SME familiness and the use of external accountants as advisors: performance implications

Abstract

Purpose

Past research is mixed on family small and medium-sized enterprises’ (SMEs) use of external advisors and the limited empirical evidence is confined to developed markets. Drawing on the knowledge-based view of the firm, this research focuses on the “familiness” characteristic of SMEs and their use of external accountants as advisors in an emerging marketplace. Using internal resources for basic tasks is proposed to strengthen this relationship from a managerial cognition lens. Focusing also on SME internalization, this research probes the performance ramifications of using external accountants as advisors.

Design/methodology/approach

Hierarchical regression is used to test the hypotheses. The mediation hypothesis is tested by bootstrapping the indirect effect. The interaction hypothesis is visualized with simple slope analysis.

Findings

The results indicate that the familiness of SMEs is positively associated with the use of external advisors, and thereby, with high performance. SMEs with higher international exposure also use these external advisors to a greater degree. Family SMEs that have a focused use of internal resources for basic tasks benefit more from the use of external accountants for advising tasks.

Originality/value

This research sheds light on how family involvement in management influences firm performance, showing the moderating role of the use of internal advisors for basic tasks and the mediating role of the use of external accountants for advising. We add to the knowledge-based view by describing how family SMEs can utilize internal and external knowledge resources simultaneously.

Citation

Sırdar, K., Kiessling, T., Dabic, M. and Ateş, N.Y. (2024), "SME familiness and the use of external accountants as advisors: performance implications", International Journal of Entrepreneurial Behavior & Research, Vol. 30 No. 11, pp. 306-330. https://doi.org/10.1108/IJEBR-01-2024-0067

Introduction

Due to the liability of smallness, small and medium-sized enterprises (SMEs) face large resource gaps (Eggers, 2020). One such key resource lacking for SMEs is the knowledge resources that can be provided by external advisors. Scholars suggest SMEs require unique advising practices due to their differing characteristics (Davis et al., 2013). Among SMEs, family SMEs differ in their advising needs because of the familiness bundle, which includes specific characteristics of the family SME such as family involvement, generational transfer, traditions and a privacy culture (Davis et al., 2013; Yin et al., 2023). However, research on external advisors specific to family SMEs is limited. Previous studies have called for research on various aspects such as the effects of familiness (Naldi et al., 2015), sampling family firms rather than advisors (Davis et al., 2013; Strike, 2012), focusing on the execution of tasks (Sandgren et al., 2023) and firm characteristics such as size and internationalization (Strike et al., 2018). We address these gaps by examining how family involvement in management (FIM) (i.e. familiness) and internationalization, contingent on the use of internal resources for basic tasks, lead to the use of external advisors and eventually affect SME performance.

While the SME literature and the family business literature (Barbera and Hasso, 2013; Chikweche and Bressan, 2021; de Groote and Bertschi-Michel, 2021) view external advisors as a valuable knowledge source for firms, both literature streams mostly focus on developed markets. The performance implications of external advising are not much studied in an emerging market context. Emergent markets, i.e. the markets of developing countries with growth expectations (Duttagupta and Pazarbasioglu, 2021), are characterized by transitions in capital markets, legal systems, labor markets and institutions toward economic liberalization (Armanios et al., 2017) and underdeveloped institutions (Khanna and Palepu, 2000). Theories developed in mature economies may not adequately apply in emerging economy contexts. Since the institutional context constantly changes in emerging markets, family firms embedded in such dynamic contexts (Bruton et al., 2010; Randerson and Estrada-Robles, 2023) need to be highly adaptable (Chakrabarti and Mondal, 2020; Eijdenberg et al., 2019). Therefore, the outside acumen of an advisor is particularly required for family SMEs in emerging markets.

Addressing the key role of external advising for family SMEs in emerging markets, our research question is built upon a conundrum about the performance effects of FIM. Family members are unique resources for family firms (Duarte Alonso et al., 2018), as they devote themselves to the long-term success of the firm (Miller and Le Breton-Miller, 2006) through their inherent orientation to preserve the family (Scuotto et al., 2024). Hence, they are often appointed to senior management positions. Yet, when more family members take part in the management, the talent pool for managerial positions narrows down due to the exclusion of external top talent. This is problematic because family members’ in-house knowledge and capabilities are limited (Bennett and Robson, 2005) and the exclusion of external talent creates crucial knowledge gaps much required for family firms’ success and survival. This is essentially relevant in emerging markets where institutional voids resulting from weak formal institutional infrastructure need to be filled with local networks of advisors who assist firms in external relationship development (Peng, 2003). Moreover, as family members strongly identify with the firm (Cabrera-Suárez et al., 2018) and see the firm’s success as an extension of their own well-being (Chirico and Salvato, 2008), they are less likely to trust external parties. Research shows family firms are reluctant to use external expertise in terms of business advising or consultancy (Randolph et al., 2019). Therefore, it is difficult for an external specialist to be part of the family clique, establish trust and provide business advice to family SMEs.

Despite this negative stance toward external advisors in general, external accountants (i.e. Certified Public Accountants) have a unique position in family SMEs that bestows them the chance to get into the circle of trust and be perceived as advisors. External accountants are certified professionals who are hired to conduct obligatory accounting and tax services in line with legal requirements (Blackburn et al., 2018). They are well positioned to be perceived as competent advisors in family SMEs due to their ongoing relationship with the family, their authority status stemming from their professional knowledge, and their access to insider information about potential improvement areas.

