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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 6/24/2014

Do family firms favour long-term considerations more than non-family firms? 

Do family firms favour

A recent study showcased earlier this year in the Family Business Review investigated whether or not one can measure the degree of long-term orientation (LTO) of a company, and, if so, if a difference exists between the aggregate LTO of family firms and of non-family firms.

In the article “Researching Long-Term Orientation: A Validation Study and Recommendations for Future Research” by Keith H. Brigham, G. Tyge Payne, Miles A. Zachary and G.T. Lumpkin LTO is defined as the “tendency to prioritize the long-range implications and impact of decisions and actions that come to fruition after an extended time period.” The authors contend that it serves as a type of logic that simplifies the decision-making process in companies.

That established, Brigham et al. say that the general perception is that family firms do indeed give greater weight to long-term considerations, arising out of concerns such as long-term family provision and legacy, but that such a perception has no formal research to back it. Accordingly they attempted through their study to quantify LTO and so determine any significant deviations between family-owned firms and their non-family counterparts.

Measuring long-term orientation

In order to measure LTO, Brigham et al. analysed the contents of letters from 679 different companies.

First, the authors divided the LTO construct into the following three components:


  • continuity – this is the degree to which concerns of longevity and maintaining tradition influence executives in the decision-making process.
  • futurity – refers to how much executives consider long-term planning and assessment to be value-laden activities.
  • perseverance – the idea that firms with a long-term orientation work harder than their counterparts to create future value.

This schema in place, Brigham et al. then constructed three directories, each listing words pertaining to one of the above-mentioned aspects of LTO. With the help of software, the occurrence and frequency of the words in the three listings were then tracked.

Family firms’ show a high LTO

The results of the survey showed that family firms do in fact rank higher for each of the three dimensions of LTO, as well as for the combined measure.

While the authors primarily set out to ascertain whether or not family firms have a higher LTO than non-family firms, they were also interested in discovering if all family firms have the same level of LTO. They discovered that in industries where research and development (R&D) is more integral – in the telecoms sector, for instance – a higher LTO exists.

Brigham et al. argue that assessing the LTO of a company – or of a grouping of companies like family business – helps one to understand their actions. Knowing that family firms do, according to the study, display a higher mean LTO, researchers are better equipped to understand and so research further the differences and dynamics that govern family firms.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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