Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation

JBR-09234; No of Pages 8 Journal of Business Research xxx (2016) xxx–xxx

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Journal of Business Research

Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation☆ Jonathan Bauweraerts ⁎, Olivier Colot University of Mons, Place Warocqué 17, 7000 Mons, Belgium

a r t i c l e

i n f o

Article history: Received 22 February 2016 Received in revised form 8 August 2016 Accepted 9 August 2016 Available online xxxx Keywords: Entrepreneurial orientation Family firms Board composition Board task performance

a b s t r a c t Family business research suggests that family involvement in the board (FIB) may have both positive and negative effects on entrepreneurship. To reconcile these conflicting views, this study builds on stewardship theory, agency theory, and the resource-based view and proposes a nonlinear relationship between FIB and entrepreneurial orientation (EO) to explore how board task performance moderates this relationship. Using a sample of 208 Belgian private family firms, the findings show an inverted U-shaped relationship between FIB and EO, with EO declining beyond moderate levels of FIB. Furthermore, board monitoring task limits the negative effects of high FIB on EO, whereas the board service task does not have any significant effect. This study offers a more nuanced view of the governance conditions that affect EO in the context of private family firms, an overlooked topic in the family business field. © 2016 Elsevier Inc. All rights reserved.

1. Introduction1 Many studies over the past few decades examine entrepreneurship in family firms (Randerson, Bettinelli, Fayolle, & Anderson, 2015) and the strategic role of the board of directors (Brenes, Madrigal, & Requena, 2011; Pugliese, Minichilli, & Zattoni, 2014; Wu, 2008). While most research into boards of directors focuses on listed family firms (Amit & Villalonga, 2014), researchers neglect the effect of family involvement in the board (FIB) on private family firms' entrepreneurial orientation (EO), that is, the propensity of the firm to engage in innovation through proactive risky initiatives (Miller, 1983). This question is important because private family firms represent the engine of entrepreneurial growth (Memili, Fang, Chrisman, & De Massis, 2015), and families in business need to understand the governance conditions that enable them to turn family influence into a useful resource for entrepreneurship. Unfortunately, prior works analyzing the governance circumstances under which family firms are most entrepreneurial leads to inconsistent findings (e.g. Kellermanns, Eddleston, Sarathy, & Murphy, 2012; Sciascia, Mazzola, & Chirico, 2013) and theoretical confusion (Le Breton-Miller, Miller, & Bares, 2015). In an attempt to reconcile these empirical and conceptual disparities, this study adopts a multi☆ This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. ⁎ Corresponding author. E-mail addresses: [email protected] (J. Bauweraerts), [email protected] (O. Colot). 1 Entrepreneurial orientation (EO). Family involvement in the board (FIB).

theoretical perspective to address the effect of FIB on EO by combining insights from stewardship theory (Davis, Schoorman, & Donaldson, 1997), agency theory (Jensen & Meckling, 1976), and the resourcebased view (RBV) (Barney, 1996; Grant, 1991; Wernerfelt, 1984) that contrast the positive and negative effects of family involvement on EO. Specifically, this study suggests that the relationship between FIB and EO is curvilinear, with EO declining beyond moderate levels of FIB. Furthermore, since focusing exclusively on the relationship between board characteristics and firm-level outcomes neglects the importance of board dynamics and processes (Basco & Voordeckers, 2015; Van den Heuvel, Van Gils, & Voordeckers, 2006), the moderating effect of board task performance, that is, the degree to which boards actually succeed in fulfilling their responsibilities (Gabrielsson, 2007), this study explores how the board's actual behavior explains variations in the entrepreneurial posture of private family firms with the same degree of FIB. Specifically, this study considers board monitoring and services tasks as moderators in the relationship between FIB and EO. With consistent findings from a sample of 208 private family firms in Belgium, this study contributes to the family entrepreneurship and governance literatures. The multi-theoretical perspective helps to reconcile the debate about the governance conditions that foster EO in private family firms, which few studies address (Le Breton-Miller et al., 2015). Introducing board monitoring and service tasks as moderators of the relationship between FIB on EO answers a recent call for more research that considers the role of the board's actual behavior to explain variations in firm-level entrepreneurship (Zattoni, Gnan, & Huse, 2015). This study also complements prior works investigating how various types of family involvement affect entrepreneurial behaviors (Sciascia & Bettinelli, 2013).

http://dx.doi.org/10.1016/j.jbusres.2016.08.020 0148-2963/© 2016 Elsevier Inc. All rights reserved.

