Interaction between External Managers and Family Ownership in SME Internationalization

The family firm literature embraces a wide range of studies relating family ownership to firm performance. The contribution of this paper is to employ more nuanced variations in family ownership and control, and to consider the influence of these variations on the determinants of a crucial performance outcome: internationalization. These determinants comprise internal resources in the form of innovation and external resources comprising professional managers recruited from outside the family. After controlling for reverse causation in circumstances where firm performance can influence governance and resource allocations, it is found that a distinction between firms that are unilaterally controlled by families, as opposed to those merely under family influence, is important to the estimated impact of these resources. In family influenced firms, innovation and external managers have a significant positive effect on internationalization, but these positive effects are absent where families have unilateral control. Using an agency theory framework we argue that these results are consistent with the presence of principal/principal problems generating additional agency costs in firms under unilateral control and with the unwillingness of controlling families to open equity capital to significant external partners thus offsetting the positive effects of innovation and external managerial hires.