Bifurcation bias; Board of directors; Bounded rationality; Family firms; Internationalization; SMEs; Business and International Management; Finance; Marketing
Abstract :
[en] Family small and medium-sized enterprises (SMEs) face both general bounded rationality challenges and a unique expression of bounded rationality in their internationalization process: the bifurcation bias, a concept aligned with modern transaction cost theory (TCT). We argue that efficient governance in family SMEs, and especially features of the Board of Directors’ composition, can help alleviate bounded rationality. Complementing TCT with upper echelons theory (UET), we investigate which Board characteristics in family SMEs contribute to efficient governance and the ensuing strategy decisions. We focus specifically on strategy decisions in the internationalization sphere. Our empirical analysis of survey data from 328 Belgian family SMEs, operating out of a small open economy, reveals that family SMEs internationalize more if their Boards are ‘open’, ‘inclusive’, ‘experienced’ and ‘active’. These Board characteristics, all reflective of efficient governance, i.e., providing the Board with the capacity to alleviate bounded rationality constraints, positively contribute to internationalization, especially (and perhaps paradoxically) when the family SME is managed by a CEO who is also a family member.
Disciplines :
General management, entrepreneurship & organizational theory
Author, co-author :
Pongelli, Claudia ; Deparment of Economics, European University of Rome, Rome, Italy ; IPAG Entrepreneurship & Family Business Center, IPAG Business School, Nice, France
Majocchi, Antonio; Department of Business and Management, LUISS University, Rome, Italy
Sciascia, Salvatore; FABULA – Family Business Lab, Università Cattaneo - LIUC, Castellanza, Italy ; CeFEO (Centre for Family Entrepreneurship and Ownership), Jönköping International Business School, Jönköping, Sweden
Caroli, Matteo; LUISS Business School, LUISS University, Rome, Italy
Verbeke, Alain; McCaig Chair in Management, Haskayne School of Business, University of Calgary, University Drive N.W., Calgary, Canada ; Solvay Business School, University of Brussels (VUB), Belgium ; Henley Business School, University of Reading, United Kingdom
Language :
English
Title :
The impact of board of directors’ characteristics on the internationalization of family SMEs
Ali, M., Ng, Y.L., Kulik, C.T, Board age and gender diversity: A test of competing linear and curvilinear predictions. Journal of Business Ethics 125:3 (2014), 497–512.
Arrègle, J.L., Naldi, L., Nordqvist, M., Hitt, M.A., Internationalization of family–controlled firms: A study of the effects of external involvement in governance. Entrepreneurship Theory and Practice 36:6 (2012), 1115–1143.
Arrègle, J.L., Hitt, M.A., Sirmon, D.G., Very, P., The development of organizational social capital: Attributes of family firms. Journal of Management Studies 44:1 (2007), 73–95.
Arrègle, J.L., Duran, P., Hitt, M.A., Van Essen, M., Why is family firms’ internationalization unique? A meta–analysis. Entrepreneurship Theory and Practice 41:5 (2017), 801–831.
Arrègle, J.L., Chirico, F., Kano, L., Kundu, S.K., Majocchi, A., Schulze, W.S., Family firm internationalization: Past research and an agenda for the future. Journal of International Business Studies 52:6 (2021), 1159–1198.
Arzubiaga, U., Kotlar, J., De Massis, A., Maseda, A., Iturralde, T., Entrepreneurial orientation and innovation in family SMEs: Unveiling the (actual) impact of the Board of Directors. Journal of Business Venturing 33:4 (2018), 455–469.
Banalieva, E.R., Eddleston, K.A., Home-region focus and performance of family firms: The role of family vs non-family leaders. Journal of International Business Studies 42:8 (2011), 1060–1072.
Baum, C.F., Modelling proportions. Stata Journal 8:2 (2008), 299–303.
Basco, R., Voordeckers, W., The relationship between the board of directors and firm performance in private family firms: A test of the demographic versus behavioral approach. Journal of Management & Organization 21:4 (2015), 411–435.