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

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J. Bauweraerts, O. Colot / Journal of Business Research xxx (2016) xxx–xxx

2. Theoretical background and hypotheses development 2.1. Family involvement in the board (FIB) and entrepreneurial orientation (EO) Numerous studies examine the EO concept without providing a single definition of the construct (Basso, Fayolle, & Bouchard, 2009). The most popular conception of EO is the composite dimension approach (George, 2011). This conceptualization is closer to Miller's (1983) seminal work and suggests that EO has three dimensions: innovativeness, proactiveness, and risk-taking, symbolizing a unidimensional strategic orientation toward entrepreneurship (Covin & Wales, 2012). This view considers these three dimensions as interdependent and covarying, such that changes in EO result in changes in each dimension (Covin & Slevin, 1989). Although a large debate surrounds the question of whether EO refers to an entrepreneur's attitude or a firm-level outcome, most studies adopt the latter perspective (George, 2011). This study takes the composite view of EO through an investigation of how the board's composition and tasks affect EO as a firm-level outcome in the context of private family firms. In the private family firm context, FIB is a common demographic feature arising from the willingness of family owners to preserve their control and influence over the organization (Voordeckers, Van Gils, & Van den Heuvel, 2007). Belonging to the owner-family can affect directors' willingness to develop EO since factors such as risk aversion, desire to improve firm reputation, concentration of control, and other elements of family influence may affect entrepreneurial choices (Randerson et al., 2015). In that sense, several scholars provide theoretical arguments supporting both a positive and a negative relationship between FIB and EO (Corbetta & Salvato, 2004; Le Breton-Miller et al., 2015). From the stewardship perspective, private family firms possess unique characteristics that foster organizational members' collectivistic attitudes, psychological commitment, trustworthy behaviors, and devotion to the organization (Chrisman, Chua, Kellermanns, & Chang, 2007; Miller, Le Breton-Miller, & Scholnick, 2008). Accordingly, family directors have emotional attachments and a high commitment to the organization and are therefore more inclined to adopt a stewardship attitude that promotes entrepreneurial behaviors to ensure the firm's long-term success (Eddleston, Kellermanns, & Zellweger, 2012). However, several scholars argue that FIB may have negative effects on entrepreneurship. From the agency perspective (Jensen & Meckling, 1976), FIB may result in conservatism or the extraction of private benefits (Corbetta & Salvato, 2004), while RBV suggests that FIB may induce a lack of competent human capital to innovate (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007). To reconcile these opposite views, this study adopts a multi-theoretical perspective and proposes that the relationship between FIB and EO is curvilinear, with EO decreasing after a certain threshold of FIB. 2.2. Nonlinear effects of FIB on EO Several arguments from the stewardship perspective can explain the positive effects of FIB on EO. Stewardship over continuity makes family directors more inclined to develop a long-term orientation that promotes transgenerational entrepreneurship (Jaskiewicz, Combs, & Rau, 2015). Accordingly, they are more inclined to support innovation investment decisions that contribute to the exploration and the exploitation of new market opportunities (Lumpkin, Brigham, & Moss, 2010). Stewardship over external stakeholders helps family directors provide the firm's executives with timely information about changing market conditions (Miller & Le Breton-Miller, 2005). The firm can turn this information into innovative and creative initiatives thanks to the comprehensive and participative decision-making process that a stewardship culture provides (Eddleston et al., 2012). Furthermore, family members' mutual understanding and collectivistic attitude induce

