I. Overview and Basic Information
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Authors: Ying-Jiuan Wong, Heng-Yu Chang, Cheng-Yu Lee
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Journal: Management Review, 39(1), 103–121.
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Research Purpose: This study aims to investigate under what conditions Taiwanese family CEO successors choose to promote or suppress strategic change, and to examine the critical roles of performance pressure and corporate governance in shaping such behavior.
- https://doi.org/10.6656/MR. 202001_39(1). ENG103
II. Core Question and Key Conceptual Definitions
The core of this study lies in the interaction between three key concepts and the theoretical inferences derived from them:
1. Strategic Change: Strategic change refers not merely to changes in the top management team, but to fundamental shifts in the firm’s resource allocation patterns, such as:
- Substantial increases or decreases in R&D investment
- Major adjustments in advertising and marketing effort
- Changes in financial leverage.
In today’s rapidly changing business environment, timely strategic change is essential for firms to maintain competitiveness and even to survive. For family firms, successful strategic change is also a critical mechanism to ensure long-term continuity and effective succession.
2. The Specificity of Family Firms and Socioemotional Wealth (SEW): The decision logic of family firms differs fundamentally from that of non-family firms. Their decisions are not solely driven by the maximization of shareholders’ financial returns, but are deeply influenced by socioemotional wealth (SEW), a set of non-economic, family-centered intangible assets, including:
- Family control: Maintaining dominant control over the firm.
- Dynastic succession: Viewing the firm as a legacy to be passed down through generations.
- Family identity and reputation: Tight linkage between the firm’s success or failure and the family’s honor and social standing.
3. Performance Aspiration Gaps: Originating from the behavioral theory of the firm, performance aspiration gaps refer to the discrepancy between a firm’s actual performance and its aspired performance, when actual performance falls below aspirations, managers experience pressure and become motivated to change the status quo. Aspirations typically derive from two benchmarks:
- Historical aspirations: Comparison with the firm’s own past performance.
- Social Aspirations: Comparison with industry peers or competitors.
Value of the Study:
This research systematically connects these three conceptual strands and advances a critical research question:
When there is tension between the family’s SEW-preserving conservative preferences and the need for strategic change induced by poor performance, how do family CEO successors balance emotion-oriented objectives and efficiency-oriented goals in their decision making.
III. Theoretical Framework and Hypothesis Development
By synthesizing two dominant theoretical perspectives, this study constructs an inferential framework to propose three interconnected research hypotheses:
Theoretical Perspective 1: Socioemotional Wealth (SEW) ª Establishing the Baseline Hypothesis
- Core Logic: Family CEO successors are deeply influenced by a SEW-oriented mindset, leading to inherent conservatism regarding strategic change.
- First, successors are often younger and possess unproven reputations; failed strategic changes can directly damage the family identity, reputation, and control (Dyer, 2006; Gomez-Mejia et al., 2007). Second, as the family expands and equity becomes dispersed, internal conflict and self-interested behaviors rise. Consequently, successors tend to maintain the status quo to avoid exacerbating internal friction (Memili et al., 2015).
- Third, due to information asymmetry, stakeholders have limited insight into a successor’s true capabilities. Failure in change initiatives can destroy trust and reputation, further amplifying the successor’s risk aversion (Graffin et al., 2011; Gillespie & Dietz, 2009).
- Finally, strong family ownership often weakens board monitoring, enabling successors to prioritize SEW preservation over necessary strategic adaptation (Berrone et al., 2012; Schulze et al., 2001).
- Inference: Compared to non-family successors, family CEO successors are more likely to avoid strategic change and adhere to existing trajectories.
Hypothesis 1: Family CEO successors exhibit a significantly lower willingness to initiate strategic change compared to non-family CEO successors.
Theoretical Perspective 2: Behavioral Agency Theory-Introducing Contextual Factors
- Core Logic: Although family successors are inclined to protect SEW, the strategic behavior of family firms is not uniform (Chrisman & Patel, 2012). Research indicates that firm performance is a critical contextual factor explaining this heterogeneity (Martin & Gomez-Mejia, 2016).
- When performance falls below aspirations, family control, dynastic succession, and reputation are all threatened (Gomez-Mejia et al., 2007).