Accordingly, we investigate the association between SME FIM – i.e. the extent to which family members take part in strategic decision-making (Roffia et al., 2021) – and the use of external accountants for advising tasks together with their performance implications in an emerging market context: Turkey. Turkey is a founding member of the OECD and G20, and is a newly industrialized country. As of 2023, Turkey’s economy is the 19th-largest in the world by GDP (The World Bank, 2024). Turkey has an estimated 3.2 million active SMEs, representing 99.8% of all registered entities in the country. The SMEs are 65% of all companies in Turkey, comprise 56% of its exports, and employ 74% of the working population (TOBB, 2020). About 95% of Turkish companies are family businesses (Altindag et al., 2011). Turkey, as an emergent market, is particularly relevant to study our research question because family SMEs in Turkey inherently cope with the liability of smallness, as virtually all SMEs are founded as family businesses and traditionally 95% of them continue to be family businesses even when they grow large (İlter, 2001).

Drawing on the knowledge-based view (KBV) and the managerial cognition literature, we propose that the use of an external accountant as an advisor mediates the relationship between SME familiness and performance, while the allocation of basic accounting tasks to internal resources strengthens the relationship between SME familiness and the use of external accountant as an advisor. We also hypothesize the SME foreign trade exposure as an antecedent of the use of external accountants, due to the enhanced knowledge needs. We tested our conceptual model (Figure 1) based on data from 104 SMEs from various industries in an emerging economy context.

This research has several contributions. First, it empirically demonstrates when and how advisory services positively affect SME performance. This finding is important since past research is mostly silent about the mechanisms and contingencies regarding the relationship between firm performance and external advisors of SMEs (Barbera and Hasso, 2013; Chikweche and Bressan, 2021). Second, this research contributes to the KBV by describing how family SMEs can utilize internal and external knowledge resources simultaneously. The results demonstrate that external accountants take an active role in closing the knowledge gaps by providing advisory services, and contribute to family SMEs’ performance, particularly when internal resources are assigned to conduct statutory tasks. Third, while the SME literature studied a vast spectrum of antecedents for the use of external accountants as business advisors (De Bruyckere et al., 2017), we expand this literature by emphasizing the role of SME internationalization, next to FIM.

Theory and hypothesis development

The KBV provides a theoretical foundation to study the effects of external knowledge resources on SMEs. The KBV builds on the resource-based view (RBV) which highlights knowledge as a resource that delivers competitive advantage (Durst et al., 2023; Fang et al., 2018; Martinez-Conesa et al., 2017). The KBV defines a firm’s main role as transforming the specialist knowledge that resides in individuals to goods and services and asserts that competitive advantage primarily relies on knowledge resources (Grant, 1996). Therefore, SMEs must find ways to obtain knowledge resources to cope with the liability of smallness (Roxas and Chadee, 2011), since the breadth of knowledge diminishes the likelihood of failure (Guerrazzi et al., 2022). Liability of smallness suggests that the smallest organizations have the highest failure rates regardless of firm age due to the difficulty of raising capital, coping with tax laws, and government regulations, and disadvantages in obtaining the best human resources which are attracted by larger firms (Lefebvre, 2022). For example, research shows that advice from a competent board of directors can compensate for weaknesses in managerial resources in the SME context (Calabrò et al., 2021). As such, family SMEs may need to outsource expertise to fill internal resource gaps, such as legal, accounting, human resources and strategy knowledge (Casprini et al., 2017; Randolph et al., 2019).

SMEs’ knowledge base comprises two main elements: existing internal knowledge and exposure to external knowledge (Barros-Contreras et al., 2022). Internal knowledge enables family SMEs to utilize their unique resources and capabilities (the familiness bundle) in strategic processes and to achieve competitive advantage (Duarte Alonso et al., 2018). Because family members cannot develop all the knowledge and expertise required for family SME success, absorbing knowledge from outside the SME becomes vital for family SMEs (Randolph et al., 2024), although family firms are cautious of utilizing external expertise (de Groote and Bertschi-Michel, 2021). SMEs require outsider assistance as a form of knowledge resource (Singapurowoko and Hartono, 2020). While large firms have means to fulfill knowledge gaps internally, the KBV stresses that SMEs, in particular, must fill their knowledge gap from external resources due to their liability of smallness. Based on this, both the family business and SME research streams point out external advisors as sources of unique knowledge for SMEs (Randolph et al., 2024).

Family SMEs and the use of external advisors

Family SMEs are characterized by FIM (or “familiness”) (Gallucci et al., 2015). Scholars have long looked into the effect of FIM on family firm performance, yet the results are inconclusive; studies report positive, negative and null associations (Rovelli et al., 2022; Yang et al., 2020). One likely reason for the inconclusive findings is the lack of scholarly attention on the mechanisms of how FIM exerts its influence on family firm performance. We focus on the family firm’s use of external accountants as advisors to shed light on the process.

Knowledge is considered a core component of family SMEs’ human capital since family employees of a family SME have in-depth tacit, firm-specific knowledge (Duarte Alonso et al., 2018). FIM is associated with SME performance primarily due to the human capital that family members bring to the management of the SME. Similarly, the KBV suggests the familiness bundle includes tacit knowledge in the utilization of resources and capabilities which are brought by the family members. Nevertheless, families do not have the expertise in every aspect of management, prefer to use internal resources (Belkhodja and Daghfous, 2020) and cannot afford to hire specialists for every position (De Bruyckere et al., 2017). Their in-house knowledge, capabilities and competencies are limited; therefore, it is of particular importance for the family firm to obtain knowledge resources from external advisors.

