEALTH
Socio-economic Wealth
Name of the Student:
Name of the University:
Author note:

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Abstract
This paper makes a thorough analysis of the relation or the establishment of socio economic
wealth on the family business scenario. Socio-economic wealth is a unique identity in the family
business organization, which differentiates from other profit making organization. A family
CEO, jointly with the board including different associations, organizational impacts
implementation in the main hereditary stage, yet the outcome is pivoted in the former hereditary
stages. The disclosures propose is to investigate the association between implementation and the
energetic associations between relatives having a place with a main family or to the branches of
the family. Examination recommends, exclusive organizations must have the ability to modify
organization and the structure of the board structure, these conditions have coordinating effects
on SEW and implementation. The paper will focus on the different scenario based on the Socio-
economic wealth of the firm with relevance to family business, the links between the two and
other approaches made theoretically. The ways to measure the conduct and there alternatives to
operate the SEW in business. The paper also specifies certain studies that can be done on the
Socio-economic wealth in future.

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Table of Contents
Chapter 1: Introduction....................................................................................................................4
1.1 Background of the Study.......................................................................................................5
1.2 Research Aims and Objectives..............................................................................................6
1.3 Research Questions................................................................................................................7
Chapter 2: Literature Review...........................................................................................................8
2.1 Diversification and SEW:....................................................................................................10
2.2 Technology and SEW:.........................................................................................................10
2.3 Environmental performance and SEW:...............................................................................11
2.4 Hypothesis Development.....................................................................................................14
2.5 Summary..............................................................................................................................16
Chapter 3: Research Methodology................................................................................................17
3.1 Introduction..........................................................................................................................17
3.2 Choice of methodology........................................................................................................17
3.3 Research Philosophy............................................................................................................18
3.4 Research Approach..............................................................................................................18
3.5 Research Design..................................................................................................................19
3.6 Data Collection Process.......................................................................................................19
3.7 Process of data analysis.......................................................................................................20
3.8 Ethical Consideration...........................................................................................................20

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Chapter 4: Data Analysis and Discussion......................................................................................22
4.1 Introduction..........................................................................................................................22
4.2 Thematic Analysis...............................................................................................................22
4.2.1 Influencing factors........................................................................................................22
Chapter 5: Conclusion, Recommendation and Future Work.........................................................28
5.1 Conclusion...........................................................................................................................28
5.2 Recommendation.................................................................................................................28
5.3 Future Research...................................................................................................................29
References list:...............................................................................................................................30

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Chapter 1: Introduction
In early times family business suffered a lot due to the use of wrong methodologies and
they were at large very descriptive and mainly theoretical in nature. However, with the advent of
time there was a development in this field with the participation of the rigor theoretical aspect
that responded collectively to calls which is continuous in nature. The scholars recommended a
sequence that consisted of paradigms that was meant for examining the problems that were
eccentric to the companies that are controlled by families. The above stated paradigms were
inherited from different domains, namely the economic, strategic, financial management
theories, and these focuses mainly on the large corporations that are publicly owned and more
specifically it can be stated to be the highly dispersed ownership1. The aspects that they include
are mainly stewardships theory, agency theory and are also inclusive of views based on the
resources. Even though significant insights is derived from extending and adaptation within the
situation of the above explained theory in order to provide details about the activities of the
organizations that are controlled and owned by family, a huge amount of additional assessments
are to be done, with relevance to the unique characteristics to the family businesses who can be
tangible in nature. For the purpose of studying the family business, this methodology has often
led to contradictory empirical results, excessive reductionism, overlapping terminology,
fragmented theoretical interpretations, and a forced application of borrowed logic to explain
descriptive findings.
1 Jaskiewicz, Peter, et al. "Founder versus family owners’ impact on pay dispersion among non-
CEO top managers: Implications for firm performance." Journal of Management43.5 (2017):
1524-1552.

