The mediating effect of ethical codes on the link between family firms and their social performance

Long Range Planning xxx (2016) 1e10

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The mediating effect of ethical codes on the link between family firms and their social performance zaro Rodríguez-Ariza b, Beatriz Cuadrado-Ballesteros a, La a nchez , Jennifer Martínez-Ferrero a, * Isabel-María García-Sa a b

n y Economía de la Empresa, Universidad de Salamanca, Spain Facultad de Economía y Empresa, Departamento de Administracio micas y Empresariales, Departamento de economía financiera y contabilidad, Universidad de Granada, Spain Facultad de Ciencias Econo

This article brings together research on social performance, codes of ethics and family firms. Using a panel dataset composed of 547 internationally listed companies for the period 2002e2010, we test empirically whether the use of formal ethical codes could be a reason to explain the differences between social performance in family and non-family firms. We empirically show that family firms tend to present a lower social performance than non-family firms, and the use of formal ethical codes mediate such relationship. © 2016 Elsevier Ltd. All rights reserved.

Introduction Sustainability issues are beginning to play a renewed role in society, and social consciousness is gaining weight among citizens since it represents a way of integrating corporate business with social and environmental welfare. In this regard, social and environmental performance (i.e. corporate social performance) could be defined as a company's voluntary commitment to social development and environmental preservation, developed within the company's social sphere, as well as a responsible commitment to the people and social groups with whom the company interacts. It defines the company as a set of relationships, not just between owners and managers but also with parties or groups interested in the evolution of the company: employees, customers, suppliers, competitors, environment, and society (Adams, 2002). Nonetheless, companies are profit-making entities, and very few would subscribe to the idea that they can be persuaded to commit to environmental and social policies that benefit the community at a cost to insiders. Because corporate aims, strategies, management forms, and governance systems differ considerably between family and non-family firms (Haalien and Huse, 2005), their social and environmental commitment may also differ. niz and Cabrera, 2005; Burak and Morante, 2007; Lo  pez-Iturriaga and Lo  pez-deIn this respect, some previous studies (De Foronda, 2011) agree, pointing out that family firms tend to have a lower social performance than non-family firms. Since family members have a relevant amount of investment in their own companies, they tend to be more committed to achieving the greatest possible financial return, relegating environmental and social commitment to the background. However, little or nothing is known about the indirect determinants that may justify such behaviour. From a wide range of possibilities, this study focuses on the use of formal ethical codes in family firms because: (i) on the one hand, they are a common tool of social and environmental performance designed for the explicit details of sustainable commitment (Agatiello, 2008; Erwin, 2011); and (ii) on the other hand, the degree of formal mechanism varies according to family firms and non-family firms. Concretely, this exploratory study proposes a mediating effect of formal ethical codes in the relationship between family ownership and social performance. This effect is tested on a sample of 547 international non-financial listed companies from different countries for the period 2002e2010. Our findings empirically confirm four statements: (i) family businesses tend to

* Corresponding author. Multidisciplinary Institute for Enterprise (IME), Campus Miguel de Unamuno, Edificio FES, 37007 Salamanca, Spain. nchez), jenny_marfe@ E-mail addresses: [email protected] (B. Cuadrado-Ballesteros), [email protected] (L. Rodríguez-Ariza), [email protected] (I.-M. García-Sa usal.es (J. Martínez-Ferrero). http://dx.doi.org/10.1016/j.lrp.2016.11.007 0024-6301/© 2016 Elsevier Ltd. All rights reserved.

Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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present a lower social performance than non-family firms; (ii) ethical codes play a key role in the effectiveness of achieving a good social performance; (iii) family firms are more likely to follow informal codes; and (iv) the lack of formal codes could be considered a reason for the lower social performance in family businesses. In other words, the lack of formal codes of ethics exerts an indirect impact on the family ownershipesocial performance relationship. Therefore, this article is structured as follows: firstly, we describe the previous literature related to our study and subsequently develop arguments to propose our hypothesis; Section Method shows the methodological aspects, such as the sample, variables, and models for the empirical analysis (moreover, we include an annex providing an explanation of the measures of variables employed in our analyses); the results are presented and discussed in Section Results; and, finally, the contributions, implications, and limitations are summarized in Section Concluding remarks.

