KIN TIES AND THE PERFORMANCE OF NEW FIRMS: A STRUCTURAL APPROACH
GOKHAN ERTUG Singapore Management University
REDDI KOTHA Singapore Management University
PETER HEDSTROM Linköping University
Do family ties benefit or hamper the performance of new firms? According to an Academy of Management Journal article, these effects depend on whether the kin ties are across hierarchical levels (i.e., between founder-employee) or within hierarchical levels (i.e., between founders, or between employees).
In a study of new firms in Stockholm, the researchers found family ties between employees to positively affect firm performance. They hypothesized that this was due to improved trust, coordination, and cooperation. However, family ties between founders and employees negatively affected performance, which they hypothesized was due to reduced information diversity and concerns about nepotism by non-family employees.
Implications for family enterprises:
Entrepreneurs seeking to start new firms with family members should heed the dynamics on trust, coordination, information diversity, and nepotism concerns due to family members’ position in the firm hierarchy. If family members are expected to join the firm as employees, firms should proactively address concerns of nepotism by ensuring a proper system of talent recruitment, development, and promotion.
Source: Ertug, G., Kotha, R., & Hedström, P. (2020). Kin ties and the performance of new firms: a structural approach. Academy of Management Journal, 63(6), 1893-1922.