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Slack in family firms: evidence from Italy (2006-2010)

Giacomo Laffranchini (College of Business and Public Management, University of La Verne, La Verne, California, USA)
Mike Braun (School of Business Administration, University of Montana, Missoula, Montana, USA)

Journal of Family Business Management

ISSN: 2043-6238

Article publication date: 7 October 2014

626

Abstract

Purpose

The purpose of this paper is to examine the relationship between available slack and firm performance in Italian family-controlled public firms (FCPFs) from 2006 to 2010. In addition the authors analyze the moderating effects of specific board structure variables on the relationship between slack resources and firms’ performance.

Design/methodology/approach

A pooled cross-section of family and non-family publicly traded firms was drawn from COMPUSTAT global and matched with corporate governance and family firm variables hand-collected from companies’ standard profiles from Italy's primary stock exchange, Borsa Italiana. The hypotheses were tested using the feasible generalized least square method in order to analyze the data from 583 firms-observations, controlling for self-selection bias and reverse causality.

Findings

The study shows that FCPFs with available slack experience less than proportionate increases in performance, suggesting a concave curvilinear slack-performance relationship. However, the slack-performance relationship is contingent on board independence and board size: greater board independence and larger boards in FCPFs relate to higher performance when the firm lacks or has too much slack available. The findings suggest that a balanced approach of oversight and stewardship helps families to make better resources allocation, to the benefit of outside shareholders as well.

Research limitations/implications

The slack measure was restricted to available slack. Future studies can expand this research inquiry with other forms of slack, including potential and recoverable slack. The sample included only publicly traded family and non-family firms, thereby limiting the generalizability of the findings to other types of family enterprises. Lastly, the results only attend to the slack-performance relationship by controlling whether the firm's performance is below or above the industry average.

Practical implications

Policy makers and non-family stakeholders may rely on the findings better understand the factors that can alter the family's propensity for risks and its related strategic decisions in the Italian context. Procedures to fully monitor family management's decision making or, at the other extreme, to give the family free reign are likely to disadvantage families, their business, and their outside stakeholders.

Originality/value

The study reconciles the debate on the role of slack on firms’ performance by proposing a curvilinear relationship. The study is one of only a handful of research inquiries centrally addressing the role of slack in family-owned businesses, and the only analysis focussed on Italian FCPFs.

Keywords

Citation

Laffranchini, G. and Braun, M. (2014), "Slack in family firms: evidence from Italy (2006-2010)", Journal of Family Business Management, Vol. 4 No. 2, pp. 171-193. https://doi.org/10.1108/JFBM-04-2013-0011

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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