The strategic role of owners in firm growth: Contextualizing ownership competence in private firms

Research Summary: We integrate the emerging literature on the strategic role of firm owners in firms' value creation with Penrosean growth theory to investigate how and under what conditions two experience-based competences among owners-matching competence and governance competence-influence firm growth. Employing a longitudinal sample of 2509 owner-managed German firms, we find a positive relationship between owners' experience-based competences and firm growth. Further, we find that in family firms, the positive relationship between owners' experience-based governance competence and firm growth is weaker and that both experience-based competences matter more in younger firms compared with older firms. Our findings make important contributions to research on strategic ownership and Penrosean growth theory.Managerial Summary: In our study, we show that two competences of owner-managers are important for the growth of their firms: their matching competence, which is the ability to theorize about valuable resource configurations and cognitively envision a path to implement them, and their governance competence, which is the ability to create effective governance arrangements to align incentives within a firm. Our results suggest that it is challenging for owner-managers from family firms to leverage their governance competence to achieve growth, which could potentially be resolved by instituting governance mechanisms that prevent nepotism. We also show that owner-managers' competences are particularly important in the early years of their firms when no standardized processes are in place.