Family Firm Investment Horizons: The Effect of Ownership Structure upon Temporal Orientation

Abstract

There is a general contradiction between theoretical work suggesting that family firms are long-term oriented and recent empirical research indicating that family firms have a more myopic investment horizon than non-family firms as captured by various strategic decisions concerning R&D, diversification, earnings management and such. Yet in these empirical studies temporal orientation has often been a tangential concern, relying on proxies for time horizon that are subject to various interpretations. We revisit this issue by examining an unambiguous measure of long-term time frame, namely durability of investments in fixed assets, and find support for the hypothesis that family firms are indeed longer-term in their temporal preferences than non-family firms. We also find support for contingencies – specifically, the influence of non-family equity and debt investors – that allow for reconciliation of previously conflicting perspectives regarding family firm temporal orientation relative to non-family.