Friends of the Behavioral Economics Blog, this week we present the paper “Regional culture: the role of the invisible hand in shaping local family firms’ top management team”, by Yu, X.; Zhang, Y.; Cheng, X.; Li, H.; Chen, Y. and Zhou, W. (2022), in which authors carry out a study to know how clan culture and regional culture affects family businesses.

There are plenty of studies on family and non-family businesses, and the vast majority have focused on the differences between both when it comes to choosing candidates to fill top management positions. 

Compared to non-family businesses, family companies are more concerned with objectives such as maintaining family control, altruism within their group, improving the family’s reputation, among others. In other words, they tend to prioritize family interests. 

And by virtue of this, they can introduce people into the management team more easily than in non-family companies, even if they do not have enough talent for the management of the company. 

From the above, it is understood that the operation and management of family businesses and the maintenance and coordination of their internal relations depends not only on the rules and regulations of the company, but also on the local cultural concepts associated with the family

This is the idea to which studies on the differences between family and non-family firms have not paid enough attention: what is the impact of regional culture on family firms? Does this culture affect as an “invisible hand” that influences entrepreneurial behavior?

Specifically, this study focuses on the effect of the so-called “clan culture”. In Chinese businesses, clan culture embodies the salient characteristics of traditional Chinese culture. Therefore, exploring the influence of traditional values may be useful to understand the cultural basis of family business behavior and motivation. 

First, authors briefly review the existing literature in the field of clan culture and family firms. 

Previous studies suggest that family firms differ from non-family firms in that family companies have two organizational systems: business and family. And, therefore, family patterns are also one of the reference points of behavior and decision making.

Compared to non-family firms, family companies rely on both business logic and family logic to make operational and strategic decisions

All this should not surprise us, since, according to the psychology of the individual, we humans tend to show altruistic behaviors for the family members with whom we share genetics

A very positive point about family businesses is that people tend to participate much more actively in helping to achieve the family’s goals, as involvement in the management of the business is beneficial to the emotional satisfaction of family members in terms of belonging, security and identification. 

For family members, the company is not only a place of work but also a symbol of family status and glory. For this reason, it is believed that family members working for family businesses generally do not ask for high financial remuneration. 

On the other hand, if there is a high financial risk, family businesses with a weak clan culture may try to improve their financial situation rather than emphasizing the maintenance of family control. Conversely, under the influence of a strong clan culture, family executives tolerate risks and losses because they believe in the cohesion and unity of family members and maintain enthusiasm.

The worse the financial situation of a family business, the more prominent the family concept tends to be in the individual’s mind. 

To analyze all these ideas, authors conducted a study including data from 625 growing companies in China. 

The obtained data tell us that, in areas where the clan culture prevails, family members involved in the business are willing to accept lower remuneration. The reason for this phenomenon is that both the company and the worker understand that it is not only the economic returns that matter, but also the psychological ones.

The more the clan culture prevails, the lower the remuneration demanded by the family members.

In addition, it seems that when family firms have already obtained generous financial returns, they focus more on obtaining psychological returns, and when financial returns are not sufficient, they will weaken the pursuit of psychological benefits. 

Due to the complexity of the subject, authors explain that it is necessary to continue studying the behavior of family firms in different sociocultural contexts to better understand their functioning and dynamics.

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