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1.1 Background of the Study
In Asian countries, the level of family organizations is quite prominent. Various
researches have been developed which has proved family profit making organization to be a
prominent portion of SEW Guide lines. The available data on the Asian Family and firms that
are non-family firms are collected from reliable sources in order to attain the result that is
desired. The current research paper focuses on medium-large listed organizations taking by
assessing and making a comparison of the family based businesses and the non-family profit
making organizations. The properties of medium as well broad organizations allow a connection
with delayed consequences of exploratory examinations on recorded associations. The test
carried out on family companies execution give mixed results in luminosity of the different
family organization, in light of unmistakable ownership edges, on an organization, or on blends
of proprietorship and association2. Family organizations address a conscious happening universe
along with particular models of organization and organization, which impact execution in a
surprising way. It is considered, from the perspective of SWE that the influence on the
implementation of family improvement in the profit making organization, dismembering the
characteristics of board and ownership that shape the SEW. Possibility of socio emotional
wealth, or loaded with feeling endowments, insinuates the effective family organizations get
from the non-budget parts of the profit of organization, for illustration, identity, the aptitude to
rehearse family effect, and the reassurance of the family organization and characteristics. The
power of the Socio economic wealth is mentioned by Barron: that the family and organization
2 Strike, Vanessa M., et al. "A socioemotional wealth approach to CEO career horizons in family
firms." Journal of Management Studies 52.4 (2015): 555-583.

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ownership, proprietorship disseminating, family CEO, and the proximity of different relatives on
the board and weight of the non-official people on the board3. The paper considers the possible
coordinating factors of SEW highlighted by composing, that is family generational stage,
organization size, the qualified closeness of non-family financial specialists and organization
risk.
This analytical study would look to understand the socioeconomic wealth on the financial
performance of the family firms and the understanding would be attained with the help of
various past researches and thereafter create a methodology in accordance to which analysis of
the data can be constructed in order to bring about the actual result.
1.2 Research Aims and Objectives
The research aims and objectives look to address the factors and the features that would be
taken into consideration and undertake results that would be helpful in taking the research
forward in an effective manner. The aims and objectives of the research are as follows:
 Ascertain the impact of socio-economic wealth on the financial performance of the
family firms
 Assess the diversification of the socio-economic wealth and accordingly understand the
potential risks associated with it
3 Chrisman, James J., et al. "The ability and willingness paradox in family firm
innovation." Journal of Product Innovation Management 32.3 (2015): 310-318.

7SOCIO-ECONOMIC WEALTH
1.3 Research Questions
The research question addresses the issues that would be answered in this paper and
thereby the paper would be completed effectively. The research question for this paper is as
follows:
Q1. What is the impact of socio-economic wealth on the risk taking and financial performance of
family businesses in Asia?

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Chapter 2: Literature Review
The separation of control and ownership causes asymmetric information and conflict of
interest between managers and owners. In family-controlled firms, for minimizing, the agency
costs the interest of managers and owners are aligned with the personal ownership. Agency costs
in family firms are generally lower compared to non-family firms. Analysis of family firm’s
performance and behavior are analyzed by referring to agency theory. However, this theoretical
framework does not fully explain the variety of behaviors and complexities among the family
firms4. A genera socio economic wealth model is developed by building on behavioral agency
theory for explaining the particularities of family firms5. As per the behavioral agency theory,
emotional commitment or effectiveness of family members influences the family member’s
behavior and the loss is avoided by decision maker act.
The family based companies gain their utility and effectiveness from the authoritative
personnel, who act selflessly with regards to the family members and maintaining the social
capital of the family companies. The SEW comprises of several aspects and they include the
control of the family and their influence, recognition of the members of the family who are
related to the company, social ties of the family, emotional attachment among the company,
4 Schulze, William S., and Franz W. Kellermanns. "Reifying socioemotional wealth." (2015):
447-459.
5 Arrondo-García, Rubén, Carlos Fernández-Méndez, and Susana Menéndez-Requejo. "The
growth and performance of family businesses during the global financial crisis: The role of the
generation in control." Journal of Family Business Strategy7.4 (2016): 227-237.