Bauweraerts, J., Arzubiaga, U., Diaz-Moriana, V., Unveiling the global focus-performance relationship in family firms: The role of the board of directors. International Business Review, 2022, 10.1016/j.ibusrev.2022.101977.
Bauweraerts, J., Sciascia, S., Naldi, L., Mazzola, P., Family CEO and board service: Turning the tide for export scope in family SMEs. International Business Review, 28(5), 2019, 10.1016/j.ibusrev.2019.05.003.
Bauweraerts, J., Rondi, E., Rovelli, P., De Massis, A., Sciascia, S., Are family female directors catalysts of innovation in family small and medium enterprises?. Strategic Entrepreneurship Journal 16:2 (2022), 314–354.
Bennedsen, M., Nielsen, K.M., Pérez-González, F., Wolfenzon, D., Inside the family firm: The role of families in succession decisions and performance. The Quarterly Journal of Economics 122:2 (2007), 647–691.
Bennedsen, M., Foss, N., Family assets and liabilities in the innovation process. California Management Review 58:1 (2015), 65–81.
Barroso, C., Villegas, M.M., Pérez-Calero, L., Board influence on a firm's internationalization. Corporate Governance: An International Review 19:4 (2011), 351–367.
Bear, S., Rahman, N., Post, C., The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics 97:2 (2010), 207–221.
Berrone, P., Cruz, C., Gómez-Mejia, L.R., Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review 25:3 (2012), 258–279.
Bettinelli, C., Boards of directors in family firms: An exploratory study of structure and group process. Family Business Review 24:2 (2011), 151–169.
Bowen, H.P., Wiersema, M.F., Data analysis with discrete and censored dependent variables and truncated samples. Bergh, D., Ketchen, & D., (eds.) Research methodology in strategy and management, 2004, Elsevier, Oxford, 87–134.
Boyd, B.K., Haynes, K.T., Zona, F., Dimensions of CEO-board relations. Journal of Management Studies 48:8 (2011), 1892–1923.
Brammer, S., Millington, A., Pavelin, S., Corporate reputation and women on the board. British Journal of Management 20:1 (2009), 17–29.
Calabrò, A., Mussolino, D., How do boards of directors contribute to family SME export intensity? The role of formal and informal governance mechanisms. Journal of Management & Governance 17:2 (2013), 363–403.
Calabrò, A., Torchia, M., Pukall, T., Mussolino, D., The influence of ownership structure and board strategic involvement on international sales: The moderating effect of family involvement. International Business Review 22:3 (2013), 509–523.
Calabrò, A., Brogi, M., Torchia, M., What does really matter in the internationalization of small and medium-sized family businesses?. Journal of Small Business Management 54:2 (2016), 679–696.
Calabrò, A., Campopiano, G., Basco, R., Pukall, T., Governance structure and internationalization of family-controlled firms: The mediating role of international entrepreneurial orientation. European Management Journal 35:2 (2017), 238–248.
Carpenter, M.A., Geletkanycz, M.A., Sanders, W.G., Upper echelons research revisited: Antecedents, elements, and consequences of top management team composition. Journal of Management 30:6 (2004), 749–778.
Cerrato, D., Piva, M., The internationalization of small and medium-sized enterprises: The effect of family management, human capital and foreign ownership. Journal of Management & Governance 16:4 (2012), 617–644.
Cheng, L.T.W., Chan, R.Y.K., Leung, T.Y., Management demography and corporate performance: Evidence from China. International Business Review 19 (2010), 261–275.
Chou, H.I., Chung, H., Yin, X., Attendance of board meetings and company performance: Evidence from Taiwan. Journal of Banking & Finance 37:11 (2013), 4157–4171.
Cirillo, A., Maggi, B., Sciascia, S., Lazzarotti, V., Visconti, F., Exploring family millennials’ involvement in family business internationalization: Who should be their leader?. Journal of Family Business Strategy, 2021, 1–11, 10.1016/j.jfbs.2021.100455.