Theoretical background and hypothesis research Considerable research has been conducted on the question of how family firms behave and, particularly, whether they behave differently from non-family firms. Significant differences have been identified in terms of corporate governance, leadership, performance, and succession (e.g. McConaughy et al., 2001; Klein et al., 2005; Brenes et al., 2011). However, the literature until now has overlooked other topics, such as corporate social responsibility (CSR) (Benavides-Velasco et al., 2013; Materne et al., 2013). Although there is no universal definition of a family business, one of the most accepted definitions is the one proposed by Chen et al. (2008), who define a family firm as a business in which family founders continue in a top managerial position, are present on the board, or are able to act as blockholders. This means that they have great power and hold fundamental positions that affect the management and decision-making processes. Through their participation in management, family members seek to ensure the company's survival and vitality, as well as the transmission of its legacy (Singal, 2014) and goodwill (McVey and Draho, 2005) to their descendants. One of the important management decisions nowadays is the level of commitment to social and environmental practices, which determines the level of corporate social performance. Traditionally, family firms have been characterized by nonfinancial aims, such as identity, reputation, longevity, and the preservation of a positive image in the public domain (Sharma et al., 1997; Anderson and Reeb, 2003; Berrone et al., 2010). In order to ensure the survival of the firm in the market, family firms can carry out actions approved by society, with the aim of satisfying stakeholders' demand, gaining a positive image, and legitimating the company. However, these socially responsible actions pose a risk in relation to solid long-term financial performance. As Virakul et al. (2009) suggest, among the main motives for promoting socially responsible practices, it is necessary to note economically driven motivations. If family members run their business with a profit maximization aim, the conflict between social and economic goals may create a dilemma for the decision maker. For example, the risk of investing in expensive pollution prevention beyond compliance with regulations may not be compensated for by financial gains or the firm may never achieve a reliable costebenefit estimate of such actions (Margolis and Walsh, 2003). This is especially relevant to family businesses, since family members usually have large investments in their own firms, so they may be more interested in profitability and financial performance than in environmental issues (Burak and Morante, 2007). Most family businesses do not think that socially responsible practices generate competitive advantages, although some assume that they have the resources to carry them out; as such, they view these practices as a cost and not as an niz and Cabrera, 2005). Therefore, we expect that family businesses tend to be less socially responsible than opportunity (De  pez Iturriaga and Lo  pez de Foronda (2011) find. However, until now, we non-family firms, as Burak and Morante (2007) and Lo have not identified any studies explaining the determinants of such behaviour. In this respect, we expect that the existence of a formal ethical code may determine the social performance of a company. It should constitute “a distinct and formal document containing a set of prescriptions developed by and for a company to guide present and future behaviour on multiple issues of at least its managers and employees toward one another, the company, external stakeholders and/or society in general” (Kaptein and Schwartz, 2008, p. 113). Ethical codes transmit ethical values to the members of the organization (Wotruba et al., 2001), offering them moral guides or anchors when new and confusing situations are encountered in the workplace (Chua and Rahman, 2011) and in decision making (Urbany, 2005). Codes of ethics are a common tool of social and environmental performance designed for the explicit details of sustainable commitment, affecting positively the promotion of such behaviour (Agatiello, 2008; Erwin, 2011). Therefore, the establishment of a formal code of ethics, as an effective guide (Mijatovic and Stokic, 2010), is related to a positive impact on the perceptions about the sustainable level within companies (Adams et al., 2001). Mijatovic and Stokic (2010) support a positive influence of transparent codes of conduct and corporate values on all types of sustainable issues and activities. Erwin (2011) shows a positive link between the quality of ethical codes and the probability of being included in the ranking of the most sustainable companies. In the case of family businesses, they are likely to have a less formal mode of operating; thus, they tend to adopt fewer formal policies, systems, rules, etc. The organizational culture and climate tend to be informal in family businesses; we can even say that the business is the “lengthening shadow” of the founder family (Hollander and Elman, 1988). Thus, family firms appear not to rely primarily on formal codes of ethics since they are likely to operate with a lower degree of formalization (Adams et al., 1996), showing great trust in their values without needing formal rules or codes. It is therefore less likely that Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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have a formal code of ethics; thus, we expect that the existence or not of a formal code may affect the level of social performance in family firms. According to this, we hypothesize: “The existence of a formal code of ethics mediates the relationship between family firms and their social performance.”