family directors to share their various experience and knowledge with outside directors and executives (Chirico & Salvato, 2008), thereby stimulating constructive debates about the firm's entrepreneurial development (Talke, Salomo, & Kock, 2011). While these arguments suggest that FIB enhances EO, the disadvantages of agency and RBV problems at high levels of FIB may surpass the benefits of stewardship for EO. Indeed, the agency perspective highlights strong negative influences of high FIB (Kuan, Li, & Chu, 2011; Mazzola, Sciascia, & Kellermanns, 2013). High FIB may lead to nepotistic appointments during the management selection process, often resulting in path-dependency since the newly appointed family executive opts for conservative strategies to perpetuate the familyfounder legacy (Le Breton-Miller & Miller, 2009). Furthermore, family directors can deprive the organization of essential resources for entrepreneurship by tolerating extractions of private benefits by family managers (Mazzola et al., 2013). Family managers are also more inclined to support decisions that promote risk-averse projects due to the under-diversification of family wealth (Miller et al., 2008). Additionally, high FIB also increases the likelihood of relationship conflicts among family members (Kellermanns & Eddleston, 2004), which impedes the emergence of EO (Sciascia et al., 2013). The RBV highlights another disadvantage of high FIB (Barney, 1996; Grant, 1991; Wernerfelt, 1984), according to which the board is an internal source of competitive advantage by providing resources that are valuable, rare, inimitable, and difficult to substitute (Grant, 1991). Although some scholars argue that the distinctive and unique nature of family involvement contributes to the provision of such resources (Habbershon & Williams, 1999), overwhelming FIB can create a lack of the critical resources the firm requires to pursue entrepreneurial initiatives (Calabrò, Mussolino, & Huse, 2009). Indeed, a higher FIB deprives the firm of outside board members' professional competencies, knowledge, skills, advice and experience, which can compromise the exploration and exploitation of entrepreneurial opportunities (Lai, Chen, & Chen, 2014). For instance, at high FIB rates, outside board members cannot correctly fulfill their role of linking the firm to the external environment and sharing valuable advice to detect and exploit new market windows before they close since they will have less formal power to discuss the firm's entrepreneurial strategy (Bammens, Voordeckers, & Van Gils, 2011). Furthermore, the firm may lack effective mediators to solve family conflicts that hamper EO (Kellermanns & Eddleston, 2004). Therefore, FIB has both positive and negative effects on EO, such that the relationship between FIB and EO is curvilinear. Specifically, at low to moderate levels of FIB, family directors' stewardship attitude can turn family involvement into a useful resource for EO. As FIB increases, the emergence of agency and RBV problems that impede EO will progressively outweigh the benefits of stewardship. Therefore: H1. The relationship between FIB and EO is curvilinear (inverse U-shaped) in private family firms, with the highest level of EO occurring at an intermediate level of FIB.

2.3. The moderating role of board task performance While H1 proposes that the board's demographics will influence actual behavior (Gabrielsson, 2007), the board processes resulting from interactions among board members is also important (Basco & Voordeckers, 2015). Accordingly, this study investigates how board task performance affects the relationship between FIB and EO (Bammens et al., 2011). Specifically, this study considers the moderating role of board monitoring and service tasks to clarify why some family businesses with the same degree of FIB show different levels of EO. The board's primary responsibility is monitoring, implying that board members actively scrutinize managers' decisions to ensure

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

J. Bauweraerts, O. Colot / Journal of Business Research xxx (2016) xxx–xxx

effective strategy-making (Forbes & Milliken, 1999). When board monitoring is high, family directors collaborate with outside directors to control the firm's executives and reduce opportunistic behaviors (Jensen & Meckling, 1976), such that top managers have less latitude to deprive the organization of critical resources for EO through disproportionate dividends, perquisite consumption, or nepotistic appointments (Miller, Le Breton-Miller, & Lester, 2011). Effective monitoring also reinforces the convergence of interests between family owners and managers (Chrisman, Chua, & Litz, 2004). Accordingly, managers are more prone to share family owners' concern for the firm's long-term success and tend to accept constructive challenges to their decisions from family and outside directors (Miller et al., 2008). Consequently, directors hold and debate diverse views with top executives, often encouraging managers to consider alternative perspectives by assessing the different options available, which may stimulate innovative behaviors (Talke et al., 2011). In sum, a board that engages in active monitoring reduces the agency problems of high FIB and the negative effects on EO. In contrast, low levels of board monitoring maintain or reinforce agency issues, thereby altering EO. Therefore: H2a. Board monitoring moderates the curvilinear relationship between FIB and EO in private family firms such that the negative effect of high FIB on EO will be less negative at high levels of board monitoring and more negative at low levels of board monitoring. The service task implies that board members provide advice and counsel that contribute to an effective strategy-making process (Van den Heuvel et al., 2006). When the board correctly fulfills the service task and FIB is high, the few outside directors can alert family directors that pursuing the family agenda may compromise firm survival, prompting them to avoid behaviors that hamper EO, if only to maintain family control and nurture the family wealth (Gómez-Mejía et al., 2007). Accordingly, family directors tend to consider outside directors' advice to remedy their lack of general business knowledge and external experience to lead entrepreneurial projects (Yoo & Sung, 2015). In this context, the interactions between outside and family directors enhance cognitive conflicts through constructive debates and exchanges of viewpoints, which stimulates innovative and creative ideas (Talke et al., 2011). In sum, a board actively working on service tasks reduces the RBV problems associated with high FIB and the negative effect on EO. In contrast, the RBV-based disadvantages remain, with negative effects on EO, when board service is low. Therefore: H2b. Board service moderates the curvilinear relationship between FIB and EO in private family firms such that the negative effect of high FIB on EO will be less negative at high levels of board service and more negative at low levels of board service.

