Effects of ownership structure and corporate and family governance on dynamic capabilities in family firms

Abstract

By combining the resource-and capabilities-based view and agency theory, this paper offers a framework within which to examine the nature of dynamic capabilities in family firms, and how they are affected by the ownership, governance and management structures. We focus on technology-based innovation capabilities, differentiating between sensing, seizing and transforming capabilities. We expand the analysis of family involvement, defined as the family firm owner's ability to influence firm behavior, identifying three distinct structures that underpin decision-making power and control capacity in family firms: the capital structure, the governance and management structure of the business; and the governance structure of the family itself. The empirical research was carried out on a sample of 748 family firms from the Spanish tourism industry. We find that the effects of these dimensions of family involvement on dynamic capabilities are asymmetric. A concentrated ownership structure with a high degree of family control and a substantial share of family wealth committed to the business are shown to have a negative effect. The management structure is shown to be the key body for fostering the accumulation of dynamic capabilities, although a high level of family involvement in the top management team and having a family member as CEO represent major barriers to this process. On the other hand, the board of directors and its composition appear not to be relevant structural elements. The most powerful structural factor in facilitating the development of innovation capabilities is the existence of an effective family board and the implementation of family management instruments. These mechanisms help to mitigate the negative effects of a family-controlled ownership and management structure. The findings represent a significant contribution to the literature on family firms, innovation management and corporate governance.