- According to Behavioral Agency Theory, a negative attainment discrepancy (performance below expectations) reduces managerial risk aversion, prompting “problemistic search” and riskier actions to reverse the decline (Wiseman & Gomez-Mejia, 1998; Cyert & March 1963).
- For family successors, deteriorating performance implies a simultaneous loss of SEW. This motivates them to initiate strategic change to restore both financial viability and SEW (Martin & Gomez-Mejia, 2016).
- Inference: Family firms do not necessarily remain conservative in low-performance contexts; rather, they recalibrate their behavior to balance SEW and performance goals (Minichilli et al., 2014). In other words, performance pressure “mitigates” the conservative tendency of family successors.
Hypothesis 2: The greater the degree to which performance falls below aspirations, the higher the willingness of family CEO successors to initiate strategic change.
Theoretical Perspective 3: Corporate Governance Structure-The Reinforcing Mechanism
- Core Logic: While performance shortfalls can attenuate a successor’s resistance to change, some family firms remain passive in their defense of SEW. The contingency perspective suggests that organizational behavior must account for multiple governance factors (Dess et al., 1997).
- The alignment of Cash Flow Rights and Voting Rights is a critical governance mechanism. High alignment converges family and firm interests, reducing the motivation for family members to pursue private benefits (La Porta et al., 1999).
- When these rights are aligned, successors are more likely to pursue strategic change during performance downturns, as improving financial health aligns with both corporate interests and the restoration of family SEW (Claessens et al., 2002; Dyck & Zingales, 2004).
- Conversely, when there is a separation of rights (divergence), successors are more inclined to divert resources toward private family benefits rather than initiating change (Sonenshein, 2010).
- Furthermore, robust governance enhances stakeholder trust, ensuring that strategic changes yield positive reputational effects (Chang et al., 2010; Hammond & Slocum, 1996), thereby increasing the successor’s willingness to act.
- Inference: The alignment of cash flow rights and voting rights should “strengthen” the positive effect of performance shortfalls on a successor’s willingness to change. Under a structure of aligned interests, change decisions made to salvage performance possess greater legitimacy and garner stronger stakeholder support.
Hypothesis 3: The alignment of cash flow rights and voting rights positively moderates (strengthens) the impact of performance pressure on the willingness of family CEO successors to initiate strategic change.
IV. Methodology
Research Sample: The study uses Taiwanese listed companies as the research sample for several reasons: Over half of Taiwan’s listed firms are family-controlled, and family members frequently serve as CEOs (Claessens et al., 2000; Wong et al., 2010). Pyramid and cross-shareholding structures are common, and investor protection is weak (Chi et al., 2015), making the context suitable for observing the strategic behavior of family successors. Taiwan is representative of emerging markets (Liu et al., 2012). Succession events were manually collected from annual reports and prospectuses. Succession event is defined as a change in the CEO between two consecutive years (Wong & Chen, 2018). Time frame: 2000–2013 Initial events: 607 After excluding cases with missing data, the final sample consists of 548 firm-year observations, including 130 family CEO succession events.
Variable Measurement:
- Dependent Variable: Strategic Change: Strategic change is the dependent variable. Following Carpenter (2000) and Datta et al. (2003), the authors construct a composite measure based on the five-year variance (from t 1 to t+3) of six strategic indicators.
- Independent Variables: Family CEO successor: Defined as whether the incoming CEO is a family member (Miller et al., 2014). Performance aspiration gaps: Based on Chrisman and Patel (2012) and Greve (2003), return on assets (ROA) is used to compute both historical and social aspiration levels. The authors further distinguish between performance above aspirations and performance below aspirations (Kim et al., 2015). Moderating Variable: Alignment of Cash-Flow Rights and Control Rights. Using La Porta et al. (1999), the alignment between the family’s cash-flow and control rights is measured as the difference between the two, expressed as “cash-flow rights minus control rights,” where a smaller difference indicates higher alignment (Chang & Chen, 2015).
- Control Variables: The study control for: Firm characteristics: firm age, firm size. Governance structure: board size, board independence, CEO shareholding, family-firm status, and the origin of non-family CEOs. These controls help rule out the influence of organizational inertia, resource differences, and governance mechanisms on strategic change (Zahra, 2005; Boeker, 1997; Chen, 2014; Wong et al., 2010). To further control for external environmental differences, the authors include year and industry dummy variables (2000–2013, based on TEJ industry classification).