3. Method 3.1. Sample This study uses empirical data from a survey in 2013 to investigate ownership structures, board characteristics, entrepreneurial strategy, and performance issues among private family firms based in Belgium. Studying the entrepreneurial behaviors of private family firms in this country is relevant since N75% of Belgian private firms are familyowned (Huybrechts, Voordeckers, & Lybaert, 2013). Furthermore, Belgium is an innovation-driven economy, which is comparable to most Western European countries because Belgian private firms are in the upper average of the European Union in terms of entrepreneurial intentions (Global Entrepreneurship Monitoring, 2015). The authors identify the survey population using the Belfirst–Bureau Van Dijk database that collects and structures financial information

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from the annual reports of about 200,000 Belgian firms. This study selects private firms operating in the most traditional industries of the Belgian economy: manufacturing, construction, wholesale, retail, and services. These sectors represent five of the most important industries in the Belgian economy; according to Statistics Belgium (SPF, 2014), Belgian private firms from these industries account for 57% of the GDP. Out of this population of 182,624 firms, this study excludes micro-firms with b 5 full-time employees since such companies tend toward informal governance structures (Gray & Mabey, 2005) and have unstable objectives that can skew study outcomes (Martin & Javalgi, 2016), resulting in a population of 38,168 companies. The sample includes only limited liability companies because of their legal obligation to have a board with at least three directors due to the need for information about the board, reducing the population to 7473 companies. The questionnaires capture different degrees of family influence in the target firms, so the study used additional criteria to select only potential family firms. The researchers checked whether the company has the name of one of the directors or whether two or more directors have the same family name to detect potential family businesses. From the group of 4567 potential private family firms, the study randomly extracted 2000 companies. The researchers sent paper questionnaires to the CEOs because they are knowledgeable of board process while being in a better position than other board members to provide information about the board's actual behavior (Zattoni et al., 2015). A single respondent avoids the risk of constructing an averaged measure that captures the divergence among respondents rather than reflecting the construct under examination (Kumar, Stern, & Anderson, 1993), which may occur for boards where directors meet only periodically for discussions (Zattoni et al., 2015). The study received 236 responses and removed 18 incomplete surveys, resulting in a sample of 218 potential private family firms. Given that previous studies use a wide range of proxies to determine whether to classify a firm as a family business (Rutherford, Kuratko, & Holt, 2008), this research chooses clear criteria to define a family firm: (a) the CEO identifies the company as a family firm and (b) members of a single family own at least 50% of the equity (Westhead & Howorth, 2006). Based on this definition, the response pool contains 208 family firms, corresponding to a final response rate of 10.04%. To reduce common method bias concerns, this study uses both the primary data from the survey and secondary data for several independent variables extracted from the Belfirst–Bureau Van Dijk database (Podsakoff, MacKenzie, & Podsakoff, 2012). The researchers test for potential nonresponse bias using several procedures. First, they use chi-square tests and t-tests to compare the means of the responding and non-responding firms with respect to size, age, and industry (Armstrong & Overton, 1977). The results show no significant differences in any of the variables. Additionally, given that late respondents are comparable to non-respondents (Podsakoff et al., 2012), the authors also compare the means of the 136 first-round respondents to the 72 second-round respondents and find the same results. A comparison also shows no significant differences between the earliest 20% of respondents and the last 20% of respondents. 3.2. Variables 3.2.1. Dependent variable This study measures EO using Covin and Slevin's (1989) 9-item 7-point scale that captures firm innovation, proactiveness, and risk taking during the previous 3 years. The underlying EO dimensions in this study have high correlations and relatively high Cronbach's α for EO (α = 0.84), confirming the validity of the construct. 3.2.2. Independent variable Family involvement in the board (FIB) corresponds to the proportion of family members on the board.

