Giacomo Laffranchini, assistant professor of management, said that owners of family-owned businesses don’t always do what is best for the company, but what is best for themselves.
Laffranchini researched family-owned businesses in Italy and compared their success to non-family-owned businesses in “The Price Tag of Family Business Investments: Trading Entrepreneurship for Socioemotional Wealth.”
Laffranchini sampled 520 family-owned businesses and 660 non-family-owned businesses.
He measured the performance gap and environmental munificence, which refers to the amount of resources a company has.
His research found that entrepreneurial activities do not always translate into better performance and entrepreneurial activities of family-owned businesses depend on resource availability.
“Family-owned businesses’ superior performance operated with optimal tension between the family’s economic and noneconomic agenda,” Laffranchini said.
When a family-owned business operates with the right amount of pressure, the business can come up with optimal decisions for the business, Laffranchini said.
Laffranchini found that family-owned businesses are invested in socioemotional wealth, which are non-financial profits that only exist in family owned businesses.
The investment in socioemotional wealth affects a business’ risk-taking strategies, he said.
When a family-owned business participates in entrepreneurial activities, which are proactive risks a business takes to increase profit, they take on a “price tag,” Laffranchini said.
“The price tag refers to,under certain circumstances, investments, especially those driven by socio-emotional wealth, that do not lead to positive outcomes, but are destroyed as opposed to creating value,” Laffranchini said. “So, when family businesses make those types of investments, they pay a price for it.”
The price being both financial profit and socio-emotional wealth, Laffranchini said. If a company faces a loss in socio-emotional wealth, they risk not passing the business down to their offspring, he said.
Risk taking is more serious in family-owned businesses because the owners are more invested in the business, Laffranchini said.
“A certain amount of pressure on socio-emotional wealth is necessary to temper unbridled investments with potentially negative payback,” Laffranchini said.
Al Clark, professor of humanities, said he has many business students who can learn that businesses aren’t always motivated by profit as Laffranchini mentioned.
“I was impressed by the extreme care of his research methodology,” Clark said. “He was extremely careful in the formation of his hypotheses and data groups.”
Sophomore business administration major Karlee Fink attended Laffranchini’s lecture along with Clark. She said she led discussions about Laffranchini’s research in her class.
Fink said she expected the lecture to focus on small family firms, not about the comparisons between family-owned Italian corporations and non-family-owned corporations.
Fink said she liked the idea of socio-emotional wealth and how Laffranchini’s research took a more psychological approach.
“When you are looking at firms, especially family-owned firms, there’s a lot more that has to be taken into consideration versus non-family firms,” Fink said.
“You have to think about if their name is attached to the company. If your name is attached, you are more likely to be invested in it,” he said.
Fink said the differences between family-owned businesses and non-family-owned business is something that she hasn’t taken into consideration before.
Laffranchini said the paper he presented, which was published in 2017, is just one iteration of this project. He is still researching different businesses for the ongoing project.
David Gonzalez can be reached at email@example.com.