Married to the Firm? A Large-Scale Investigation of the Social Context of Ownership

Abstract

Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, particularly the nuclear family, can strenghten identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family-owned firms have higher profit margins, returns on assets, and survival rates compared to single-owner or unrelated-owners firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are largest when a married couple holds a majority of the firm's equity. Family ties among firm owners, particularly marital ties, appear to facilitate conservation of cash and lower operating costs, which increases firm survival but which also dampens investment and growth.