Because family members highly identify with the organization (Chirico and Salvato, 2008) and see its success as an extension of their own well-being (Durst and Henschel, 2021), they are less likely to trust external parties. Research shows family firms are distant from external expertise in terms of business advisors or consultancy (Feranita et al., 2017). Advice is often sought from family members or through other personal relationships (Mandl, 2008), as family firms make decisions on family values, beliefs and socioemotional reference points (Bargoni et al., 2023). Therefore, it is difficult for an external specialist to be part of the family clique, establish trust and provide business advice to family SMEs. However, external accountants have a unique position in family SMEs that bestows them the chance to get into the circle of trust (Strike, 2013) and be perceived as advisors.

The relationship between the accountant and the family SME is born out of the necessity to comply with legal requirements (Blackburn et al., 2018). Accounting and tax services are obligatory and external accountants are mainly hired for these tasks (Everaert et al., 2007). This obligatory relationship provides external accountants the opportunity to strengthen and deepen their relationship with their clients (Devi and Samujh, 2010). Research suggests that when a trusting relationship has developed over time SMEs utilize their accountants for strategy, regulatory compliance, human resources, IT and succession (Nuijten et al., 2020).

Performing basic accounting tasks such as tax returns, preparation of financial statements, bookkeeping and compliance (Carey et al., 2000) provides external accountants with inside knowledge about the firm. This knowledge together with proven competence in performing the basic accounting tasks increases the extent to which family SMEs use their external accountants as advisors.

H1a.

There is a positive relationship between FIM (familiness) and the use of an external accountant as an advisor.

Foreign trade exposure and the use of external advisors

Doing business internationally for an SME is difficult due to their lack of market knowledge (Rovelli et al., 2022). Foreign knowledge such as the rules and regulations, government actions and procedures, and foreign cultures make it difficult for an SME to coordinate and maintain network relationships that are geographically and culturally diverse (Abdi and Aulakh, 2018). Lacking internal resources, SMEs require assistance to seek, build and maintain relationships with foreign partners in the host country (Martín et al., 2022). Although SMEs can receive informal advice and support from their peer SMEs (Galloway et al., 2021), these networks can hinder a firm’s success internationally because they can miss opportunities and be locked into a poor relationship (Musteen et al., 2010).

Past research has suggested due to the complexities, family firms may need advice to internationalize their business (Child et al., 2022). As a case in point, exporters seek external advice more so than their non-exporting counterparts (Xiao and Fu, 2009). Therefore, foreign trade practices might increase a firm’s “awareness” of advising services, which is an important motivator to seek advice (Reddrop and Mapunda, 2015) and is expected to enhance the use of external accountants as advisors.

H1b.

There is a positive relationship between foreign trade exposure and the use of an external accountant as an advisor.

The moderating role of deployment of internal resources for statutory tasks

Any organizational action is a product of managers’ interpretations of the situation that materialize through managers’ choices and actions (Kaplan, 2011). The managerial cognition perspective suggests that the actions of managers illustrate their focus on what they think is important for their firm (Kaplan, 2011; Rouleau, 2005). Thus, the allocation of internal resources to statutory tasks represents the importance attached to the external accountant’s services. These services are not limited to solely statutory services but encompass a broad range of knowledge needs for SMEs. External accountants often position themselves as multidisciplinary “one-stop shops” for business advice on a multitude of subjects ranging from fiscal matters to management consulting (Cahyaningtyas and Ningtyas, 2020). As the role of the external accountant transitions from a bookkeeper to an advisor, their services require further attention from the decision-makers and the capacity to perform them (Carey, 2015).

Scholars differentiate business advice from the traditional statutory services that external accountants offer and classify the tasks offered by external accountants into statutory tasks and advisory tasks (Kubíček et al., 2020). Statutory tasks are composed of compliance and monitoring services that are conducted to fulfill legal obligations such as bookkeeping, tax and audit services. They revolve around the preparation and interpretation of financial data according to legislative standards. Statutory services include processing invoices, financial transactions, interim reporting, period-end accounting, preparing financial statements and complying with tax regulations, remuneration schemes and salary regulations (De Bruyckere et al., 2017; Døving and Gooderham, 2008; Everaert et al., 2007). Statutory tasks are routine in the sense that they have straightforward and standardized outputs and do not need much judgment on the external accountant’s side (De Bruyckere et al., 2017).

Advisory tasks, also called non-compliance tasks, are voluntary in nature – that is firms may opt to demand them from the external accountant or not, as well as the external accountants may prefer to supply them or not. There is a wide range of advisory tasks with the most frequent types of business advice are: training and skills development, business development, business planning, recruitment, corporate finance and budgeting, financial sourcing, business restructuring/type of company entity, procurement of property, plant and equipment, pension funds, insurance and investments, inheritance and generation transfer, management and organization, and fulfilling the financial officer position (De Bruyckere and Everaert, 2021; Døving and Gooderham, 2008). The advisory tasks are non-routine tasks that require deep judgment and cannot be standardized like routine compliance tasks.

In line with the managerial cognition perspective, family SMEs who utilize their internal resources to conduct statutory tasks not only signal what the organizational decision-makers deem to be important but also create spare capacity for the external accountants to conduct further non-compliance tasks. External consultants, thereby, continue to provide the knowledge services that are lacking internally, and may further be seen as advisors due to the enhanced importance brought by the cognition of the family decision-maker. Therefore, if a family SME utilizes an internal accountant for basic statutory tasks, we propose there will be more use of the external accountant as an advisor.

H2.

The use of internal resources for statutory tasks positively moderates the relationship between familiness and the use of an external accountant as an advisor.