Method Sample and variables The data source was formed using two databases: (i) Thomson One Analytic, for the accounting and financial information provided in consolidated financial statements; (ii) the Ethical Investment Research Service (EIRIS), for data on corporate social responsibility. Financial firms were excluded from our sample due to the different characteristics of their equity, and because they are not comparable to non-financial firms. We also excluded companies whose ‘listed company’ status varied, i.e. the sample included only companies that remained listed throughout the sample period (2002e2010). The final sample was composed of 547 international non-financial companies listed for the period 2002e2010. This sample was unbalanced, because full data were not available for all companies and for all years. The data consisted of 3075 observations obtained from 12 countries (the USA, the United Kingdom, Canada, Germany, the Netherlands, Denmark, Finland, Sweden, Norway, France, Italy, and Spain). There are three main aspects to the hypothesis: (i) social performance; (ii) ethical codes; and (iii) family businesses. Social performance is measured by an aggregate construct that represents the level of socially responsible commitment. It is called SP and is determined from the non-weighted sum of 20 items related to environmental issues, human rights, and relationships with stakeholders. In order to represent the existence of a code of ethics and its level of application, the variable EthicCode is defined. It is an ordinal variable that takes values between 0 and 4, such that 0 represents the absence of a code of ethics and 4 represents an advanced ethical code, with the highest rating. These data (SP and EthicCode) are obtained from the Ethical Investment Research Service (EIRIS) and the process of creation is explained in depth in the Annex. Finally, we need a variable to represent the family businesses in the sample. We denote Family as a dummy variable that takes the value 1 if the largest shareholder is an individual or a family with more than 10% of the votes and 0 otherwise. Information about ownership is obtained from the Thomson One Analytic database. In addition, to eliminate bias from the results, we consider a set of control variables previously shown to be effective in this respect: corporate size, leverage, and market risk. Company size (Size) is measured by the logarithm of the total assets. The level of firm leverage (Leverage) represents the debt or non-compliance risk measures as the ratio of total debt to total equity. Systematic risk is measured by the beta of the market model (Risk). These data are also obtained from the Thomson One Analytic database. Furthermore, the results should be controlled by regional effects (Countryk), industrial effects (Industrym), and temporal effects (Yearn). In the three cases, we use dummy variables to represent the different countries, activity sectors, and years. Implementation of the mediating effect To test the mediating effect, several steps are required, according to Baron and Kenny's (1986) procedure. Concretely, we propose three dependency models: “first, regressing the mediator on the independent variable; second, regressing the dependent variable on the independent variable; and third, regressing the dependent variable on both the independent and on mediator” (Baron and Kenny, 1986, p. 1177). Thus, it is necessary to carry out several regression analyses to see the influence of family ownership on social performance and the mediating role of codes of ethics. First Step. By estimating Model 1, we identify the effect of the independent variable (Family) on the potential mediator variable (EthicCode), including control variables to avoid biasing the results (Size, Leverage, Risk, Industry, Country, and Year).

EthicCodeit ¼ b0 þ b1 Familyit þ b2 Sizeit þ b3 Leverageit þ b4 Riskit þ

13 X j¼5

þ

35 X

bk Yeart þ mit þ hi

bj Industryi þ

25 X

bj Countryi

j¼14

(1)

k¼26

where i ranges from company 1 to bank 547 and t takes the values of the years from 2002 to 2010. The parameters b are the estimated coefficients from the constant and each of the explanatory variables included in Model 1. Second Step. Now we need to determine how the independent and mediator variables (EthicCode and Family) impact separately on the level of social performance (SP). To achieve this, we estimate the following Model 2a and Model 2b, also entering the control variables.

Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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SPit ¼ a0 þ a1 EthicCodeit þ a2 Sizeit þ a3 Leverageit þ a4 Riskit þ

13 X

aj Industryi þ

j¼5

25 X

aj Countryi þ

j¼14

35 X

ak Yeart þ mit þ hi

k¼26

(2a) SPit ¼ g0 þ g1 Familyit þ g2 Sizeit þ g3 Leverageit þ g4 Riskit þ

13 X j¼5

gj Industryi þ

25 X

gj Countryi þ

j¼14

35 X

gk Yeart þ mit þ hi

k¼26

(2b) The parameters a and g are the estimated coefficients from the constant and each of the explanatory variables included in Model 2a and Model 2b, respectively. Third Step. Finally, it is necessary to consider how the two variables, EthicCode and Family, impact jointly on the level of social performance (SP). This step requires additionally that “the effect of the independent variable on the dependent variable must be less in the third step than in the second step” (Baron and Kenny, 1986, p. 1177). Moreover, it is necessary for the mediator to be statistically significant. To test these conditions, we use Model 3.

