Entrepreneurial orientation in family firms: a generational perspective

Entrepreneurial orientation in family firms: a generationalperspective

Cristina Cruz • Mattias Nordqvist

Accepted: 25 January 2010 / Published online: 6 March 2010

� Springer Science+Business Media, LLC. 2010

Abstract We adopt a generational perspective to

investigate entrepreneurial orientation (EO) in family

firms. We test a model that determines how the

influence on EO of external factors and internal factors

differs in first-, second- and third-and-beyond-genera-

tion family firms. We argue that while the founder is

vital in the first generation, EO is more subject to

interpretations of the competitive environment in the

second generation and that in the third generation and

beyond, access to non-family resources drives EO to a

greater extent. Our findings show that perceptions of

the competitive environment and EO correlate differ-

ently in family firms, depending on the generation in

charge, and it is generally stronger in second-gener-

ation family firms. Further, we find that non-family

managers on the top management team makes a

positive difference for EO only in the third-generation

and beyond family firms. The significance of non-

family investors’ on EO is particularly strong in third-

generation-and-beyond firms.

Keywords Entrepreneurial orientation �Family businesses � Generation �Small and medium-sized enterprises (SMEs)

JEL Classifications L26 � M1 � M10

1 Introduction

Typically, long-term survival requires firms to engage

in entrepreneurial activities in order to revitalise their

business and stay competitive. This need is even

greater in family firms with a vision to succeed across

generations. Entrepreneurial families have to develop

renewal capabilities in line with the inevitable need to

shed or redeploy assets once their value-creating

properties are exhausted (Habbershon and Pistrui

2002). In short, entrepreneurial families need to have

an entrepreneurial orientation towards their business

activities.

On recognising this need, an increasing number of

studies have begun to disentangle the specific char-

acteristics of entrepreneurial families and family

firms (Hall et al. 2001; Kellermanns and Eddleston

2006; Zahra et al. 2004). The concept of entrepre-

neurial orientation (EO) (Miller 1983; Lumpkin and

Dess 1996) has proved to be a fruitful theoretical

perspective in this endeavour (Naldi et al. 2007;

Salvato 2004). However, despite increasing research

C. Cruz

Instituto de Empresa, Calle Maria de Molina 11,

13, 15, 28006 Madrid, Spain

e-mail: [email protected]

M. Nordqvist (&)

Jonkoping International Business School, P.O. Box 1026,

SE-551 11 Jonkoping, Sweden

e-mail: [email protected]

123

Small Bus Econ (2012) 38:33–49

DOI 10.1007/s11187-010-9265-8

efforts, the role of the family context for EO is not yet

well understood. Some argue that the kinship ties that

are unique to family firms have a positive effect upon

entrepreneurial opportunity recognition (Aldrich

and Cliff 2003) and that the long-term nature of

family firms’ ownership fosters entrepreneurship

(Ward 1997; Zahra et al. 2004). Yet, others maintain

that the desire to protect family wealth leads family

firm owners and managers to become too conservative

in taking risks associated with entrepreneurship (Zahra

2005; Naldi et al. 2007). These controversial findings

have led authors to ask to what extent current corporate

venturing models are relevant to family-controlled

enterprises (Hoy 2006).

A shortcoming of existing research on entrepre-

neurship in family firms is that, with few exceptions

(Salvato 2004; Kellermanns and Eddleston 2006), it

largely overlooks the impact of the generational

evolution of family firms. This is somewhat surpris-

ing, since it has been demonstrated that family firms

go through different stages depending on the gener-

ation in control and that the firms’ strategic behav-

iours often change from stage to stage (Bammens

et al. 2008; Gersick et al. 1997; Schulze et al. 2003).

Thus, more research is needed to understand the

different drivers of entrepreneurship at different

generational stages in a family business (Hoy 2006).