Use of external advisor and firm performance

Firm performance is a central variable of interest both in SME research and in family business research (Soriano and Castrogiovanni, 2012; Maley et al., 2021). External business-support professionals fulfill many roles in organizations: they act as advocates, advisors, facilitators, leaders, scientists and even storytellers (Whittle, 2006). Getting advice from these outsiders has positive effects on firm performance through several mechanisms, such as enhanced decision quality, increased planning, diversity, breadth of knowledge and the development of financial management practices (Cahyaningtyas and Ningtyas, 2020).

Research suggests that SMEs need the contribution of external advisors and that the advisors influence SMEs’ both soft outcomes (e.g., improved ability to manage and ability to cope) and hard outcomes (e.g. profitability, turnover and reduced costs) (Bertschi-Michel et al., 2021; Ramsden and Bennett, 2005). External accountants have a central role in external business advice (Oosthuizen et al., 2020). Because SMEs often require external accountant services for statutory tasks (e.g. taxes, governmental required reporting and auditing), these external accountants possess valuable tacit knowledge about the SMEs which puts them in a strong position to advise the SMEs beyond basic accounting tasks. As the KBV suggests, external accountants help SMEs fill numerous crucial tacit knowledge gaps. Therefore, SMEs that utilize their external accountants as advisors will perform better.

H3.

There is a positive relationship between the use of an external accountant as an advisor and SME firm performance.

The mediating role of the use of external accountants as advisors

Following the first and the third hypotheses, we argue that the use of external accountants as advisors mediates the relationship between familiness and SME performance. Family SMEs experience knowledge gaps and may benefit from trusted advisors (Cahyaningtyas and Ningtyas, 2020) who often have a long-term relationship with the family. Since owners of family businesses hesitate to share sensitive information with external actors, accountants already have access to such confidential information, thereby typically fulfilling this role (Kubíček et al., 2020; Reddrop and Mapunda, 2015).

Due to the complex interactions between family members, ownership issues, multigenerational involvement, the powerful influence of the founder, and the existence of a privacy culture and tradition (Davis et al., 2013), family SMEs require unique advising practices relating to these complex interactions. Within this complexity, family firm advisors are found to have a positive impact on the economic and non-economic wealth creation of the family firms (Reay et al., 2013) that relate to the firm performance. External accountants, in particular, provide unique advising services to family SMEs related to their idiosyncratic familiness bundle (Kubíček et al., 2020) which, we argue, increases SME performance.

H4.

The use of an external accountant as an advisor mediates the relationship between familiness and SME firm performance.

Methods

Sample and data collection

To test our hypotheses, we collected data from SMEs in Turkey. The current legislation in Turkey defines SMEs as having less than 250 employees and we adhered to this definition. We conducted pen and paper surveys and asked respondents each question face to face ensuring that they understood the survey items correctly. In our study context, the external accountants are Certified Public Accountants (CPAs). CPAs are accounting professionals who pass standardized CPA tests and also meet national certification and experience requirements. As of 2024, there are 125.912 CPAs in Turkey, 85% of which have a bachelor’s degree [1]. Fifty percent of CPAs are under the age of 45. The total number of CPAs is split in half between the ones working independently and the ones employed by a firm. The Union of Chambers of CPAs of Turkey (TURMOB), a member of the International Federation of Accountants, is responsible for all duties associated with CPAs. The general duties of CPAs are bookkeeping, preparation of tax forms, legal opening or closing of companies, preparation of financial statements, preparation, tracking of documentation related to social security and advising.

We obtained 104 responses. Our power analysis ensured this sample size was sufficient to detect moderate effects. The face-to-face nature of our responses (i.e., each survey question being conveyed orally to the respondents, giving them the chance to ask clarification questions if need be) provides our data with high reliability due to the reduced likelihood of certain response biases. Our sample size was also comparable to similar empirical studies; a bare minimum requirement is to have at least 5 times more cases than independent variables (Tabachnick and Fidell, 1989). More than half of the firms we surveyed were SMEs that have less than 100 employees. The industries represented in our surveys included 16 sectors, including accommodation, agriculture and fishing, automotive, chemicals and petroleum, communication, construction, electricity and electronics, food and beverage, forest, paper and packaging, information technologies, transportation and logistics, metals, mining, textile and apparel, trade (sales and marketing) and training.

Measures

We measured our constructs based on established scales in the literature. Table 1 shows the list of the references that we draw our survey items from [2]. The whole set of survey items is provided in the Appendix. In the absence of objective financial information, the perceptions of respondents for firm performance with respect to its competitors are widely used (Dess and Davis, 1984; Dess and Robinson Jr, 1984; Gruber et al., 2010; Lavie et al., 2012). Accordingly, we operationalized SME performance by respondents’ subjective assessments. The five-item scale had good reliability (Cronbach-α = 0.94). We included the perceived competency of external accountant in basic accounting tasks, and that of in advising tasks as control variables. Past research demonstrated that perceived competence in statutory accountancy services and business advisory increases the likelihood of small firms’ usage of accountants as advisors (Gooderham et al., 2004). The scale had reliability of 0.60 and 0.73, respectively. A self-reported measure for firm foreign trade exposure is used which is operationalized as the percentage of the firm’s revenue coming from international sales.

Validity and reliability tests

All of our measures were utilized from previous research. To overcome social desirability bias and to establish rapport, we informed the respondents that there is no compensation for responding, participation is strictly voluntary, they may refuse to participate at any time and there are no right or wrong answers (Podsakoff et al., 2012). All measures were originally in English. Following Brislin (1970), we applied a translation/back-translation and pilot testing procedure. A panel of Turkish-speaking academics translated and back-translated the surveys in several iterations until the whole panel reached a consensus (Douglas and Craig, 1983). As a pilot test, we interviewed SME owners through convenience sampling. These SME owners were from a diverse portfolio and were knowledgeable enough about their company’s accounting policies. We carefully eliminated ambiguities in survey items and added clarifications to the survey wherever necessary.