SPit ¼ d0 þ d1 Familyit þ d2 EthicCodeit þ d3 Sizeit þ d4 Leverageit þ d5 Riskit þ

14 X j¼6

þ

36 X

dj Industryi þ hi

26 X

dj Countryi

j¼15

dk Yeart þ mit þ hi

k¼27

(3) The parameters d are the estimated coefficients from the constant and each of the explanatory variables included in Model 3. Technique of analysis The models proposed are evaluated by taking into account that the dependent variables (EthicCode and SP) are left- and right-censored, so an appropriate estimator must be used. In this case, the Tobit technique is suitable, since it enables us to address particular consideration to the extreme scores. Therefore, unlike linear models, a Tobit regression for panel data models considers the extremities of the rating scale (0 and 2000, for SP; 0 and 4 for EthicCode) in a special way. In this regard, by using the maximum likelihood method, Tobit models provide efficient, consistent estimates of coefficients, because when the likelihood function is maximized, it incorporates information from both censored and uncensored observations. The basic Tobit model supposes that there is a latent variable (called y*it) that can be explained by observable variable(s) (called xit). Specifically,

yit ¼ bxit þ 3it   2 3it zN 0; s Then, the observable variable yit is defined as

yit ¼ yit if yL < yit < yU yit ¼ yL if yit  yL yit ¼ yU if yit  yU where yL is the lower limit of the dependent variable (0 in our case for both variables) and yU is the upper limit. Results The descriptive statistics for the main variable in the study are summarized in Table 2, differing between family and nonfamily firms. The mean value of the social performance index for non-family firms (726.286) implies that, on average, these firms are more likely to engage in socially responsible actions than family firms, which have a mean value of 663.507. Regarding the codes of ethics, our results again show that family firms are more likely to adopt informal models of conduct to promote their ethical behaviour and their mean value of ethical codes is lower (3.182) than the mean value for non-family businesses (3.358). With respect to the control variables, for example, the average size of the analysed non-family firms is 8.672, and the average size of family firms is 8.889, showing that, in general, family firms are larger than non-family firms. Table 1 also shows the absolute and relative frequency of family and non-family firms, a dummy variable with values between Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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Table 1 Social performance index. Environmental index Environmental policies and commitment Environmental management systems Environmental reporting Level of environmental impact improvement Human rights index Extent of policies addressing human rights issues Extent of systems addressing human rights issues Extent of reporting addressing human rights issues Stakeholders index Policies towards stakeholders overall Management systems for stakeholders overall Quantitative reporting for stakeholders overall Level of engagement with stakeholders overall Policies on equal opportunities and diversity issues Systems and practices to support equal opportunities and diversity issues Health & safety systems Systems and practices to advance job creation and security Systems to manage employee relations Systems to support employee training and development Policies on maintaining good relations with customers e suppliers Systems to maintain good relations with customers e suppliers Level of commitment with community or charitable work

0 and 1. In this sense, 509 observations (16.55% of the total) belong to family firms and the remaining 5556 observations (83.45% of the total) belong to non-family firms. Table 3 shows the bivariate correlations between the variables used in the model. In no cases are high values obtained for the coefficients between dependent and independent variables or between independent variables. The regression results for the hypothesis proposed are summarized in Table 4, which provides the evidence regarding the possible mediation effect of ethical codes on social performance following the three steps of Baron and Kenny (1986). Firstly, as previously noted in Model 1, we test the effect of the independent (Family) and control (Size, Leverage, Risk) variables on the mediator variable (EthicCode). Specifically, Family has a statistically significant negative coefficient (coef. 0.486, p < 0.05), meaning that family firms are less likely to use formal codes of ethics than non-family firms. Family businesses operate in a more informal environment, with a lower degree of formalization than non-family firms (Adams et al., 1996; Duh et al., 2010). This affects the use of rules and norms, such as ethical codes. Values and ideas in family businesses tend to be disseminated by informal mechanisms, instead of using formal codes and reports. In the second step, we test separately the impact of the mediator variable (EthicCode) and the independent variable (Family) on the level of social performance (SP), as we can see in Models 2a and 2b. The results are shown in Table 4. Observing the coefficients for Model 2a, we can see a positive effect of EthicCode on SP, which is statistically relevant at the 99% confidence level (coef. 5.795, p < 0.01). This result supports a positive relationship between the presence of formal ethical codes and the level of corporate social performance, suggesting that such codes act effectively in the promotion of corporate social responsibility, increasing the level of social performance. Ethical codes transmit values to all members, offering a moral

Table 2 Descriptive statistics. Non family firms

SP EthicCode Size Leverage Risk

Family firms

Mean

Std. Dev.

