Family Business and International Establishment and Entry Mode

Despite the growing participation of family businesses in foreign direct investments, research on the establishment and entry mode in foreign market is still limited. By investigating how the distinctive characteristics of family firms affect their approach to international growth, this paper analyses whether family and non-family firms enter foreign markets through greenfield investment or acquisition (i.e. establishment mode) and through wholly owned subsidiaries or joint venture (i.e. entry mode). Moreover, in line with authoritative contributions in the literature on family business, we argue that a dichotomous contrast between FBs and non-FBs does not allow the distinctive features of FBs to be captured. In contrast, a multi-dimensional characterization of FBs, namely ownership, participation of family members in the board of directors and presence of young successors could enrich our understanding of their approach in international markets. Based on a sample of 1571 foreign direct investments of Italian firms, the paper presents two Logit models that differ only in the dependent variable that are respectively a dummy variable equal to 1 if the foreign affiliate started as an acquisition (i.e. establishment mode), and a dummy variable equal to 1 if the foreign affiliate is majority owned (i.e. entry mode). Our analysis provides two main results. First, even if the FB model is an explanatory variable for both the establishment and entry mode, not all organizational attributes of FBs exert the same effect on the international paths. Second, when disentangling the effect of three different indicators, the involvement of family members in the board of directors has no explanatory power, whereas the level of ownership and the presence of young successors have a significant one. As concern establishment mode, the impact of the FB model is driven by the share of equity directly controlled by family members that favor greenfield FDI. As concern entry mode, the presence of young successors has a positive impact on the adoption of a minority stake abroad. On the contrary the share of equity directly controlled by family members favours the solution of wholly owned subsidiaries. The findings concerning the governance structure in both models suggest that the composition of the board of directors in family firms may reflect the need for representativeness rather than the actual distribution of decisional power.