After collecting the data, we conducted confirmatory factor analyses to check the discriminating and convergent validity of the Likert-scaled firm performance and the use of an external accountant for advising tasks. The measurement model fit the data well (χ2 = 168.90, df = 43, comparative fit index (CFI) = 0.91, Tucker Lewis index (TLI) = 0.88, root mean square error of approximation (RMSEA) = 0.16). All factor loadings were greater than the cutoff level of 0.7 and significant at 0.01 level, which supports convergent validity A model with all items set to load on a single latent construct (χ2 = 527.94, df = 44, CFI = 0.65, TLI = 0.56, RMSEA = 0.33) performed poorer than the measurement model(∆ χ² = 359.04, df = 1, p = 0.000), which supports the discriminating validity.

We checked common method bias with Harman’s single-factor test. The results do not indicate a method bias. In fact, the risk of common method bias is mitigated by the measurement of model variables through different methods (Podsakoff et al., 2012). Furthermore, common method bias would have worked against obtaining a significant interaction effect (Evans, 1985).

Analytical approach

We used hierarchical regression analysis to test our hypotheses where the control variables, main effects and interaction effects are sequentially entered. An interaction term of FIM and the use of an internal accountant for basic tasks is created to test the moderation effect. The mediation effect is tested by whether the confidence interval for the indirect effect excludes zero using the PROCESS macro (Hayes, 2017). We report both standardized and unstandardized coefficients in the result tables, but we refer to standardized coefficients within the text due to the scale differences.

Results

Table 2 presents descriptive statistics and correlations. We observe significant correlations between FIM and the use of an external accountant for advising tasks (r = 0.395, p = 0.01), and between FIM and the use of an internal accountant for basic tasks (r = 0.457, p = 0.01) in the hypothesized directions.

The largest variation inflation factor in all regression models was 1.7, which eliminates concerns for multicollinearity. The Koenker tests for heteroskedasticity show that residual variances are homogenous for firm performance and the use of external accountants for advising tasks models.

Table 3 shows the hierarchical regression analysis results. The dependent variable of the first two models in Table 2 is the extent to which external accountants are utilized for advising tasks and that of the next two is firm performance. Hypothesis 1a predicts a positive relationship between FIM and the use of external accountants for advising tasks. Hypothesis 1b predicts a similar relation between foreign trade exposure and the use of external accountants for advising tasks. When we entered the control and the main effects in Model 1, the model accounted for 38% of the variance. FIM (ß = 0.21, SE = 0.10, p = 0.02) and foreign trade exposure (ß = 0.16, SE = 0.08, p = 0.05) are positively associated with the use of an external accountant for advising tasks which supports Hypothesis 1a and 1b.

Hypothesis 2 predicts that the use of an internal accountant for basic tasks strengthens the relationship between FIM and the use of an external accountant for advising tasks. The significant interaction between FIM and the use of an internal accountant for basic tasks in Model 2 (ß = 0.56, SE = 0.01, p = 0.027) provides support for Hypothesis 2 (∆R² = 0.03, p = 0.027). Figure 2 graphically depicts this relationship. As predicted, FIM is positively related to the use of external accountants for advising tasks when the use of internal accountants for basic tasks is high. When the use of an internal accountant for basic tasks is 1SD above the mean, the gradient of the simple slope is 0.38, t = 1.73, p = 0.087. When the moderator is 1 SD below the mean the slope does not significantly differ from zero (−0.08, t = −0.41, p = 0.686).

Model 3 is the control variable model for firm performance (R² = 0.112). The perceived competency of the external accountant in advising tasks has a marginally significant effect on firm performance (ß = 0.17, SE = 0.10, p = 0.090). Hypothesis 3 predicts the positive effect of the use of external accountants for advising tasks on firm performance. Model 4 provides support for Hypothesis 3 as the effect of the use of the external accountant for advising tasks on firm performance (ß = 0.46, SE = 0.08, p = 0.000) is positive and significant.

Hypothesis 4 posits that the use of an external accountant for advising tasks mediates the relationship between FIM and firm performance. The bias-corrected confidence intervals of the indirect effect excluded zero (CI: [0.13, 0.36]), supporting Hypothesis 4.

Robustness tests

First, we used an alternative measure of familiness by asking respondents directly if they perceive their firm as a family firm or not (Kotey and Folker, 2007). We obtained similar results using this dummy variable. A significant main effect (ß = 0.29, SE = 0.09, p = 0.002) and explained an additional variance of 7.7% (p = 0.002) support Hypothesis 1a. The interaction of the dummy variable and the use of an internal accountant for basic tasks was also significant (ß = 0.65, SE = 0.22, p = 0.004) and explained 5.5% additional variance (p = 0.004), which supports Hypothesis 2. The 95% bias-corrected bootstrapping confidence intervals for the indirect effect of the use of external accountants for advising tasks excluded zero (CI: [0.16, 0.82]), which supports Hypothesis 4.

Second, we tested the whole moderated mediation model to investigate the conditional indirect effect of familiness on firm performance using the PROCESS macro (Hayes, 2017). The bias-corrected confidence intervals for the indirect effect based on 5,000 random samples exclude zero (CI: [0.03, 0.23]) for the high values of the moderator (1 SD above the mean). The interval did not exclude zero, thus was not significant for the low values of the moderator (1SD below the mean).