Mean

Std. Dev.

726.286 3.358 8.672 124.977 1.033

442.846 0.965 1.756 4470.026 0.763076

663.507 3.182 8.889 1.862 0.927

431.362 1.042 1.674 8.905 0.523

Frequencies

Family

Absolute

Relative (%)

Absolute

Relative (%)

2556

83.45%

509

16.55%

SP was defined to represent the corporate social performance through corporate social responsibility practices which is an index obtained from three areas: practices for society, practices for preserving human rights and practices for preserving the environment. EthicCode was defined to represent the existence of a code of ethics and its level of application and it is an ordinal variable that takes values between 0 and 4, such that 0 represents the absence of a code of ethics and 4 represents an advanced ethical code, with the highest rating. Family is a dummy variable that takes the value 1 if the largest shareholder is an individual or a family with more than 10% of the votes, and 0 otherwise. Controls include corporate size eas the natural logarithm of assets- and leverage-the ratio of total debt to total equity-, and systematic risk as measured by the beta of the market model.

Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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Table 3 Bivariate correlations.

1. 2. 3. 4. 5. 6. 7. 8. 9.

SP EthicCode Family Size Leverage Risk Industry Country Year

1

2

3

4

5

6

7

8

9

1.000 0.303 0.067 0.043 0.011 0.125 0.026 0.190 0.333

1.000 0.080 0.181 0.024 0.013 0.001 0.098 0.174

1.000 0.067 0.019 0.057 0.113 0.047 0.005

1.000 0.070 0.043 0.139 0.057 0.004

1.000 0.037 0.042 0.013 0.022

1.000 0.076 0.002 0.017

1.000 0.077 0.025

1.000 0.051

1.000

SP was defined to represent the corporate social performance through corporate social responsibility practices which is an index obtained from three areas: practices for society, practices for preserving human rights and practices for preserving the environment. EthicCode was defined to represent the existence of a code of ethics and its level of application and it is an ordinal variable that takes values between 0 and 4, such that 0 represents the absence of a code of ethics and 4 represents an advanced ethical code, with the highest rating. Family is a dummy variable that takes the value 1 if the largest shareholder is an individual or a family with more than 10% of the votes, and 0 otherwise. Controls include corporate size eas the natural logarithm of assets- and leverage-the ratio of total debt to total equity-, and systematic risk as measured by the beta of the market model. Industry, Country and Year are dummies that represent sector group, country and year, respectively.

Table 4 The mediator effect of the code of ethics on the link between family firms and their social performance. Dependent variable

Model 1

Model 2a

Model 2b

Model 3

EthicCode

SP

SP

SP

Coef EthicCode Family Size Leverage Risk _cons Industry Country Year sigma_u sigma_e rho

0.486** 0.024 0.000 0.100 4.185*** Controlled Controlled Controlled 1.843*** 1.090*** 0.741

Std. Error

Coef

Std. Error

5.7947***

1.046

Coef

0.188 0.030 0.000 0.105 0.335

0.294 0.000 11.436*** 106.677***

0.527 0.000 1.651 6.570

5.8604* 0.082 0.000 12.586*** 105.183***

0.088 0.042 0.022

37.653*** 29.412*** 0.621

1.455 0.661 0.021

1.843*** 1.090*** 0.741

Std. Error

Coef

Std. Error

3.0667 0.500 0.000 1.766 5.700

5.751*** 5.057 0.333 0.000 11.588*** 108.617***

1.070 3.022 0.525 0.000 1.635 6.842

0.088 0.042 0.022

38.039*** 29.409*** 0.626

1.497 0.661 0.021

This table shows the results of regressions proposed in model 1, 2a and 2b, and 3. SP was defined to represent the corporate social performance through corporate social responsibility practices which is an index obtained from three areas: practices for society, practices for preserving human rights and practices for preserving the environment. EthicCode was defined to represent the existence of a code of ethics and its level of application and it is an ordinal variable that takes values between 0 and 4, such that 0 represents the absence of a code of ethics and 4 represents an advanced ethical code, with the highest rating. Family is a dummy variable that takes the value 1 if the largest shareholder is an individual or a family with more than 10% of the votes, and 0 otherwise. Controls include corporate size eas the natural logarithm of assets- and leverage-the ratio of total debt to total equity-, and systematic risk as measured by the beta of the market model. ***, ** and * indicate significance at a level of 1%, 5% and 10% respectively.