Claver, E., Rienda, L., Quer, D., Family firms’ international commitment: The influence of family-related factors. Family Business Review 22:2 (2009), 125–135.
Combs, J.G., Ketchen, D.J. Jr, Perryman, A.A., Donahue, M.S, The moderating effect of CEO power on the board composition–firm performance relationship. Journal of Management Studies 44:8 (2007), 1299–1323.
D'Angelo, A., Majocchi, A., Buck, T, External managers, family ownership and the scope of SME internationalization. Journal of World Business 51:4 (2016), 534–547.
Debellis, F., Rondi, E., Plakoyiannaki, E., De Massis, A., Riding the waves of family firm internationalization: A systematic literature review, integrative framework, and research agenda. Journal of World Business 56:1 (2020), 1–17.
Deephouse, D.L., Jaskiewicz, P., Do family firms have better reputations than non-family firms? An integration of socioemotional wealth and social identity theories. Journal of Management Studies 50:3 (2013), 337–360.
Eddleston, K.A., Sabil, G., Women in family firms: Unsung heroes of business owning families. Crittenden, V.L., (eds.) Go-to-market strategies for women entrepreneurs, 2019, Emerald Publishing Limited, Bradford, 185–194.
Fang, H., Kotlar, J., Memili, E., Chrisman, J.J., De Massis, A., The pursuit of international opportunities in family firms: Generational differences and the role of knowledge-based resources. Global Strategy Journal 8:1 (2018), 136–157.
Feltham, T.S., Feltham, G., Barnett, J.J., The dependence of family businesses on a single decision-maker. Journal of Small Business Management 43:1 (2005), 1–15.
Garg, S., Li, Q., Shaw, J.D., Undervaluation of directors in the board hierarchy: Impact on turnover of directors (and CEOs) in newly public firms. Strategic Management Journal 39:2 (2018), 429–457.
Garrido-Prada, P., Delgado-Rodriguez, M.J., Romero-Jordán, D., Effect of product and geographic diversification on company performance: Evidence during an economic crisis. European Management Journal 37:3 (2019), 269–286.
Gaur, A.S., Pattnaik, C., Singh, D., Lee, J.Y., Internalization advantage and subsidiary performance: The role of business group affiliation and host country characteristics. Journal of International Business Studies 50:8 (2019), 1253–1282.
Golovko, E., Valentini, G., Exploring the complementarity between innovation and export for SMEs’ growth. Journal of International Business Studies 42:3 (2011), 362–380.
Gomez-Mejia, L.R., Makri, M., Kintana, M.L., Diversification decisions in family-controlled firms. Journal of Management Studies 47:2 (2010), 223–252.
Graves, C., Thomas, J., Internationalization of Australian family businesses: A managerial capabilities perspective. Family Business Review 19:3 (2006), 207–224.
Hailpern, S.M., Visintainer, P.F., Odds ratios and logistic regression: Further examples of their use and interpretation. The Stata Journal 3:3 (2003), 213–225.
Halilem, N., Amara, N., Landry, R., Exploring the relationships between innovation and internationalization of small and medium-sized enterprises: A nonrecursive structural equation model. Canadian Journal of Administrative Sciences 31:1 (2014), 18–34.
Hambrick, D.C., Upper echelons theory: An update. Academy of Management Review 32:2 (2007), 334–343.
Hambrick, D.C., Mason, P.A., Upper echelons: The organization as a reflection of its top managers. Academy of Management Review 9:2 (1984), 193–206.
Hambrick, D.C., Wowak, A.J., CEO sociopolitical activism: A stakeholder alignment model. Academy of Management Review 46:1 (2021), 33–59.
Harrison, D.A., Klein, K.J., What's the difference? Diversity constructs as separation, variety, or disparity in organizations. Academy of Management Review 32:4 (2007), 1199–1228.
Hennart, J.F., The ‘comparative institutional'theory of the firm: Some implications for corporate strategy. Journal of Management Studies 31:2 (1994), 193–208.