Discussion

This research builds on the family business and SME literature to extend the a priori knowledge on how family SMEs utilize outside knowledge resources, in specific, those of an external accountant in the emerging marketplace of Turkey. We shed light on when and how this utilization enhances family SME performance. Drawing on the KBV that designates knowledge as a valuable resource that firms depend on to excel, our findings highlight the importance of external accountants as advisors for the family SME performance.

Our first research question focuses on whether FIM affects the extent to which SMEs use an external accountant as an advisor. Our results challenge previous findings that suggest family firms remain distant from business advisors and consultants (Feranita et al., 2017) or prefer advice from their close circle (Mandl, 2008). We provide empirical evidence that positions external accountants as agents sufficiently close to the family, thereby preferred as advisors. Additionally, the task complexity, such as maintaining foreign trade exposure, motivates family SMEs to use external accountants as advisors, aligning with previous research (Child et al., 2022).

Our second research question investigates the interplay between FIM and using internal resources for statutory tasks on employing external accountants for advisory roles. This premise is driven by the general notion that emerging market conditions influence managerial cognition motivating family SMEs to allocate capacity for external accountants’ non-compliance tasks. While the liability of smallness often prevents family SMEs from recruiting a CPA internally (Ulvenblad and Barth, 2021), assigning internal accountants to basic statutory tasks enhances the use of a CPA as an advisor contributing to filling knowledge resource gaps externally. This aligns with findings from previous studies (Bertschi-Michel et al., 2021; Ramsden and Bennett, 2005), as well as extends them by showing the performance implications.

In sum, our findings empirically demonstrate that family SMEs use their external accountants as advisors, particularly when internal resources are used for statutory tasks, resulting in high SME performance. These insights contribute to both theory and practice as discussed in the following sections.

Theoretical contributions

We engage in the conversation about the performance implications of FIM (Gallucci et al., 2015; Kim and Gao, 2013; Kowalewski et al., 2010; Sciascia and Mazzola, 2008). There is a conundrum in the literature about whether FIM is beneficial for firm performance or not. There are two opposing camps. One camp suggests that FIM decreases agency problems by aligning the interests of the executives, and the owners and family members provide vital human, social and financial capital to the firm. Thus, FIM is valuable for firm performance (Castillo and Wakefield, 2006; Chrisman et al., 2004; Corbetta and Salvato, 2004; Danes et al., 2009; Gibb Dye, 2006; Lee, 2006). The other camp stresses that FIM does not eliminate agency problems because family managers prioritize nonmonetary returns instead of monetary returns that maximize shareholder value and FIM mitigates the talent pool for managerial capabilities. Thus, FIM is harmful to the firm performance (Burkart et al., 2003; Filatotchev et al., 2005; Morck and Yeung, 2003). We reconcile these two research streams and empirically demonstrate that family firms can both benefit from the family members’ unique resources, as well as fill the resulting knowledge gaps through their external accountants’ advisory services. Our research contributes toward a more positive stance toward FIM’s effect on firm performance.

Our findings also shed light on one of the pivotal mechanisms for the positive effect of FIM on SME performance: the advisory role of external accountants which brings in valuable external knowledge to family SMEs. Previous research on family businesses highlighted the importance of external knowledge resources (Chirico and Salvato, 2008; Daspit et al., 2018) and the contributions of external accountants to firm performance (Barbera and Hasso, 2013; Nicholson et al., 2009). However, these studies have not provided an explanation of external accountants’ contribution to firm performance through their advising role. For instance, Barbera and Hasso (2013) used only a dummy variable to indicate whether an external accountant is employed when studying its effects on performance. This approach may not capture the specifics of the process by which external accountants contribute to firm performance. We add to the literature by empirically demonstrating the role of external accountants in boosting SME performance, which has very little research to date, albeit its importance to both researchers and practitioners is well addressed (Davis et al., 2013; Naldi et al., 2015; Strike et al., 2018).

Our research shows the importance of external knowledge resources and demonstrates the performance effects of external knowledge. This emphasis contributes to the KBV by offering a novel context to the theory: accounting and financial processes in SMEs. Within the context of accounting practices in SMEs, only a few scholars have studied the effects of external knowledge resources (Berry et al., 2006; Døving and Gooderham, 2008). We add to this research by noting that external accountants are instrumental in filling knowledge resource gaps This finding signifies KBV as a strong theoretical foundation to investigate advising at the intersection of family business and SME research domains.

We add to the family firm literature by highlighting the characteristics and practices that make the external accountant an advisor to the family SMEs, which still is an under-researched area (Strike et al., 2018). In the family business domain, only a handful of studies (i.e. Cascino et al., 2010; Salvato and Moores, 2010; Trotman and Trotman, 2010) researched internal accounting and auditing practices as a determinant of services received from the external accountant. Research on internal accounting practices of SMEs presents some empirical evidence on the use of external accountants as advisors beyond that of accounting (i.e. Collis and Jarvis, 2000, 2002); however, such studies did not include the familiness construct. We contribute to this stream of research by posing familiness as an antecedent.