and behavioural guide that is useful in confusing situations (Urbany, 2005; Chua and Rahman, 2011; Wotruba et al., 2001). The use of ethical codes affects positively the promotion of socially responsible commitment, according to the findings obtained by Adams et al. (2001), Mijatovic and Stokic (2010), and Erwin (2011). The results for Model 2b show a statistically significant negative effect of the independent variable (Family) on the level of social performance (SP) (coef. 5.8604, p < 0.05). This result is very relevant to the family business literature, since it is contrary to the traditional idea that supports the higher social orientation of family businesses. Our finding is in accordance niz and Cabrera (2005), Burak and Morante (2007), and Lo pez Iturriaga and Lo pez de Foronda with those obtained by De (2011), suggesting that family firms tend to present a lower responsible commitment than non-family enterprises. Arguments to support this could be understood as being due to the amount of investment by family members in the company. The family usually has large investments in its own firm, so economically driven motivations (Virakul et al., 2009) are stronger than social and environmental actions. In other words, family members may be more interested in profitability and financial niz and Cabrera performance than in environmental issues (Burak and Morante, 2007). Our results agree with those of De (2005), who posit that family firms assume that they have the resources to carry out socially responsible practices, but they consider that the risk is higher than the economic benefit, viewing these practices as a cost and not as an opportunity. Finally, the third step of the mediation analysis involves the joint testing of the impact of the mediator variable (EthicCode) and the independent variable (Family) on the level of social performance (SP). As previously noted, this step requires two assumptions. First, the relationship between the mediator (EthicCode) and the dependent variable (SP) must be statistically significant. Our results meet this assumption, since the variable EthicCode has a statistically significant positive Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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coefficient in Model 3 (coef. 5.751, p < 0.01). Second, “the effect of the independent variable on the dependent variable must be lower in the third step than in the second step” (Baron and Kenny, 1986, p. 1177). Our results are also in accordance with such an assumption, since in Model 3, Family impacts negatively on SP (coef. 5.057), although it is not statistically relevant. This coefficient is lower than that obtained in Model 2b (coef. 5.8604, p < 0.05). This confirms the existence of a mediating effect of ethical codes on the level of social performance of family firms. In other words, the negative influence of family ownership on their social performance appears to be justified by the absence of formal ethical codes. As a consequence of the sample size and the existence of a more rigorous and powerful test to analyse mediation, we use an additional test (Zhao et al., 2010). Specifically, the “bootstrapping” test supports the significance of our previous mediation results. This test is a non-parametric resampling method that calculates the indirect effect in each sample and provides a confidence interval. If zero is in the interval, the indirect effect is different from zero (Shrout and Bolger, 2002; Fern andezGago et al., 2014). The 99% confidence interval of the mediation role of codes of ethics falls between 4.770 and 0.5803. This result confirms the mediation effect of codes of ethics at the p < 0.01 level. Our findings are summarized in Figure 1, suggesting that family businesses present a lower social performance than nonniz and Cabrera (2005), Burak and Morante (2007), and Lo pez Iturriaga and family firms. This supports the findings of De  pez de Foronda (2011), breaking with the traditional trend that supports a greater social and environmental orientation Lo of family businesses. We find the lack of formal ethical codes to be a reason for such behaviour. Family firms are more likely to rely on role modelling to encourage ethical behaviour by the informal transmission of behavioural norms among members. This is in partial agreement with Adams et al. (1996), since they observed few differences in the ways in which ethical dilemmas are dealt with by members of family and non-family firms, suggesting that the lack of formal codes should not be used as an indicator of corporate ethical behaviour. Nevertheless, our empirical results suggest that the use of formal codes of ethics may influence the level of social performance in family firms. Concluding remarks Based on a sample of 547 international non-financial listed companies for the period 2002e2010, this paper examines the mediation effect of ethical codes on the relationship between family ownership and the degree to which the management achieves a strong social and environmental performance. Thus, in order to evaluate the indirect link between family firms and their social performance through ethical codes, we analyse the relationship between codes of ethics and social performance and the existence of ethical codes in family firms. Finally, we examine whether such ethical codes mediate the relationship between family ownership and social performance. Our findings support the mediating effect of ethical codes on the association between family-owned firms and their social performance. This suggests that family firms are more shareholder-oriented and more committed to profit maximization of their investments, relegating sustainable actions to the background. Regarding the mediation, the results show that codes of ethics exert an indirect effect on the negative association between family firms and their social performance due to, on the one hand, formal ethical codes acting as an effective tool for the promotion of a greater corporate social performance, but on the other hand, family firms being characterized by a lower degree of formalization than non-family firms, leading them to rely on informal codes based on family core values. This study makes the following contributions to our knowledge of family firms, ethical codes, and social performance. First, it enhances our understanding of family firms; previous research tends to focus on leadership, ownership, and succession-related topics, neglecting socially responsible issues (Benavides-Velasco et al., 2013). Second, it examines the impact of the ownership structure on social performance. We find that the business group and the ownership structure of a firm play a fundamental role in determining the existence or otherwise of incentives to increase its social performance. In contrast to the conventional wisdom concerning the benefits of sustainable practices, we find that these can be neglected by family owners since they are more oriented towards economic aspects than social ones. Nonetheless, the main contribution of this paper is its analysis of the mediating effect of ethical codes on the family ownership and social performance link. Moreover, in contrast to the majority of studies, which focus on only one country, we use an international sample of 12 countries, thus obtaining potentially more powerful and generalizable results. Moreover, the study's consideration of the temporal dimension of data, particularly in periods of great change, enriches its perspective. In this regard, the panel data obtained enable us to control for year-on-year effects that may affect social and environmental performance.

