Long-term orientation, family-intensive governance arrangements, and firm performance: an institutional economics perspective

In this study, we examine the effect of cultural long-term orientation on the likelihood of adopting more family-intensive governance arrangements (FGAs) and the impact on firm performance. FGAs may impose various costs on the firm, including the extraction of private benefits, conflicts with professional managers, paternalistic human resource management practices, and lower legitimacy. Drawing on institutional economics, we theorize that cultural long-term orientation reduces some of these costs, thereby increasing the relative efficiency of FGAs as a governance option. Thus, we expect FGAs to be adopted more frequently in countries with a more long-term orientation. We also expect FGAs to have a less negative impact on performance in these countries as a result of these lower costs. The results of mixed-effects regressions on a cross-sectional sample of 3221 listed family and nonfamily firms in 19 countries confirm that FGAs are more likely to be adopted in more long-term oriented countries. We also find that FGAs have a negative effect on firm performance, but not that cultural long-term orientation weakens this relationship. However, an interesting mediating effect emerges whereby cultural long-term orientation increases the likelihood of adopting FGAs but negatively affects firm performance.Family firms are embedded in institutional frameworks that inevitably shape their governance structures and performance. In this study, we examine the impact of cultural long-term orientation on the likelihood of adopting more family-intensive governance structures and their effect on performance. Specifically, drawing on institutional theory, we hypothesize that (a) a country's long-term orientation increases the likelihood of adopting more family-intensive governance structures; (b) family-intensive governance negatively affects performance; (c) a country's long-term orientation plays a moderating role in the relationship between family-intensive governance and performance. Our statistical analysis using mixed-effects regressions on a cross-sectional dataset of 3221 publicly listed family and nonfamily firms in 19 countries validates the first two hypotheses. Although we do not find that cultural long-term orientation weakens the negative effect of family-intensive governance and performance, our results reveal an intriguing mediating effect suggesting that cultural long-term orientation negatively affects firm performance by increasing the intensity of family involvement in firm governance.