Finally, by focusing on a developing country, we also add to the literature about advising for family businesses and SMEs literature streams in emerging markets. Emergent economies are characterized by low income but high growth due to economic liberation (Hoskisson et al., 2000) and are predicted to account for a majority of the world’s economic growth (Bruton et al., 2013). Despite their importance, the emergent economy context is disproportionately represented in business research (Bruton et al., 2013). Particularly, there is very little research on FIM from emerging countries (Kowalewski et al., 2010). Turkey is an emerging economy according to the International Monetary Fund. Around ninety-five percent of the companies in Turkey are family firms (Altindag et al., 2011) and 85% of the family firms are SMEs (Mandl, 2008). Turkey is a particularly good context to test our external advising-related hypotheses because 51% of family firms in Turkey think that receiving consulting services is unnecessary or not suitable (Mandl, 2008).

Managerial implications

Our findings hold two managerial implications. First, family SMEs should leverage their external accountants for advisory roles to enhance performance. This involves integrating internal resource utilization with the value-added services of external advisors. While employing a full-time CPA might be economically viable only beyond a certain sales threshold (Aldrich and Auster, 1986; Collis and Jarvis, 2000, 2002), family SMEs should consider employing an accounting professional internally. This internal position can handle basic accounting tasks, enabling the external accountant to focus on strategic advisory roles. This approach balances cost and benefit, aligning with the resource constraints and talent acquisition challenges typical in family SMEs (Aldrich and Auster, 1986). Evaluating current accounting needs and determining the feasibility of hiring an internal accounting professional with sufficient experience for basic tasks is essential. Developing a framework for utilizing external accountants primarily for advisory purposes, ensuring their involvement in strategic decision-making processes and implementing regular training and development programs for internal accounting staff to improve their competency will enhance collaboration with external advisors.

The second managerial implication concerns external accountants. It is widely acknowledged that accountants are becoming strategic management consultants (Bennett and Robson, 2005; Holtzman, 2004; Jeacle, 2008), and advising services are more profitable for them (Breen et al., 2004). Prior literature reports that almost 70% of external accountants spend less than 40% of their time on fulfilling non-compliance tasks (Devi and Samujh, 2010). In addition, only 6% of the accountants have a turnover of 60% or more from providing additional services. Most external accountants’ mainstream revenues come from statutory services. Despite the emphasis on advisory services as a major driving force in the accounting industry, the reality seems to be different: providing statutory services is more widespread and brings more revenue than non-statutory services (Blackburn et al., 2018). Our results may help to facilitate this transition from statutory services to advisory services and strongly suggest external accountants invest in their competencies about non-compliance tasks. Investing in continuous professional development focused on advisory skills, including strategic management, financial planning and business development, is pivotal. It is arguable that establishing partnerships with family SMEs to offer bundled services that combine statutory and advisory functions and creating marketing strategies highlighting the benefits of advisory services to attract more family SME clients seeking strategic guidance will facilitate this transition.

Limitations and future research

This research has some limitations as well. Although we drew on the existing literature and established theories, our cross-sectional data did not allow us to make causal inferences. An experimental design that investigates our theoretical framework would be conclusive for causality and a fruitful future research direction. Another limitation is that we lack the temporal aspect of using internal and external resources for the success of the company. The temporality of the results is twofold. First, the use of internal and external accountants might have a transforming nature over time, as family firms have a dynamic capability of absorbing external knowledge and internalizing it (Daspit et al., 2018). Therefore, in its early stages of foundation, a family SME might depend on the external accountant, then employ an internal accounting personnel and distribute the accounting workload accordingly. At the final stage, the firm might recruit a full-time CPA and fully utilize them in all accounting and advising tasks. Although measuring the stage of a firm in the life cycle through the firm age is frequent (i.e. Everaert et al., 2010), family firms are complicated when it comes to measuring their maturity due to succession problems. Moreover, issues such as the transmission of knowledge (Giovannoni et al., 2011) and the accountant’s role in succession (Cesaroni and Sentuti, 2016) make it more problematic. Therefore, future studies might empirically test the effects of a family SME’s stage in its life cycle for its usage of resources for accounting and advising processes. The second aspect of temporality is about the performance of the firm. Although we followed the past research (Baker and Sinkula, 2009; Craig and Dibrell, 2006; De Massis et al., 2016; Holt et al., 2017) by asking the respondents to rate their firms’ performance for the last three years regardless of current economic conditions, we acknowledge that perceived performance might be dependent on the time frame in which we collected the data. Further research might consider alternative ways of measuring family SME performance. Another avenue for further research could explore the potential interplay between the Chief Financial Officer (CFO) and the external accountant, since the non-compliance tasks conducted by the external accountant may fall in the decision domain of the CFO. Previous studies have examined issues such as the presence of a CFO in the top management team of a family SME and whether this position is held by a family member or an outsider (Sandgren et al., 2023). The relationship between the CFO and the use of an external advisor, such as an accountant, warrants further investigation.

Conclusion

This study demonstrates the effect of the use of CPAs as external advisors on SME performance, particularly highlighting the conditions under which internal firm resources become influential in this process. Our findings reveal SME familiness is positively associated with the extent to which external accountants are utilized as advisors which, in turn, enhances SME performance. This indicates a unique propensity among family SMEs to integrate external expertise into their decision-making processes.

Furthermore, we found that when SMEs with high FIM employ internal resources for basic accounting tasks, they utilize their external accountants as advisors to a higher extent. This combined adoption of internal and external knowledge resources in accounting positions leads family SMEs to have higher firm performance. By balancing internal capabilities and external expertise, SMEs can navigate the complexities of the business environment effectively.