Figure 1. Mediation of codes of ethics on social performance.

Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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Our study results should be interpreted carefully, since this research is subject to certain limitations. Due to the limited information available in the different databases, the sample is restricted to specific countries. For example, the last year used for the analysis is 2010. These limitations need to be addressed in future studies. Another limitation concerns the definition of a “family firm”. In the present paper, a firm is considered to be a “family firm” when a member of the founding family has more than 10% ownership. This is the most common approach, although there is no universal definition. Ideally, family ownership and family management should be considered in greater detail to characterize better the evidence discussed. In addition, in this analysis, the variable “family firm” is dichotomized into family-controlled and non-family-controlled firms. As note, without a continuous measure of this variable, the mediating effect of ethical codes on the association between family firm and social and environmental approach may not have been properly and fully evaluated. In this respect, a precise measure of family management, such as the percentage of family members in senior management positions, could be a good measure. Thus, future research could improve upon the measurement of the degree of family control. Another limitation corresponds to the difficulty in measuring the SP construct, since there is no universally accepted or ideal empirical measure for socially responsible practices (Griffin and Mahon, 1997). Our social performance index is measured as the unweighted sum of three different measurements (in the areas of the environment, human rights and stakeholders), based on numerical scales from the information provided by EIRIS. Although we believe this measure to be reliable and accurate (following previous studies such as Fabrizi et al., 2014; Martínez-Ferrero et al., 2014), we are cautious about the possible bias included in it because it may not capture the true underlying practices. Precisely, by developing a rigorous evaluation of the transparency of KLD's environmental ratings, Chatterji et al. (2009) already were aware on the lack of transparency of social responsibility indexes; most of rating agencies (such as EIRIS) can examine firms' past environmental performance and environmental management activities and it is needed a careful evaluation of current managerial actions likely to influence future environmental performance. As they note “investors are clearly interested in accurate measurement of prior social performance, but can rely on social ratings only if they also reliably”. Moreover, we have only examined social performance as a global construct. Because the SP indicator is an aggregate measure, it does not tell us whether bad performance in one area is compensated by good performance in another area. Thus, the main limitation to our study is the impossibility of running sensitive analyses based on different empirical proxies of social performance, because we did not have access to more data than that used in this paper. In view of the controversy surrounding the validity of several proxies for capturing social performance and given the lack of data availability, future research should validate the results obtained here with alternative measures that test if our results outcomes are similar from index to index. In addition, our research model has some deficiencies related to omitted control variables. In our regression equation, we control by corporate size and leverage, market risk, industry, year and country. However, as McWilliams and Siegel (2000) indicate, the level of R&D spending and advertising expenditure must be included in regression estimations to avoid research models misspecified. Specifically, the authors report a neutral relation between CSR and profitability when these variables are included. Similarly, McWilliams et al. (2006) point out the use of CSR to differentiate products and even more, that it occurs more in monopolistically competitive industries, making interesting the analysis of the intensity of competition in the market. Meanwhile, Siegel and Vitaliano (2007) differentiate between firms selling experience or credence good and firms selling search goods, so proposing the need of examining the possible differences according to the type of product or service. Thereon, future researches must be reinforced by the inclusion of additional control variables that can affect to the mediating effect of ethical codes on the link between family firms and their social performance. For example, firm-level aspects (such as the R&D intensity, advertising expenditure, growth opportunities, or aspects related to market valuation) and market-level aspects (the type of product and service and the market competition). Finally, as future lines of research, it would be interesting to include other corporate characteristics, such as board aspects, the existence of audit committees, and CEO duality, as well as the existence of other owners (banks, government, etc.) as mediator variables in the analysed relationship. Institutional and legal aspects should be addressed too.

