Ownership Preferences, Competitive Heterogeneity, and Family-Controlled Businesses

Abstract

Firm differences can reflect resources andcapabilities that can generate competitive advantages. This analysis examineshow successful family-controlled businesses (FCBs) differ from non-FCBs andless successful FCBs. It seeks to understand competitive advantage andperformance in family-controlled businesses. Three different sources of competitiveness are considered: capabilities andresources, ownership and governance, and owner preferences. The influence ofgovernance and agency on capability development are examined. A model isdeveloped that integrates ownership concentration, preferences, monitoringcosts, investment choices, and capability development. The model has two setsof actors--non-owner agents and owners. It is argued that owner preferences can affect monitoring costs, consumptionchoices, payments, investment time horizons, capability development, andresource allocation. Some FCBs can generate resource surpluses. Such surplusesand long-term investment horizons can lead FCBs to develop superiorcapabilities and competitive advantages. Conversely, the model suggests thatFCB advantage is less likely to apply where there is a separation betweenowners and managers. The model thus explains why some FCBs do well andestablishes requirements and conditions for their advantage over non-FCBs.(TNM)

Keywords: Firm governance, Family firms, Firm ownership, Firm performance, Competitive advantages, Investment policies