Hennart, J.F., The theoretical rationale for a multinationality/performance relationship. Management International Review 47:3 (2007), 307–317.
Hennart, J.F., Majocchi, A., Forlani, E., The myth of the stay-at-home family firm: How family-managed SMEs can overcome their internationalization limitations. Journal of International Business Studies 50:5 (2019), 758–782.
Hillman, A., Cannella, A.A., Harris, I., Women and racial minorities in the boardroom: How do they differ?. Journal of Management 28:6 (2002), 747–763.
Hillman, A., Dalziel, T., Board of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review 28:3 (2003), 383–396.
Hitt, M.A., Bierman, L., Uhlenbruck, K., Shimizu, K., The importance of resources in the internationalization of professional service firms: The good, the bad, and the ugly. Academy of Management Journal 49:6 (2006), 1137–1157.
Hoetker, G., The use of logit and probit models in strategic management research: Critical issues. Strategic Management Journal 28:4 (2007), 331–343.
Hollender, L., Zapkau, F.B., Schwens, C., SME foreign market entry mode choice and foreign venture performance: The moderating effect of international experience and product adaptation. International Business Review 26:2 (2017), 250–263.
Huse, M., Solberg, A.G., Gender-related boardroom dynamics: How Scandinavian women make and can make contributions on corporate boards. Women in Management Review 21:2 (2006), 113–130.
Huse, M., Boards of directors in SMEs: A review and research agenda. Entrepreneurship & Regional Development 12:4 (2000), 271–290.
Huse, M., Boards, governance and value creation: The human side of corporate governance. 2007, Cambridge University Press, Cambridge, UK.
Ibarra, H., Homophily and differential returns: Sex differences in network structure and access in an advertising firm. Administrative Science Quarterly 37:3 (1992), 422–447.
Ibarra, H., Personal networks of women and minorities in management: A conceptual framework. Academy of Management Review 18:1 (1993), 56–87.
Iliev, P., Roth, L., Learning from directors' foreign board experiences. Journal of Corporate Finance 51 (2018), 1–19.
Johanson, J., Vahlne, J.E., The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies 40:9 (2009), 1411–1431.
Kano, L., Verbeke, A., The three faces of bounded reliability: Alfred Chandler and the micro-foundations of management theory. California Management Review 58:1 (2015), 97–122.
Kano, L., Verbeke, A., Family firm internationalization: Heritage assets and the impact of bifurcation bias. Global Strategy Journal 8:1 (2018), 158–183.
Kano, L., Ciravegna, L., Rattalino, F., The family as a platform for FSA development: Enriching new internalization theory with insights from family firm research. Journal of International Business Studies 52:1 (2021), 148–160.
Kanuk, L., Berenson, C., Mail surveys and response rates: A literature review. Journal of Marketing Research 12:4 (1975), 440–453.
Kellermanns, F.W., Eddleston, K.A., Zellweger, T.M., Article commentary: Extending the socioemotional wealth perspective: A look at the dark side. Entrepreneurship Theory and Practice 36:6 (2012), 1175–1182.
Klarner, P., Yoshikawa, T., Hitt, M.A., A capability-based view of boards: A new conceptual framework for board governance. Academy of Management Perspectives 35:1 (2021), 123–141.
Kraus, S., Mensching, H., Calabrò, A., Cheng, C.F., Filser, M., Family firm internationalization: A configurational approach. Journal of Business Research 69:11 (2016), 5473–5478.
Lages, L.F., Jap, S.D., Griffith, D.A., The role of past performance in export ventures: A short-term reactive approach. Journal of International Business Studies 39:2 (2008), 304–325.
Lambrecht, J., & Broekaert, W. (2018). Baromètre Degroof Petercam des entreprises familiales. https://publications.degroofpetercam.be/wp-content/uploads/sites/1616/2018/06/Digital_Barometre-entreprises-familiales_FR-low.pdf, consulted on 11th January 2021.
