Does the Bargaining Power of Vertical Parties Improve or Worsen the Effect of Family Influence on Long-Term Performance?: A Socioemotional Wealth View

Does the Bargaining Power of Vertical Parties Improve or Worsen the Effect of Family Influence on Long-Term Performance?: A Socioemotional Wealth View

Rubén Martínez-Alonso (University of Almería, Spain), María J. Martínez-Romero (University of Almería, Spain), Julio Diéguez-Soto (University of Málaga, Spain) and Alfonso A. Rojo-Ramírez (University of Almería, Spain)
DOI: 10.4018/978-1-7998-4552-2.ch007
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Grounding in the socioemotional wealth approach, this chapter explores the effect of family influence on long-term performance. Moreover, this study also examines the moderating role of the bargaining power of vertical parties, namely supplier (SBP) and customer (CBP) bargaining power, on the preceding relationship. By utilising a panel dataset of 3,118 observations of Spanish private manufacturing firms in the 2007–2016 period, the chapter finds that family influence negatively impacts long-term performance. The findings also reveal that CBP mitigates the negative effect of family influence on long-term performance. In this light, CBP is found to be a potential environmental factor that enables family influenced firms enhancing their long-term performance.
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In today's complex, rapidly changing and fiercely competitive environment, long-term performance has become a critical indicator of firm continuity and survival (Diéguez-Soto, Manzaneque, & Rojo-Ramírez, 2016b; Martínez-Alonso, Martínez-Romero, & Rojo-Ramírez, 2019). This is why, there is a vast previous literature focused on the influence of family influence on firm performance (Anderson & Reeb, 2003; O’Boyle, Pollack, & Rutherford, 2012; Villalonga & Amit, 2006, among others). However, the empirical findings obtained up to now regarding the interplay between family influence and firm performance have not been conclusive at all (e.g., Bertrand & Schoar, 2006; Gómez-Mejía, Cruz, Berrone, & De Castro, 2011), especially for private companies (Martínez-Romero, Martínez-Alonso, & Casado-Belmonte, 2020a; Sciascia & Mazzola, 2008). Consequently, the question of how and why family influence impacts on privately held firm performance is still largely unresolved and additional investigation is required (Sharma & Carney, 2012), providing a research avenue for contingent factors that might enlighten the former interplay (Chrisman, Chua, Pearson, & Barnett, 2012; Yeniaras, Sener, & Unver, 2017).

A possible contingent factor in the family influence-performance relationship might be the bargaining power of vertical parties (Porter, 1980). In this regard, bargaining power is usually defined as a function of the required costs to substitute a stakeholder (Porter, 1980). Thus, supplier (SBP) and customer (CBP) bargaining power may be relevant referent marks for family managers, as the particular aims and discretion of the latter might be significantly affected by the level of the former power (Kotlar, De Massis, Fang, & Frattini, 2014a; Urbinati, Franzo, De Massis, & Frattini, 2017). However, to the best of our knowledge, no studies have empirically examined the moderating role that SBP and CBP exert on the family influence–firm performance relationship.

Drawing on the socioemotional wealth (hereafter SEW) approach (Berrone, Cruz, & Gómez-Mejía, 2012; Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Martínez-Romero & Rojo-Ramírez, 2016), we argue that, as family influenced firms pursue not only economic but also non-economic goals (Martin & Gómez-Mejía, 2016; Martínez-Alonso, Martínez-Romero, & Rojo-Ramírez, 2018), they will exert a negative effect on firm performance. That is, as family influenced firms tend to prioritize the fulfilment of affective needs over the achievement of purely financial goals (Martínez-Romero, 2018; Martínez-Romero & Rojo-Ramírez, 2017), they will detrimentally affect firm performance. Additionally, we argue that the bargaining power of vertical parties might be considered as a threat for the SEW endowment of family influenced firms, which may perceive that vertical parties might compromise their family wealth (De Massis, Kotlar, Mazzola, Minola, & Sciascia, 2018; Kotlar, Fang, De Massis, & Frattini, 2014b) and their survival in the long-term (Kotlar, De Massis, Frattini, & Kammerlander, 2020; Kotter, 1979), conditioning thus, their performance outcomes.

Therefore, and based on the aforementioned arguments, we intend to answer two questions in the present chapter. First, we revisit the question of how and why family influence impacts on firm performance in a context of private firms. Second, we examine when and to what extent SBP and CBP affect the decision-making processes in family influenced firms and drive changes in firm performance. To that end, we address the moderating influence of SBP and CBP in the family influence-firm performance relationship.

Key Terms in this Chapter

Family Goals: Array of non-economic utilities that derive from the pursuit of family's SEW and that are likely to reflect the values, attitudes, and intentions of a business family in the firms’ strategic decision-making.

Family Owners: Family members of a family influenced firm who hold firm shares.

Family Managers: Family members of a family influenced firm who hold managerial posts.

Suppliers: Firms that provide goods and services that another person or organization needs.

Long-Term Performance: Economic outcomes obtained in the long-term as a result of the interaction between firms’ characteristics, actions and environment.

Vertical Parties: Organisations that are in upstream or downstream positions in the supply chain relative to a firm.

Customers: People or firms that buy goods or services from other firms.

Strategic Decision-Making: The process of developing and implementing decisions that will influence the long-term welfare and survival of the firm.

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