9SOCIO-ECONOMIC WEALTH
family and among the members of the family who associated with the company6. Thus, the
recognition of the members of the family is closely associated with the company and the
sustenance of the owners of the family, socio-economic becomes essential itself and thereby
guiding the attitude of the company. It is seen that by making use of corporate governance,
strategies, management and the risk mitigating approaches. The maintenance of SEW leads to
the influential objectives which can be overviewed in the following:
 Maintaining influence and control over the business
 Enabling the dynasty of the family with the help of the business
 Maintaining the image and reputation of the family
As per the literature review, the model of socio emotional wealth have depicted various
consequences on different fields such as research and development, diversification efforts,
environmental performance and pricing of IPO7.
6 Schepers, Jelle, et al. "The entrepreneurial orientation–performance relationship in private
family firms: the moderating role of socioemotional wealth." Small Business Economics 43.1
(2014): 39-55.
7 Chang, Sea‐Jin, and Jungwook Shim. "When does transitioning from family to professional
management improve firm performance?." Strategic Management Journal 36.9 (2015): 1297-
1316.

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2.1 Diversification and SEW:
In terms of diversification efforts, family firms behave differently and it is indicated by
findings from literature review that family firms diversify more compared to non-family firms at
both international and domestic level. It is hinted by research that family firms strive to enter into
region that are close to them on cultural basis. The model of SEW helps in explaining the firms
specific behavior. In order to protect the SEW, family firms are expected to have less
diversification. Owner of family firms avoid diversification because they fear the loss of control
over operations, although diversification indicates bearing less risk. View of fewer
diversification efforts are supported by other arguments that influence of family business would
diminish by appointing non-family members to family business8. Furthermore, the shareholding
of family might be diluted if external funding does diversification. Contrary to this, once there is
increase in business risk, family firms as rational investors opt for diversification. This is
indicative if the fact that performance of family firms is worst compared to other firms.
2.2 Technology and SEW:
Considering the technological aspect, there is fewer diversifications by family firms on
this aspect due to fear of risks factor. In order for firms to build competitive advantage, one of
the important strategic choices is making investment in research and development. It is provided
by economic rationality that the main motivation of family firms to make investment in research
and development comes from promoting growth, innovation and survival of company. The
8 Daspit, Joshua J., et al. "A strategic management perspective of the family firm: Past trends,
new insights, and future directions." Journal of Managerial Issues 29.1 (2017): 6.

11SOCIO-ECONOMIC WEALTH
overall risk of firms can be reduced by creation of investment across firms through synergies9.
Nevertheless, the family SEW would be threatened by R & D investment because of several
reasons. Firstly, there would be loss of family influence, as R & D projects would require
assistance from outside parties. Secondly, firms with different product lines would be largely
benefitted from such projects. Thirdly, there is a possibility of potential loss of shareholdings of
family due to external financing of the project. Lastly, when undertaking such projects, it is
required to take clear step away from practices. It has been found from some research that there
exist negative relationship between R & D investment and family ownership. Activities of R & D
of family firms tend to increase if the board comprise of outsiders that are more independent10.
2.3 Environmental performance and SEW:
It is evident from literature review that family firms intend to convey positive image to
society for which they pollute less. However, lower pollution does not have any relation with
9 Dow, Sandra, and Jean McGuire. "Family matters?: A cross‐national analysis of the
performance implications of family ownership." Corporate Governance: An International
Review24.6 (2016): 584-598.
10 Garcés-Galdeano, Lucía, et al. "Entrepreneurial orientation in family firms: the moderating role
of technological intensity and performance." International Entrepreneurship and Management
Journal 12.1 (2016): 27-45.