Influence of Social Identity on Family Firms’ FDI Decisions: The Moderating Role of Internal Capital Markets

Qiao Wei, Jin-hui Luo () and Xueli Huang
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Qiao Wei: University of New South Wales
Jin-hui Luo: Xiamen University
Xueli Huang: RMIT University

Management International Review, 2020, vol. 60, issue 5, No 1, 693 pages

Abstract: Abstract This paper examines the foreign direct investment (FDI) decision by family firms from an emerging economy, China. Despite the increasing attentions to family firms’ FDI, extant research has focused largely on the comparisons between family firms and non-family firms with inconsistent findings. Limited research effort has been devoted to the heterogeneous FDI among family firms. We investigate how different family firm types affect its FDI. Family firms differ in the identity of family owners due to their variation in the trade-off between preserving family’s socioemotional wealth (SEW) and maximizing firm economic goals. Family owners with different identities will behave differently in their FDI decisions. We find that family firms owned by a lone founder (i.e., lone-founder firms) who perceives himself more as an entrepreneur, have higher propensity and intensity of FDI than those owned by multiple family members (i.e., family-controlled firms) who share the identity of family guardians. Moreover, we find that the positive effect of lone-founder on family firms’ FDI decisions is stronger when they have adequate access to internal capital markets through pyramidal ownership structure or financial slack. Overall, this paper enhances our understanding of family firms’ FDI decisions and offers an explanation for prior inconclusive findings on this important area by highlighting the effect of huge heterogeneities among family firms on their FDI decisions.

Keywords: Family firms; Foreign direct investment (FDI); Social identity theory; Socioemotional wealth (SEW) perspective; Internal capital markets (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11575-020-00427-6

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