Family-owned businesses are viewed positively by external parties, as they are considered reliable, capable of building long-lasting relationships, and good for the community in which they are embedded. Our paper, published in the Journal of Management Studies, takes a different angle. We find that when it comes to forming partnerships, family businesses might face a bit of a challenge. We suggest that because family firms often prioritize their family’s values alongside profits, they may not always seem as attractive to partner with. Our analysis of US companies shows that family-owned firms tend to form fewer partnerships compared to non-family firms. However, we find that when family businesses get more attention from analysts and the media, or when they have dedicated institutional investors, this perception of risk decreases.

Unpacking the Impact of Family Ownership on Business Partnerships

Family-owned businesses have a unique way of making decisions. They don’t just focus on maximizing profits; they also consider the emotional connections and values that come with being a family-run enterprise. This concept is known as “socioemotional wealth.” But, how does being a family-owned business affect their involvement in partnerships with other companies? That’s the question that we address in our recently published paper in the Journal of Management Studies.

Ownership Matters: How Family Businesses are Perceived in Alliances

When companies form alliances, they need to be seen as good partners by others. In this paper, we claim that this perception is influenced by who owns the company. We suggest that family ownership can make a company seem less appealing to potential alliance partners because it might be harder for them to evaluate what family businesses bring to the table and how they’ll act in a partnership. This makes partners worry about so-called risks of adverse selection (i.e., not having as attractive resources and prospects as expected) and moral hazard (i.e., engaging in hidden actions detrimental to a collaboration) when partnering with a family firm. Our data (based on a sample of US companies), indeed, indicate that family-owned businesses are less likely to engage in alliances compared to non-family-owned ones. However, if there are ways to share information and signals of trustworthiness, like through analysts, media coverage, or dedicated investors, this could make family businesses more attractive and reliable partners. These results have at least two important implications.

Implication 1: Challenges and Opportunities for Family Businesses in Partnerships and Growth

This study gives us new insights into how people perceive family businesses. Most research so far has shown that family-owned businesses are viewed positively by external parties. These businesses are often seen as building strong, long-lasting relationships and being good for the community. However, our study takes a different angle. We find that when it comes to forming important partnerships, family businesses might face a bit of a challenge.

So, what does this mean for family businesses? Well, it suggests that they might have a different capacity when it comes to growing and seeking support from outside sources. While some past studies have had mixed opinions on whether being a family-owned business helps or hinders growth, our research leans towards the idea that family businesses might have a bit of a tough time in forming partnerships, which are often critical for getting resources and knowledge from other companies. Interestingly, family businesses can get out of this situation. There are several ways to improve how they’re perceived by potential partners. By using better communication such as gaining attention from influential investors, or by attracting more analysts, family businesses can show that they’re just as reliable and trustworthy as any other business.

Implication 2: Ownership Dynamics in Alliances

Our study also adds to our understanding of how ownership influences alliances, which is an area that hasn’t been explored much. Family-owned businesses are very common worldwide, but there hasn’t been enough research on how they fit into the bigger picture of alliances. Combining insights related to ownership characteristics and information economics, we find that family-owned businesses tend to form fewer partnerships due to increased concerns about potential risks associated with them.

What’s next?

Overall, this research opens up exciting opportunities to learn more about how family ownership affects collaborations between companies. Research in these directions has the potential to deepen our understanding of how family ownership influences partnerships between companies and help bridge the gap between these two areas of study, which have traditionally developed separately. This opens up exciting opportunities for exploring various aspects of partnership structures and processes, from negotiations and contracts to governance and building trust.