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

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3.2.3. Moderating variables This study uses self-reported indicators to assess board task performance since board behaviors are difficult to measure due to directors' reluctance to invite researchers to investigate what happens in the boardroom (Pettigrew, 1992). Board monitoring (6 items) and Board service (5 items) use measures from Van den Heuvel et al.'s (2006) 6-point scale, both of which are internally consistent, with Cronbach's α values of 0.84 and 0.88 for board monitoring and board service, respectively.

(p b 0.10) and board service (p b 0.10) have small positive correlations with EO. FIB and board monitoring (p b 0.10) and board service (p b 0.10) have negative correlations. Besides, the presence of a family CEO has a positive correlation with FIB (p b 0.05), though having a family CEO lead the company seems to alter board task performance because Family CEO and board monitoring (p b 0.05) and Family CEO and board service (p b 0.05) have negative correlations. 4.2. Regression analysis

3.2.4. Control variables The control variables include Firm age because age may affect EO (Anderson & Eshima, 2013) and Firm size according to the number of employees because larger firms have a better access to external resources, which can also affect EO (Wiklund & Shepherd, 2005). Because past performance can affect the strategy of a family business (Chrisman & Patel, 2012), the study includes the control variable Past performance, measured on a 4-item 5-point scale comparing the respondent's company to competitors in terms of profit, sales growth, cash flow, and growth of net worth (α = 0.81) (Wiklund & Shepherd, 2003). This research controls for CEO age and CEO tenure since they can affect EO (Boling, Pieper, & Covin, 2015), with the former measured as the natural logarithm of the CEO's age and the latter measured as the number of years the respondent served as CEO. This study also controls for the influence of Board size and CEO duality on EO (Huybrechts et al., 2013). Board size is the natural logarithm of the actual number of board members. CEO duality is a dummy variable equal to 1 if the CEO also chairs the board. Given that the family kinship of the CEO may affect EO (Huybrechts et al., 2013), this study includes a dummy variable, Family CEO, equal to 1 if the CEO is a member of the owning family and 0 otherwise. To capture the effect of the environment, this research includes Environmental hostility measured on Slevin and Covin's (1997) 6-item 7-point scale (α = 0.75). Finally, this study uses dummy variables to control for industry affiliation. The sample represents a variety of sectors: manufacturing (22.12%), construction (21.15%), wholesale (19.23%), retail (17.31%), and services (20.19%). The results of the confirmatory factor analysis with all multi-item constructs in the analysis indicates good convergent and discriminant validities, with a comparative fit index (CFI) of 0.897, a goodness-of-fit index (GFI) of 0.915, a Tucker-Lewis Index (TLI) of 0.884, and a χ2(180) = 227.06, p b 0.01. 4. Results 4.1. Descriptive statistics Table 1 presents the correlations and descriptive statistics. FIB and EO (p b 0.05) have a weak negative correlation, while board monitoring

Table 2 reports the results of the hierarchical OLS regressions to test the hypotheses. Model 1 contains the control variables, Model 2 contains the independent and moderating variables, Model 3 contains the squared term of FIB, and Model 4 contains the interaction terms. Model 3 provides strong support for H1 and the existence of an inverted U-shaped relationship between FIB and EO since the FIB beta coefficient is significantly positive (β = 0.203, p b 0.05) and the FIB squared beta coefficient is significantly negative (β = −0.354, p b 0.05). Fig. 1 plots the inverted U-shaped curve, which suggests 53% as the level at which FIB changes from a positive to a negative effect on EO. Model 4 supports H2a and the existence of a positive moderating influence of board monitoring. Indeed, both the linear (β = 0.123, p N 0.10) and quadratic (β = 0.203, p N 0.05) interaction terms between FIB and board monitoring have positive relationships to EO. However, both the linear and quadratic interaction terms between FIB and board service had no significant relationship to EO, rejecting H2b. To explore the moderating influence of board monitoring further, Fig. 2 shows the interaction plots. The “low board monitoring” line shows the effect of FIB when the value of board monitoring is one standard deviation below the mean, while the “high board monitoring” line represents the effect of FIB when the value of board monitoring is one standard deviation above the mean (Aiken & West, 1991). The curvilinear slope of the negative relationship between FIB and EO is steeper at low levels of board monitoring, while the negative line between FIB and EO is flatter when board monitoring is high. Furthermore, at high levels of board monitoring, EO is at the maximum when FIB reaches 68%. The FIB level at which EO reaches the maximum at low levels of board monitoring is 42%. These results confirm that board monitoring is a crucial factor in reducing the negative effects of FIB on EO. The robustness check consists of a two-stage least squared estimation procedure with instrumental variables to consider potential reverse causality problems (Semadeni, Withers, & Certo, 2014). According to Semadeni et al. (2014), a correlation should exist between the strong instrumental variables and the potentially endogenous variable (FIB, board monitoring, and board service), with no correlation with the error term of the explanatory equation. The candidate instrumental variables (top management team size, family ownership, and the

Table 1 Means, standard deviations, and correlations. Variable

Mean

S.D.

