Review of Corporate Finance > Vol 2 > Issue 4

Diversity in Family Business: Where Social Goals Collide with Family Socioemotional Wealth

Jijun Gao, I.H. Asper School of Business, University of Manitoba, Canada, jijun.gao@umanitoba.ca , Mingzhi Liu, I.H. Asper School of Business, University of Manitoba, Canada, mingzhi.liu@umanitoba.ca , Yefeng Wang, Department of Management, University of Wisconsin – Whitewater, USA, wangye@uww.edu
 
Suggested Citation
Jijun Gao, Mingzhi Liu and Yefeng Wang (2022), "Diversity in Family Business: Where Social Goals Collide with Family Socioemotional Wealth", Review of Corporate Finance: Vol. 2: No. 4, pp 861-884. http://dx.doi.org/10.1561/114.00000032

Publication Date: 07 Dec 2022
© 2022 J. Gao, M. Liu and Y. Wang
 
Subjects
Corporate finance: Agency theory and information,  Family-owned firms,  Corporate governance,  Organizational behavior: Ethnic and gender diversity,  Hypothesis testing,  Panel data
 
Keywords
JEL Codes: M14, C12, C33
Family involvementdual-class share structurediversitysocioemotional wealthagency problem
 

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In this article:
Introduction 
Theory Development and Hypothesis 
Sample and Methodology 
Empirical Results 
Discussion and Conclusion 
References 

Abstract

Using a sample of 2,000 largest industrial firms in the U.S, we investigate how family involvement influences corporate diversity and whether a governance mechanism – dual-class share structure – moderates this effect. Contrary to typical socioemotional wealth (SEW) predictions, we argue that family firms will tend to engage less in diversity than nonfamily firms due to family firms’ desire to maintain family control and relatively lenient societal pressure on them. We also argue that the adoption of dual-class share arrangement exacerbates family dominance, thus strengthening the negative impact of family involvement on diversity. The results support our arguments and point out the boundary of SEW when involving issues of diversity. We find that family involvement decreases the level of overall diversity, by both engaging less diversity initiatives and causing more diversity-related concerns. Such negative relationship is more pronounced among family firms adopting a dual-class share structure where family owners gain greater control of business. These findings are very robust and provide important theoretical and policy implications.

DOI:10.1561/114.00000032

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Review of Corporate Finance, Volume 2, Issue 4 Special Issue on Family Firms: Articles Overiew
See the other articles that are part of this special issue.