Family Control, Political Risk and Employment Security: A Cross-National Study

Abstract

Combining insights from the socioemotional wealth and institutional perspectives, we hypothesize that firms controlled by families offer greater job security to employees relative to non-family firms, and this positive employment effect is amplified in riskier institutional environments around the world. Using an unbalanced panel of 3181 listed firms from 33 countries over a 10-year period, we provide strong support for our hypotheses: family-controlled firms on average are less likely to reduce their workforce compared to their non-family counterparts, and this differential effect is magnified in weak institutional environments characterized by high political risk. These findings indicate that socioemotional wealth in family firms has a positive impact on employee welfare and that the use of a cross-country design serves to bridge discrepancies or inconsistencies in single country studies that have been done in the past. From a practical perspective we conclude that the beneficial role of socioemotional wealth on employment relations is more evident when it is needed the most, namely under a dysfunctional institutional environment.