Acknowledgement The authors wish to acknowledge the financial support from the Ministry of Science and Innovation for the research project ECO2013-43838-P and from the Multidisciplinary Institute of Enterprise (MIE) of the University of Salamanca. ANNEX. Measures of variables Social Performance Corporate social performance (SP) is measured using a multidimensional construct addressing all the actions carried out, especially those taken in social and environmental contexts (Carroll, 1999). In accordance with the Triple Bottom Line approach, social performance can be defined as an aggregate construct composed of three dimensions: economic, social and environmental. Although the economic dimension has traditionally been assumed to form part of socially responsible practices, some studies have concluded that it need not be included in the overall social performance construct (Maignan and Ferrell, 2001; García de los Salmones et al., 2005). According to Daft (2003), a business is an economic organization that gains Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007

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profits by producing goods and services in a society. Since profitability is the basic motive for its survival, the economic dimension should be considered the reason for its existence, rather than a responsibility to society (Turker, 2009). In the present case, CSR information was compiled from the EIRIS database, widely used in academic research (see Louche et al., 2012; Dam and Scholtens, 2012; Fabrizi et al., 2014; Martínez-Ferrero et al., 2014; Cuadrado-Ballesteros et al., 2015; among others). EIRIS begins the process of creating the SP variable with the collection of data that companies make public through their sustainability reports. Furthermore, to clarify the information contained in these reports (especially where data can be more uncertain), EIRIS sent a questionnaire to the companies, obtaining more information on socially responsible issues. These questionnaires promote dialogue between EIRIS (as independent research organization) and each company. Such dialogue encourages to EIRIS to address the issues of concern to investors and companies to improve their public reporting. Here is where, once collected public information and information obtained from the questionnaires, industry specialists review all data and assign a value for each item analysed, EIRIS address different areas including environmental issues, human rights, and relationships with stakeholders (see Table 1), assigning text-grades to specific attributes in each of these three areas. This procedure might involve a subjective assessment of relevant corporate practices, but the topics addressed and the questions posed are designed in such a way as to enable a reasonable assessment of the activities evaluated. Moreover, EIRIS combines a broad range of environmental and socio-labour data points to assess how companies respond to the various sustainability challenges they face and to identify corporate leadership in tackling environmental and social challenges through policies, systems, reporting and documented improvements in performance. To obtain the socially responsible commitment of companies, we make use of an aggregate SP measure that takes into consideration a range of important issues across companies according to the 20 issues shown in Table 1: environmental, human right and stakeholders' aspects.1 Similar to Martínez-Ferrero et al. (2014), and Fabrizi et al. (2014), we transform the EIRIS text-grade rating for each measure into a number-grade rating. According to the scoring criteria of EIRIS (inadequate, weak, moderate, good and exceptional), we assign five values: 0, 25, 50, 75 and 100, corresponding to very low SP, low SP, moderated SP, good and very good SP, respectively. Family firm The explanatory variable of ownership concentration is Family, which is a dummy variable (Kashmiri and Mahajan, 2010; Landry et al., 2013) that takes the value 1 if the largest shareholder is an individual or a family with more than 10% of the votes, and 0 otherwise (Mok et al., 1992; Lam et al., 1994; Dayha et al., 2006; Aoi et al., 2012). Code of ethics In order to represent the existence of a code of ethics and its level of application, EthicCode was defined. It is an ordinal variable that takes values between 0 and 4, such that 0 represents the absence of a code of ethics and 4 represents an advanced ethical code, with the highest rating. 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1 The first of the three CSR areas concerns items such as the company's environmental management system and policy, its impact on the environment, and whether it has published reports on this question. In addition, general note is taken of the scope of the company's strategies, policies, systems and reporting in the field of human rights. Other factors taken into account include the company's management systems, the quantitative information provided, the general level of commitment to stakeholders, its policies and practices in support of equal opportunities and diversity, the health systems and safety-atwork procedures that are implemented, the support given to employee training and development, relationships with customers and suppliers, and the level of commitment to the community and to social projects. Table 1 shows the composition of the CSR index in detail.

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Please cite this article in press as: Cuadrado-Ballesteros, B., et al., The mediating effect of ethical codes on the link between family firms and their social performance, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.007