Analytical Methods: The main analytical technique is hierarchical ordinary least squares (Hierarchical OLS) regression, used to test the three hypotheses stepwise. Additionally, to ensure robustness, the authors employ a two-stage Heckman model to address potential sample selection and endogeneity concerns.
V. Empirical Results and Main Findings
The empirical results are clear and support all three hypotheses:
| Hypothesis | Content | Conclusion and Implications |
| H1 | Family CEO successors are less willing to initiate strategic change than non- family successors. | Confirmed. Under normal operating conditions, family successors exhibit stronger conservatism to protect SEW, displaying a clearer tendency than non-family successors to maintain the status quo. |
| H2 | Performance pressure motivates family CEO successors to promote change. | Confirmed. When the firm faces survival threats, family successors shift from “guardians of SEW” to “saviors of SEW,” becoming willing to assume higher risks to improve financial performance; their propensity for change may even surpass that of non-family CEOs. |
| H3 | Interest alignment strengthens the change-driving effect of performance pressure. | Confirmed. The results highlight the crucial role of corporate governance. A governance structure that aligns controlling and minority shareholders’ interests is the most effective mechanism for motivating family successors to adopt responsible strategic decisions during crises. |
VI. Contributions and Implications
Theoretical Contributions
- Enriching the SEW Perspective: The study demonstrates that SEW is not static, its relative priority shifts dynamically with the firm’s financial condition, explaining the heterogeneity of family firm behavior.
- Integrating SEW and Behavioral Agency Theory: By introducing performance aspiration gaps, the study provides a contingency framework to interpret the paradoxical behavior of family firms-being sometimes conservative and sometimes risk-taking in their strategic decisions.
- Highlighting the Central Role of Governance Mechanisms: Incorporating corporate governance structures into the analysis, the study emphasizes the pivotal role of interest alignment between family owners and other shareholders in shaping family decision making.
Practical Implications
1. Re-evaluating the Strategic Value of Family Successors: The conventional view suggests that when performance is poor, firms should introduce an “outsider professional” to take charge. This study, however, reminds us that in times of crisis, family successors— driven by deep commitment to family honor and long-term interests—may show greater determination and courage than any “professional manager” in implementing painful but necessary strategic transformations.
2. Positioning Corporate Governance as the Cornerstone of Succession Planning: Family firms should treat governance optimization as a core component of succession planning by: Enhancing the transparency of ownership structures Strengthening the monitoring role of independent directors Increasing the alignment between economic interests and control rights. Such measures not only protect minority shareholders but also constitute the best institutional safeguard to encourage family successors to make sound strategic decisions.
3. Systematically Developing the Next Generation’s Strategic Leadership: Successful succession cannot rely on blood ties alone. Family firms must invest resources to systematically cultivate successors:
- Crisis awareness
- Financial discipline
- Strategic thinking abilities
This enables successors not only to preserve the legacy but also to create new strategic trajectories under uncertainty.
VII. Limitations and Directions for Future Research
Single-Market Limitation: The sample is restricted to Taiwanese listed firms, whose legal and cultural environment has unique features. Future research could conduct cross-country comparisons (e.g., Europe, North America, Southeast Asia) to examine the generalizability of the findings.
Simplified Categorization of Successors: The study only distinguishes between family and non-family successors. Yet among non-family successors, internally promoted executives and externally hired CEOs may exhibit quite different behavioral patterns, which warrants further examination.
Omitted Potential Factors: Due to data limitations, the study does not explore the effects of generational stage (second vs. third generation), successor age, educational background, and other individual attributes. These factors could be fruitfully investigated via future qualitative case studies or survey research.
In sum, through the seven-step analytical structure outlined above, a complex academic article is transformed into a clear and insightful professional commentary. The approach illustrated here is not only applicable to this paper but can also be widely applied to other scholarly works, thereby substantially enhancing reading and learning efficiency.
Note: For detailed references, please consult the original article.
*The financial support of the Research Institute for the Humanities and Social Sciences, National Science and Technology Council, is gratefully acknowledged.