1

2

3

4

5

6

1. EO 2. FIB 3. Board monitoring 4. Board service 5. Family CEO 6. Environmental hostility 7. Firm age (Ln) 8. Firm size (Ln) 9. CEO age (Ln) 10. CEO education 11. CEO tenure (Ln) 12. Board size (Ln) 13. CEO duality

25.29 0.63 14.87 16.11 0.82 18.22 3.21 3.62 3.47 0.73 2.41 0.85 0.72

3.47 0.41 5.21 6.12 0.37 6.39 0.78 2.17 1.58 0.41 1.22 0.41 0.28

1.00 0.10† 0.12† 0.11† −0.08 0.03 0.09 −0.08 −0.07 0.11† −0.09 0.03 −0.10†

1.00 −0.11† −0.13† 0.15⁎ 0.05 −0.07 0.06 0.11† −0.13† −0.04 0.03 0.05

1.00 0.09 −0.16⁎ 0.07 0.06 0.11† −0.02 0.07 −0.03 0.12† −0.04

1.00 −0.17⁎ 0.02 0.06 0.12† −0.04 0.07 −0.06 0.11† −0.03⁎⁎

1.00 0.02 −0.03 −0.07 0.12† −0.04 0.06 0.05 0.10†

1.00 0.02 0.03 0.05 0.06 0.04 0.02 0.05⁎⁎⁎

7

1.00 0.15⁎ 0.12† 0.17⁎ 0.05 0.06 0.11†

8

9

10

11

12

13

1.00 0.17⁎ 0.12† 0.09 0.10† −0.02

1.00 0.11† 0.06 −0.08 0.04

1.00 −0.03 −0.05 −0.11†

1.00 −0.04 0.05

1.00 0.16⁎

1.00

†

p b 0.10. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001.

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

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Table 2 Regression analysis (dependent variable = EO).

Constant Firm age Firm size Past performance CEO age CEO tenure Board size CEO duality Environmental hostility Family CEO Manufacturing Construction Wholesale Retail

Model 1 (control variables)

Model 2 (direct effect)

Model 3 (nonlinear effects)

Model 4 (moderating effects)

1.547⁎⁎ (0.278) 0.478 (0.389) 1.253 (1.023) 0.472† (0.203) −0.528⁎

1.437⁎⁎ (0.246) 0.511 (0.402) 1.102 (1.007) 0.382 (0.197) −0.562⁎

1.654⁎⁎ (0.315) 0.488 (0.395) 1.345 (1.067) 0.507† (0.237) −0.544⁎

1.798⁎⁎ (0.328) 0.555 (0.419) 1.206 (1.019) .608† (0.267) −0.602⁎

(0.168) −0.748 (0.652) 0.854 (0.654) −0.524 (0.398) 0.147 (0.088) −0.136 (0.078) 0.232 (0.185) 0.125 (0.099) 0.147 (0.132) 0.189 (0.152)

(0.185) −0.788 (0.671) 0.805 (0.586) −0.498 (0.352) 0.128 (0.066) −0.154 (0.092) 0.264 (0.224) 0.118 (0.093) 0.152 (0.140) 0.156 (0.124) 0.142 (0.074) 0.127 (0.066) 0.187† (0.072)

(0.172) −0.715 (0.623) 0.832 (0.619) −0.508 (0.367) 0.164 (0.112) −0.117 (0.062) 0.275 (0.247) 0.148 (0.113) 0.125 (0.113) 0.192 (0.165) 0.159 (0.081) 0.131 (0.076) 0.203⁎ (0.052) −0.354⁎

(0.202) −0.802 (0.694) 0.825 (0.602) −0.596 (0.412) 0.155 (0.076) −0.142 (0.085) 0.236 (0.198) 0.135 (0.105) 0.187 (0.172) 0.185 (0.147) 0.175 (0.092) 0.148 (0.077) 0.221⁎ (0.061) −0.382⁎ (0.124) 0.123† (0.056) 0.101 (0.065) 0.203⁎ (0.067) 0.138 (0.082) Yes 0.1889 0.0433⁎⁎ 6.89⁎⁎ 208⁎⁎⁎

