Do family firms contribute to job stability? Evidence from the great recession

Abstract

Purpose

The purpose of this paper is to analyze if choices made by family businesses (FBs) regarding job stability in economic recessions are different, on average, to those made by nonfamily firms. Moreover, the study tries to elucidate if this potential difference depends on the family generation that is in charge. The analysis relies upon a sample of 55,091 Spanish firms, as Spain is one of the countries that suffered the greatest impact of the 2008 Great Recession.

Design/methodology/approach

To test the hypotheses, the authors built a database of 55,091 Spanish firms, 45,351 family firms and 9,740 nonfamily firms, for the period 2007–2015. Based on the socioemotional wealth (SEW) approach, this article sheds light on the question of whether family identification, binding social ties and long-term vision lead FB to behave differently from nonfamily businesses in human resource management.

Findings

In times of crisis, FBs do maintain jobs to a higher extent than nonfamily businesses, and this effect is especially intense when the first generation is in charge. According to the SEW approach, the emotional links between ownership and management make the firm more prudent when hiring during good times and when firing in times of crisis. This makes employment in FBs more stable than in private ones. This result has two positive effects. Higher job stability is an additional contribution of family firms to social welfare and happiness. Furthermore, a larger share of family firms involves stronger automatic macrostabilizers to deal with the business cycle, supplementing fiscal macrostabilizers, such as personal income tax (PIT) or unemployment insurance.

Practical implications

Family firms maintained employment more than nonfamily firms did during the crisis. The emotional links between ownership and management and the long-term vision make the firm more prudent when hiring during good times and when firing in times of crisis. These features could make family firms more cautious in terms of hiring and firing and thus enable them to offer their employees implicit employment protection and stability. This positive effect decreases as firm age advances, due to the minor linkage between ownership and employees, in spite of maintaining identification and long-term vision.

Social implications

From a policy perspective, greater job stability is an additional contribution of family firms to social welfare and happiness. Hence, a larger share of family firms would involve stronger automatic macrostabilizers to deal with the business cycle, supplementing well-known fiscal macrostabilizers such as the PIT or unemployment insurance. The idea of family firms as countercyclical agents linking the micro dimension with the macro dimension becomes more interesting in the present context with the crisis generated by COVID-19.

Originality/value

In addition to contributing to the scarce literature on FB and employment in times of crisis, this paper also considers the generational effect on employment in the economic crisis context from the SEW approach. In addition, sound econometric methodology applied using an extremely large database grounded the results. In contrast with studies in the FB field that have typically focused on large listed firms (Mazzi, 2011), the study relies upon a database of privately held companies, which are more representative of FBs in civil law countries, such as Spain. The Spanish case is particularly interesting because it was one of the OECD countries shocked by the Great Recession. Finally, the authors propose family firms as countercyclical agents linking the micro dimension to the macro dimension.

Citation

Rivo-López, E., Villanueva-Villar, M., Vaquero-García, A. and Lago-Peñas, S. (2022), "Do family firms contribute to job stability? Evidence from the great recession", Journal of Family Business Management, Vol. 12 No. 1, pp. 152-169. https://doi.org/10.1108/JFBM-06-2020-0055