Lardon, A., Deloof, M., Jorissen, A., Outside CEOs, board control and the financing policy of small privately held family firms. Journal of Family Business Strategy 8:1 (2017), 29–41.
Li, J., Hambrick, D.C., Factional groups: A new vantage on demographic faultlines, conflict, and disintegration in work teams. Academy of Management Journal 48:5 (2005), 794–813.
Lindner, T., Puck, J., Verbeke, A., Misconceptions about multicollinearity in international business research: Identification, consequences, and remedies. Journal of International Business Studies 51:3 (2020), 283–298.
Lu, J.W., Beamish, P.W., The internationalization and performance of SMEs. Strategic Management Journal 22:6–7 (2001), 565–586.
Majocchi, A., D'Angelo, A., Forlani, E., Buck, T, Bifurcation bias and exporting: Can foreign work experience be an answer? Insight from European family SMEs. Journal of World Business 53:2 (2018), 237–247.
Majocchi, A., Strange, R., International diversification: The impact of ownership structure, the market for corporate control and board independence. Management International Review 52:6 (2012), 879–900.
Melin, L., Nordqvist, M., Sharma, P., The SAGE handbook of family business. 2014, Sage Publishing.
Miller, D., Minichilli, A., Corbetta, G., Is family leadership always beneficial?. Strategic Management Journal 34:5 (2013), 553–571.
Miller, T., del Carmen Triana, M., Demographic diversity in the boardroom: Mediators of the board diversity–firm performance relationship. Journal of Management Studies 46:5 (2009), 755–786.
Nam, H.J., An, Y., Patent, R&D and internationalization for Korean healthcare industry. Technological Forecasting and Social Change 117 (2017), 131–137.
Narula, R., Verbeke, A., Making internalization theory good for practice: The essence of Alan Rugman's contributions to international business. Journal of World Business 50:4 (2015), 612–622.
Neely, B.H. Jr., Lovelace, J.B., Cowen, A.P., Hiller, N.J, Metacritiques of upper echelons theory: Verdicts and recommendations for future research. Journal of Management 46:6 (2020), 1029–1062.
O'Brien, R.M., A caution regarding rules of thumb for variance inflation factors. Quality & Quantity 41:5 (2007), 673–690.
Patel, P.C., Fiet, J.O., Knowledge combination and the potential advantages of family firms in searching for opportunities. Entrepreneurship Theory and Practice 35:6 (2011), 1179–1197.
Pisani, N., Muller, A., Bogăţan, P., Top management team internationalization and firm-level internationalization: The moderating effects of home-region institutional diversity and firm global focus. Journal of International Management 24:3 (2018), 239–256.
Podsakoff, P.M., MacKenzie, S.B., Podsakoff, N.P., Sources of method bias in social science research and recommendations on how to control it. Annual Review of Psychology 63 (2012), 539–569.
Pongelli, C., Valentino, A., Calabrò, A., Caroli, M., Family-centered goals, geographic focus and family firms’ internationalization: A study on export performance. Entrepreneurship & Regional Development 33:7-8 (2021), 580–598.
Pongelli, C., Calabrò, A., Minichilli, A., Quarato, F., Corbetta, G., Out of the comfort zone! family leaders’ subsidiary ownership choices and the role of vulnerabilities. Family Business Review 34:4 (2021), 404–424.
Ray, S., Mondal, A., Ramachandran, K., How does family involvement affect a firm's internationalization? An investigation of Indian family firms. Global Strategy Journal 8:1 (2018), 73–105.
Reuber, A.R., An assemblage–theoretic perspective on the internationalization processes of family firms. Entrepreneurship Theory and Practice 40:6 (2016), 1269–1286.
Rivas, J.L., Diversity & internationalization: The case of boards and TMT's. International Business Review 21:1 (2012), 1–12.
Ruzzier, M., Ruzzier, M.K., On the relationship between firm size, resources, age at entry and internationalization: The case of Slovenian SMEs. Journal of Business Economics and Management 16:1 (2015), 52–73.
