Contemporary Management Research
Pages 467-496, Vol. 12, No. 4, December 2016
doi:10.7903/cmr.15360
Entrepreneurial Experience, Support for Community and Family
Firm Performance: A Cross-Study of Product and Service-based
Family Businesses
Josiane Fahed Sreih
Lebanese American University
E-Mail: jsreih@lau.edu.lb
Guy Assaker
Lebanese American University
E-Mail: guy.assaker@lau.edu.lb
Rob Hallak
University of South Australia
E-Mail: rob.hallak@unisa.edu.au
ABSTRACT
Drawing on theories from corporate social responsibility, entrepreneurship, and
human capital, this study examines the structural relationships between
entrepreneurial experience, support for community and family firm performance.
Partial least-squares structural equation modeling (PLS-SEM) was used to collect the
data from 176 family businesses from two sectors of the economy - product-
manufacturing and service-based organizations. The empirical results indicated that
family firm owners’ entrepreneurial experience (business owner’s education level,
length of time as a business owner, and the number of businesses owned in the past) is
a significant predictor of the business’ support for community. Entrepreneurial
experience was also found to have a significant and indirect effect on family firm
performance. Additionally, the structural model was examined across product and
service-based organizations. Our findings suggest that entrepreneurial experience has
a stronger effect on family firm performance among service-based organizations.
Keywords: Family Businesses, Entrepreneurial Experience, Support for Community,
PLS-Structural Equation Modeling (PLS-SEM), Multi-Group T-Tests and
Permutation Tests
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INTRODUCTION
Family owned businesses play a significant role in the global economy yet face
major challenges in trying to succeed and survive generational transition (Brenes,
Madriga, & Molina-Navaro, 2006; Chrisman, Sharma, & Taggar, 2007). A family
business is defined as a business “that will be passed on for the family’s next
generation to manage and control” (Ward, 1987). Previous studies on family firms
have focused on succession planning (Handler 1994; Sharma et al., 2003) and conflict
among family members in the business (Handler 1994). Although the literature on
family business is often subsumed and overlaps with the literature on small and
medium enterprises (Getz & Carlsen, 2000), family businesses are unique entities and
have been described as a complicated phenomenon (Lindsay & Craig, 2002). Family
businesses are distinguished from non-family businesses in that their pattern of
ownership, governance, management and succession affect the business structure,
goals and strategies (Chua et al., 1999). Family and lifestyle aims often influence the
objectives of family businesses without prioritizing the maximization of the profit
(Peters & Buhalis, 2004). Family business owners are forced to balance business
objectives with family interests (Getz & Carlsen, 2005). Consequently, family
business owners become more risk averse and reluctant to accept investors from
outside the family (Gallo et al., 2004). Empirical evidence from around the world
suggests that a family owned business structure has advantages. For example, in a
study of 100 family and 75 non-family businesses in Chile, family businesses
outperformed their non-family counterparts when measured over a 10-year period
(Martinez et al., 2007). In addition, Peters and Buhalis (2004) explored the
management behaviors of 156 small family-owned hotel businesses in Austria and
reported that family members working in a family business had higher motivation to
work and that products and services offered by a family business were more
personalized to the customer. More significantly, family businesses have familial
assets and lower agency costs that can give the business a distinct advantage (Dyer,
2006). However, running the family business can put a lot of strain on the
entrepreneur and the family (Mendonsa, 1983); in other words, family business
owners’ capability to successfully run the business and succeed at the challenges
associated with being an entrepreneur can have a varying effect on performance.
In this study, we draw on theories from corporate social responsibility,
entrepreneurship and human capital to examine a structural model of family business
strategies and performance. Family firms display distinctive socially responsible
behaviors due to family firm’s relationship with its local community (Niehm et al.,
2008). Specifically, the family business owners’ attitudes towards the community and
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their perception of the role of business in the community drive the strategies of the
business and the decisions made (Niehm et al., 2008). Furthermore, the commitment
to the community, which is the first and most important aspect of the corporate social
responsibility that embodies a mutual relationship between the business and the
community, is based on increasing efforts that support the public good of the
community and improve business sustainability (Niehm et al., 2008).
In this study, we examined the extent to which a family business owner’s
‘entrepreneurial experience (EE) affects the business’ corporate social responsibility,
focusing specifically on support for community activities, as well as family firm
performance. Moreover, we examined these relationships in the context of family
businesses in two different industries, product based vs. service based organizations.
In doing so, we advance the body of knowledge on family business entrepreneurship
and the antecedence of family firm performance. The data for this study was collected
from businesses in Lebanon, a country with 4.1 million people where family
businesses make up almost 90% of all private sector enterprises (Fahed-Sreih, 2006).
The study also advances the knowledge on research methodologies in family
business by demonstrating the application of Multi-group analysis and Permutation
Tests using Partial Least Squares Structural Equation Modeling. The study has
managerial implications for business owners and policy makers aiming to support the
sustainability and long-term success of family-owned enterprises. In effect, it helps
family businesses recognize the critical factors to a successful business, specifically
with regard building human capital, building competencies, and engaging with local
community.