Board monitoring Board service FIB FIB2

(0.104) FIB ∗ board monitoring FIB ∗ board service FIB2 ∗ board monitoring FIB2 ∗ board service Industry R2 Δ R2 F-test N

Yes 0.0502 0.0502⁎ 4.01⁎ 208

Yes 0.0942 0.0440⁎ 4.59⁎⁎ 208

Yes 0.1456 0.0514⁎⁎ 5.03⁎⁎ 208

Standard errors in brackets. Suppressed category for the firm industry is “services.” † p b 0.10. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001.

generation managing the company) meet these criteria. This study also conducts a Sargan test since all instruments are potentially theoretically endogenous. The next analytical step is possible based on the Sargan

EO

High

Low Low FIB

High FIB

Fig. 1. The inverted U-shaped relationship between family involvement in the board of directors and EO.

statistic results (p = 0.417) that do not exclude the null hypothesis that the instrumental variables are endogenous. The results of a WuHausman test to determine whether the potential to treat the suspect endogenous regressors as exogenous are not significant, confirming that endogeneity is not a major concern. For each regression, all variance inflation factors coefficients are below 5 and all condition indexes are below 10, confirming that multicollinearity is not a concern (Wheeler, 2007). The results of the Breusch–Pagan/Cook–Weisberg and White tests to check for heteroscedasticity are χ2(1) = 2.47; p (χ2) = 0.1237 and χ2(68) = 86.24; p = 0.1957, respectively, indicating that heteroscedasticity is not a concern. While the former determines whether the estimated variance of the residuals from a regression depend on the values of the independent variables, the latter tests whether the residual variance of a variable in a regression model is constant. The test for the significance of the quadratic relationship between FIB and EO through the joint significance of the direct and squared

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

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J. Bauweraerts, O. Colot / Journal of Business Research xxx (2016) xxx–xxx

EO

High

Low

Low FIB Low board monitoring

High FIB High board monitoring

Fig. 2. The curvilinear relationship between family involvement in the board of directors and EO for low and high levels of board monitoring.

terms of FIB (Sasabuchi, 1980) returns significant values, indicating an inverted U-shaped relationship (lower bound slope = 0.214, p b 0.01; upper bound slope = − 0.524, p b 0.01; overall test for an inverted U-shaped relationship: t-value = 2.83, p b 0.01). Lind and Mehlum's (2010) Fieller approach can further assess whether the extreme point is within the upper and lower bounds by estimating confidence intervals at the extreme points. Confidence intervals within the bounds of the low and high levels of FIB provide further evidence of an inverted U-shaped relationship. The estimated extreme point is 0.328, which is within the upper and lower bounds of FIB (95% Fieller interval for extreme point: [0.206; 0.634]), providing strong support for a predominantly inverted U-shaped relationship between FIB and EO. This research uses a power analysis to account for the relatively small sample size and to determine whether several factors could alter the robustness of the findings. Measurement errors in the predictors may exacerbate measurement errors in the interaction terms (Dunlap & Kemery, 1988). The results of a manual screening procedure indicate that measurement errors are not a concern. Following Aguinis' (1995) recommendations, this study also controls for inter-correlations among predictors. The results in Table 1 indicate that intercorrelations do not seem to represent a major concern since the highest correlation coefficient among predictors is − 0.13 (p b 0.10) for the correlation between FIB and board service. Additionally, no abnormal distributions exist among the distributions of variables, which would otherwise weaken the power of the moderators (Wilcox, 1998). 5. Discussion Findings from a sample of 208 private family firms reveal that the relationship between FIB and EO is curvilinear, with EO declining at moderate levels of FIB. These results suggest that stewardship behaviors potentially foster entrepreneurial initiatives at low to moderate levels of FIB, whereas agency and RBV problems outweigh the advantages of stewardship for EO beyond moderate levels of FIB. This result is consistent with prior findings, showing that as family involvement in the firm increases, the relevance of stewardship decreases and agency (Le Breton-Miller & Miller, 2009) and RBV issues (Calabrò et al., 2009) become more prominent. These results also suggest that similar to listed companies (Amit & Villalonga, 2014), moderate family board influence can aid the entrepreneurial development of private family firms. Furthermore, the results show that high levels of board monitoring mitigate the negative effect of high FIB on EO. This result confirms that a well-functioning board in terms of monitoring alleviates the agency problems from high family involvement (Basco & Voordeckers, 2015), helping these firms to better exploit the benefits of stewardship to turn FIB into entrepreneurial initiatives. However, board service has