Segaro, E.L., Larimo, J., Jones, M.V., Internationalisation of family small and medium sized enterprises: The role of stewardship orientation, family commitment culture and top management team. International Business Review 23:2 (2014), 381–395.
Selby, C.C., ‘From male locker room to co-ed board room: a twenty-five year perspective. Burke, R.J., Mattis, M.C., (eds.) Women on corporate boards of directors: International challenges and opportunities, 2000, Kluwer Academic, Amsterdam, 239–251.
Stoian, M.C., Dimitratos, P., Plakoyiannaki, E., SME internationalization beyond exporting: A knowledge-based perspective across managers and advisers. Journal of World Business 53:5 (2018), 768–779.
Torchia, M., Calabrò, A., Huse, M., Women directors on corporate boards: From tokenism to critical mass. Journal of Business Ethics 102:2 (2011), 299–317.
Torchia, M., Calabrò, A., Gabaldon, P., Kanadli, S.B., Women directors contribution to organizational innovation: A behavioral approach. Scandinavian Journal of Management 34:2 (2018), 215–224.
Umans, I., Lybaert, N., Steijvers, T., Voordeckers, W., Succession planning in family firms: Family governance practices, board of directors, and emotions. Small Business Economics 54:1 (2020), 189–207.
Uzzi, B., The sources and consequences of embeddedness for economic performance of organizations: The network effect. American Sociological Review 61 (1996), 674–698.
Uzzi, B., Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly 42 (1997), 35–67.
Van den Heuvel, J., Van Gils, A., Voordeckers, W., Board roles in small and medium-sized family businesses: Performance and importance. Corporate Governance: An International Review 14:5 (2006), 467–485.
Verbeke, A., Kano, L., The transaction cost economics theory of the family firm: Family–based human asset specificity and the bifurcation bias. Entrepreneurship Theory and Practice 36:6 (2012), 1183–1205.
Verbeke, A., Kano, L., An internalization theory perspective on the global and regional strategies of multinational enterprises. Journal of World Business 51:1 (2016), 83–92.
Verbeke, A., Yuan, W., Kano, L., A values-based analysis of bifurcation bias and its impact on family firm internationalization. Asia Pacific Journal of Management 37:2 (2020), 449–477.
Villalonga, B., Amit, R., How do family ownership, control and management affect firm value?. Journal of Financial Economics 80:2 (2006), 385–417.
Westphal, J., Garg, S., Boards of directors and strategic management: Public firms and new ventures. Duhaime, I.M., Hitt, M.A., Lyles, M.A., (eds.) Strategic management: State of the field and its future, 2021, Oxford University Press.
Wiersema, M.F., Bowen, H.P., The use of limited dependent variable techniques in strategy research: Issues and methods. Strategic Management Journal 30:6 (2009), 679–692.
Woods, J.A., Dalziel, T., Barton, S.L., Escalation of commitment in private family businesses: The influence of outside board members. Journal of Family Business Strategy 3:1 (2012), 18–27.
World Bank (2020). Exports of goods and services. https://data.worldbank.org/indicator/BX.GSR.GNFS.CD, consulted on 11th January 2021.
Yang, X., Li, J., Stanley, L.J., Kellermanns, F.W., Li, X., How family firm characteristics affect internationalization of Chinese family SMEs. Asia Pacific Journal of Management 37:2 (2020), 417–448.
Zattoni, A., Gnan, L., Huse, M., Does family involvement influence firm performance? Exploring the mediating effects of board processes and tasks. Journal of Management 41:4 (2015), 1214–1243.
Zenou, E., Allemand, I., Brullebaut, B., Galia, F., Board recruitment as a strategic answer: Do companies' strategies for innovation influence the selection of new board members?. Strategic Change 29:1 (2020), 127–139.
Zona, F., CEO leadership and board decision processes in family-controlled firms: Comparing family and non-family CEOs. Small Business Economics 47:3 (2016), 735–753.