Figures

Figure 1

Conceptual model

Figure 2

The interaction effect of family involvement in management and the use of internal accountant for basic tasks

Table 1

The list of references for the measures

Construct	Reference(s)
Family involvement in management	Kim and Gao (2013)
The use of external accountant for advising tasks	Berry et al. (2006)
The use of internal accountant for basic tasks	Everaert et al. (2010)
SME performance	Dess and Robinson (1984)
The perceived competency of external accountant in basic accounting tasks and in advising tasks	Gooderham et al. (2004)

Note(s): Survey items are provided in the Appendix

Source(s): Table created by authors

Table 2

Descriptive statistics and correlations

Variable		M	SD	1	2	3	4	5	6	7	8
1.	Firm performance	3.96	1.48	1
2.	Family involvement in management	2.00	1.77	0.026	1
3.	Use of internal accountant for basic tasks	54.37	32.73	0.213*	0.457**	1
4.	Use of external accountant for advising tasks	2.80	1.75	0.508**	0.395**	0.504**	1
5.	Foreign trade exposure	13.69	17.61	0.152	0.016	0.095	0.210*	1
6.	Perceived competency of CPA in basic accounting tasks	4.42	1.53	0.222*	0.047	0.172	0.244**	0.000	1
7.	Perceived competency of CPA in advising tasks	3.73	1.26	0.137	−0.448**	−0.289**	−0.213*	−0.041	0.202*	1
8.	Use of other external advisors	2.67	0.62	0.070	−0.006	0.055	0.185	0.027	0.171	0.020	1

Note(s): N = 104. Correlations larger than 0.20 (0.28) are significant at the level of 0.05 (0.01), two-tailed test, * p < 0.05, ** p < 0.01

Source(s): Table created by authors

Table 3

Multiple regression results

	Use of external accountant (CPE) for advising tasks								Firm performance
	Model 1				Model 2				Model 3				Model 4
Variable	b	ß	SE	p	b	ß	SE	P	b	ß	SE	p	b	ß	SE	p
Intercept	−0.60	0.00	0.08	1.000	−0.02	−0.09	0.09	0.292	2.30	0.00	0.57	0.000	2.25	0.00	0.51	0.000
Controls
Perceived competency of CPA in basic accounting tasks	0.16	0.14	0.08	0.118	0.15	0.14	0.08	0.113	0.14	0.15	0.10	0.148	0.07	0.07	0.09	0.470
Perceived competency of CPA in advising tasks	0.03	0.03	0.09	0.752	0.04	0.05	0.09	0.600	0.14	0.17	0.10	0.090	0.11	0.13	0.09	0.153
Use of other external advisors	0.44	0.20	0.08	0.019	0.43	0.19	0.08	0.018	0.18	0.10	0.10	0.326	−0.02	−0.01	0.09	0.886
Main effects
Family involvement in management	0.21	0.21	0.10	0.020	−0.19	−0.19	0.20	0.342
Foreign trade exposure	0.02	0.16	0.08	0.048	0.01	0.12	0.08	0.128
Use of internal accountant for basic tasks	0.02	0.34	0.09	0.000	0.01	0.13	0.07	0.315
Use of external accountant (CPA) for advising tasks													0.39	0.46	0.08	0.000
Interaction effect
Family involvement in management × Use of internal accountant for basic tasks					0.01	0.56	0.01	0.027
∆R2					0.03								0.11
∆F					5.04	0.027							23.95	0.000
R2	0.38				0.41				0.11				0.29
Adjusted R2	0.35				0.37				0.08				0.25
Model F	10.04	0.000			9.68	0.000			3.12	0.018			7.87	0.000

Note(s): N = 104

Source(s): Table created by authors

Notes

1. The 15% that have high school degrees were Certified General Accountants – a title abolished by law in 2008. They were converted to CPAs.

2. We thank the anonymous reviewer for this suggestion.

Appendix Survey items

Family involvement in management

Please indicate whether or not each of the following senior positions is filled by family members in your firm (scale: Yes, No, N/A).

• (1)

  CEO

• (2)

  Vice CEO

• (3)

  CFO

• (4)

  Head of Production

• (5)

  Head of Marketing

• (6)

  Head of HR

• (7)

  Board of Directors

Foreign trade exposure of the firm

What percentage of your firm’s revenue comes from international sales (as opposed to domestic sales)?

• (1)

  International %________

The use of an internal accountant for basic tasks

Please indicate the percentage of the workload for the following tasks that are conducted by your firm’s internal accounting personnel: (% for Internal Accounting Personnel – as opposed to External Accountants).

• (1)

  Entry of Invoices and Invoicing %__________

• (2)

  Interim Reporting %_________

• (3)

  Period-end Accounting %_________

• (4)

  Financial Statements %_________

• (5)

  Entry of Bank Receipts, Checks, Bonds %_________

The use of an external accountant for advising tasks

Please indicate the extent to which the external accountant/auditor fulfills the following tasks in your organization (scale: 1-not at all, 6-to a very large degree).

• (1)

  An active member of the management team

• (2)

  Business advice for the management

• (3)

  Source of emergency advice

• (4)

  Financial management support

• (5)

  Statutory advice

• (6)

  Other advice

Performance

Please indicate the extent to which your firm has performed in the following criteria in the last three (3) years with respect to your competitors in the industry (scale: 1-much worse, 7-much better).

• (1)

  Sales growth

• (2)

  Market share generation

• (3)

  Profitability growth

• (4)

  Employee growth

• (5)

  Ability to fund from profits

The perceived competency of external accountants in basic accounting tasks, and in advising tasks

• (1)

  Please rate the degree to which you perceive your authorized accountant as a competent source of statutory accountancy services (scale: 1-very limited competence, 6-very highly competent).

• (2)

  Please rate the degree to which you perceive your authorized accountant as a competent source of business advisory services (scale: 1-very limited competence, 6-very highly competent).