no significant effect on the relationship between FIB and EO. This outcome may be because board service is not efficient at high FIB levels because outside directors have less formal power to provide RBV advantages, such as valuable advice and complementary knowledge that supports constructive debates about the entrepreneurial development of the firm (Calabrò et al., 2009). This study makes several contributions to the literature. The multitheoretical perspective conceptually reconciles the debate about the effect of FIB on EO to clarify the governance conditions under which private family firms are the most entrepreneurial, a topic in need of more research in the family business field (Le Breton-Miller et al., 2015). By considering board task performance as the missing link between board composition and EO, this study complements prior works that neglect the role of the board's actual behavior on firmlevel outcomes (Zattoni et al., 2015). Additionally, this research complements recent advancements in the understanding of how family involvement in ownership (Kellermanns et al., 2012) and management (Sciascia et al., 2013) affects EO by studying how another source of family power influences firm-level entrepreneurship. The results have several implications for family business practitioners. The nonlinear curve allows a family firm to compare the level of FIB with a level supporting higher EO. Accordingly, family owners must be aware that balancing the board with family and nonfamily directors is the most appropriate configuration to foster entrepreneurial behaviors. Additionally, the board must monitor effectively to limit the detrimental effect of FIB on EO. Therefore, family and nonfamily board members must understand that developing board-monitoring activities is essential to turn FIB into a useful resource for entrepreneurship. Despite the contributions, this study has several limitations. First, the study measures board monitoring and service tasks using Van den Heuvel et al.'s (2006) scale, though alternative measures exist (Basco & Voordeckers, 2015). This study also uses Covin and Slevin's (1989) scale to measure EO. Although this measurement is the most popular in the entrepreneurship literature (George, 2011), other scales exist and may offer additional insights. Furthermore, this study follows the composite approach and considers EO as a unidimensional construct (Miller, 1983). Given that prior research suggests that investigating each dimension of EO separately could offer a more granular understanding of a firm's entrepreneurial posture (Covin & Wales, 2012), future studies could disaggregate the EO construct to uncover the nuances of the nonlinear relationship between FIB and the individual dimensions. Additionally, the dataset is relatively small and may thus affect the power of the findings. The data for the study considers only firms in Belgium, so national law and culture may influence the results. For instance, EO is particularly sensitive to cultural (Martin & Javalgi, 2016) and institutional (Chow, 2006) factors. Accordingly, future research could conduct a multi-country analysis with larger samples to strengthen the external validity of the present study. The limitations and other gaps in the literature suggest other avenues for future research. While this study addresses the influence of FIB on EO, additional studies can explore the effect of board members' affiliations. For example, future research could distinguish between outside board members and affiliate directors, that is, nonfamily but familyaffiliate board members (Basco & Voordeckers, 2015). Furthermore, this research does not directly address the role of the interrelationships between family executives and board members, who are often members of the same family. Therefore, future research could adopt a multi-level perspective and investigate how various intra-family dynamics such as trust, rivalries, or affection affects board-management interrelationships (Bammens et al., 2011) to explain variations in the entrepreneurial posture of private family firms. To conclude, this study helps to clarify the link between board composition, board task performance, and EO within private family firms and opens new avenues for future research on this complex and important issue for academicians and practitioners.

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020

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Yoo, T., & Sung, T. (2015). How outside directors facilitate corporate R&D investment? Evidence from large Korean firms. Journal of Business Research, 68(6), 1251–1260. Zattoni, A., Gnan, L., & Huse, M. (2015). Does family involvement influence firm performance? Exploring the mediating effects of board processes and tasks. Journal of Management, 41(4), 1214–1243. Jonathan Bauweraerts is Assistant Professor at the University of Mons – Warocqué School of Business and Economics, Belgium. His main research fields are entrepreneurship and corporate governance in the family business context. Olivier Colot is Full Professor at the University of Mons – Warocqué School of Business and Economics, Belgium. His research focuses on accounting management systems and family firms.

Please cite this article as: Bauweraerts, J., & Colot, O., Exploring nonlinear effects of family involvement in the board on entrepreneurial orientation, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.020