CEO's empathy and salience of socioemotional wealth in family SMEs – The moderating role of external directors

Abstract

A focus on preserving socioemotional wealth may influence entrepreneurial activities in family firms. In this paper, we identify the emotion of empathy in the family CEO as an antecedent of socioemotional wealth creation. We argue that the presence of one or more external directors can have a direct as well as moderating influence on the relationship between CEO's empathy and the salience of socioemotional wealth to the family CEO. Our empirical tests confirm these hypotheses. Several areas of future research are suggested to incorporate empathy and other emotions in family business studies.

Keywords:

• CEO empathy
• board of directors
• socioemotional wealth
• family businesses

Notes

1. For an extended discussion of board roles and board role needs in FB, see Bammens, Voordeckers, and van Gils (2011).

2. NACE is the European activity nomenclature NACE Review 1 that was established in an EG-Regulation in order to facilitate the structuring of economical and social statistical information.

3. As industry differences may have an impact on governance practices in SMEs, we narrowed down our sample to manufacturing industries in order to control for this effect (Fiegener et al. 2000a; Gabrielsson 2007).

4. As we do not have detailed information on key characteristics of the population, we used this alternative approach to test for potential response bias.

5. Although Belgium has a one-tier governance system and the Netherlands has a two-tier system, an external board in both countries is not an obligation for the firms under study (family SMEs). As such, an external board is solely the decision of the company and hence, this decision can be considered as not influenced by the legal context.

6. European definition of small- and medium-sized firm: (1) <250 employees, (2) annual turnover <EUR 50 million and/or (3) balance sheet total <EUR 43 million.

7. There could be a potential for endogeneity in our model due to the influence family-oriented goals may have on the adoption of external directors. In order to test for this, we estimated a 2SLS model. The results of the IV estimation were not significantly different from the results we found in the OLS regression.

8. Alternative analysis with ln size as the size control variable showed similar results.

9. In order to test the robustness of these findings, we further scrutinized our results by splitting up our sample based on the median size criterion. Both subsamples showed the same results although the interaction effect for the larger firms has a t-value of 1.5 which is meaningful but not significant anymore on the 10% level. This slight decline in significance could be due to the rather small subsample size on which the regressions are performed. Despite these small subsample sizes, the results concerning the relationship between empathy and family-oriented goals stay very robust.