The remaining part of this paper is presented as follows. A literature review
discusses the business’ support for community, the entrepreneurial experience and the
development of the hypotheses tested in this study. The theoretical model of the
business’ support for community, entrepreneurial experience and business
performance is then presented. Subsequently, the methods section summarizes the
data collection methods and analyses followed by the presentation of the results of the
analyses. The discussion section of the paper draws on the results and previous studies
to present new contributions and theoretical implications emerging from this study.
LITERATURE REVIEW AND HYPOTHESES
Business’ Support for Community
A community is defined as “a set of people with some kind of shared element,
which can vary from a situation, such as living in a particular place, to some kind of
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interest, beliefs or values” (Obst & White, 2005). In this study, community refers to
the people of the region/governate in which the family business operates, where the
family character of the business affects the employees, customers and supplier
relationships (Uhlaner et al., 2004). In other words, family firms combine economic
concerns with the traditional roles of the family social union; hence, they are acting
differently compared to similar, non-family businesses. Furthermore, the social and
economic environment of the community may push the businesses to perform some
responsible actions because human, social and financial capital resources of both the
family and the firm can be adopted as solutions to several problems in the society
(Fitzgerald et al., 2010). More importantly, family business owners feel directly
responsible for their employees, customers and suppliers and consider them as a type
of “extended” family. Moreover, the most regularly mentioned social stakeholders
(customers, employees, etc.) are involved in activities of the family, such as sports
clubs, church, and others, whereby special relationships shaped by the family feature
of the business are most likely mentioned for stakeholders who are highly engaged in
the daily activity of the business and/or the family (Uhlaner et al., 2004).Additionally,
businesses play an important role in their communities and “represent a significant
component of the business-community interchange” (Besser & Miller, 2004). A
business’ support for its community has been conceptualized as community
citizenship (Besser, 2003), corporate philanthropy (Keim, 1978), philanthropic
investment (Mescon & Tilson, 1987), and contribution to the public good (Besser,
1998). Particularly, small enterprises often rely on relationships with other businesses
in their community (Vives, 2006) and become involved in activities that protect and
enhance the local social and economic environment. Furthermore, evidence suggests
that small businesses operating in a specific geographic location can capture the
benefits of their philanthropic investments and activities. For example, a business that
contributes to the local hospital will ultimately benefit the health of its employees and
potential employees. Additionally, the ‘goodwill’ of the business will be enhanced
when the members of the community, including local government authorities, hear
about the business’ donations (Keim, 1978).
In terms of the outcomes of this support for community, the commitment to the
community and the community support tend to influence the family business
performance as well as the financial performance (Niehm et al., 2008). According to
Miller et al. (2007), “the interaction effect of an entrepreneur’s service to the
community, reciprocated by community support of the business, is the single most
significant determinant of business success.” However, many businesses remain
internally focused and believe that philanthropic investments contradict the profit
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objectives of the firm. Thus, if community support activities fail to add to the
business’ ‘bottom line’, then “such investment may not be considered sustainable in a
long run” (Inoue & Lee, 2011,). Furthermore, small business owners tend to face the
challenge of operating a business in a community that may be dealing with significant
challenges (Kean et al., 1998). Some business owners neglect to support the
community as they may lack the time, resources or knowledge to engage in
community support activities (Vives, 2006) while some may not see any benefit at all
from supporting the community, especially if their main revenues come from
customers outside of the local region, such as tourists, or export markets (Hallak et al.,
2012).
Nevertheless, although some businesses might not be interested in being socially
responsible and associate this behavior with negative effects on the performance of the
business, most studies have stressed the positive relationship rather than the negative
relationship, which is why we developed the hypothesis below to test the positive
association between the support to community and the performance of the business. In
effect, the “enlightened self-interest model” (Keim, 1978; Stendardi, 1992; Wallich &
McGowan, 1970) proposes that businesses that support their community will
experience a number of important benefits that will lead to improved business
performance. These include the business being perceived as a socially responsible
corporate citizen, motivating employees who feel a sense of satisfaction to be working
for the company, having customers who may view the business in a favorable light,
and being likely to be treated more favorably by local government authorities
(Stendardi, 1992). Therefore, corporate philanthropy is a rational business strategy,
with a firm gaining benefit if investment decisions incorporate a “social return” as
well as a “business return” to shareholders (Keim, 1978). The empirical support for
the enlightened self-interest has identified a significant relationship between the
business’ support for community and the business performance (Hallak et al., 2012),
which formed the basis for the first hypothesis:
H1: Family business owners’ level of support for the community has a direct, positive
effect on family firm performance.
Entrepreneurial Experience
The entrepreneurial experience is another factor that might influence the
performance of the business. An entrepreneur’s skills, knowledge, and experience in
business start-ups can have a significant influence on how he/she operates their
current business (Chandler, 1996; Jo & Lee, 1996; Khan & Butt, 2002; Lerner &
Haber, 2001). The experience gained from business start-ups enables entrepreneurs to
identify new opportunities for new venture creation, hence leading to multiple venture