This article aims to take a step in this direction by

examining antecedents of EO in family firms adopting

a generational perspective. Leaning on insights from

the entrepreneurship literature, which suggests that a

firm’s level of entrepreneurship is influenced by both

its external and its internal organisational context

(Lumpkin and Dess 1996; Zahra 1991), we investigate

how the influence of external factors (environmental

dynamism, technological opportunities and industry

growth) and internal factors (presence of non-family

investors and of non-family managers) on EO differs

between first-, second- and third-and-beyond-genera-

tion family firms.

Because the generation in charge of the family

business is a central component of its life cycle

(Davis and Harveston 1999; Gersick et al. 1997;

Steier 2003), we argue that the drivers of EO are

likely to change from one generation to another. We

posit that while the founder of the business is vital in

first-generation family firms, EO is more subject to

the Chief Executive Officers’ (CEO) interpretations

of the competitive environment in second-generation

family firms. Finally, in the third generation and

beyond, access to non-family managerial and finan-

cial resources will drive the firms’ EO to a greater

extent.

This article makes several contributions to the

entrepreneurship and the family business literature.

First, we address the role of organisational and

ownership context for the determinants of EO by

examining the impact of generational stages in family

firms. Second, we address external and competitive

conditions when examining entrepreneurial activities

in family firms. Third, we add to the scarce amount of

empirical research on the role of specific internal

resource situations for corporate entrepreneurship in

family firms. Fourth, we contribute to the family-

business literature by looking at different types of

family firms rather than treating them as a homog-

enous group.

The structure of the article is as follows. First, we

review literature on the determinants of EO, empha-

sising prior research on family businesses. We then

develop hypotheses regarding the determinants of EO

in family businesses from a generational perspec-

tive. Thereafter, we present the methodology and the

empirical results. Finally, we discuss our find-

ings, limitations and formulate directions for future

research.

2 Theoretical background

2.1 Determinants of entrepreneurial orientation

EO addresses entrepreneurial strategy making and

focuses on the extent to which firms are characterised

by a decision-making style that is proactive, risk

taking and innovative, as they pursue opportunities

(Miller 1983; Covin and Slevin 1989, 1991). Regard-

ing the determinants of EO, research has revealed the

importance of both the environment in which the firm

operates (external factors) (e.g. Lumpkin and Dess

2001; Zahra 1991) and organisational variables (inter-

nal factors) (e.g. Wiklund and Shepherd 2003). In the

next sections, we revisit this literature and its appli-

cation to family businesses.

Research suggests that since the external compet-

itive environment poses factors of both uncertainty

and opportunity to organisations, it has a major

impact on a firm’s EO (Dess et al. 1997). In

34 C. Cruz, M. Nordqvist

123

particular, studies have pointed out the importance of

CEOs’ interpretations of their firms’ competitive

environment as a key determinant of firm-level EO

(Zahra 1991), especially in small- and medium-sized

enterprises (Wiklund 1998).

Capturing CEOs’ perceptions and interpretations

of the competitive environment is challenging,

because the literature highlights multiple classifica-

tions of environmental dimensions (Dess and Ras-

heed 1991). This study focuses on CEOs’

perceptions about the resourcefulness of the com-

petitive environment, since research has shown that

they have an impact on the opportunity-set available

to the firm (Romanelli 1987; Miskin and Rose 1999)

and therefore on the EO (Zahra 1991). Three

dimensions of perceived environmental resourceful-

ness have been used in the EO literature: first,

perceived environmental dynamism, or the perceived

instability and change of a firm’s market (Keats and

Hitt 1988); second, perceived technological oppor-

tunities, defined as the degree of innovation and

breakthrough technological opportunities perceived

in one’s industry (Zahra 1996; Kellermanns and

Eddleston 2006). The final dimension, perceived

industry growth, refers to perceptions of the current

and future demand for the industry’s products or

services (Zahra 1991).

There is some evidence on the positive effect of

these dimensions of environmental resource abun-

dance on the EO of family firms. Blake and Saleh

(1995) propose that family firms, active in environ-

ments that are uncertain but generous in opportuni-

ties, are more engaged in innovation than family

firms in more stable environments with fewer

perceived opportunities. Similarly, Kellermanns and

Eddleston (2006) establish that family firms perceiv-

ing higher levels of technological opportunities

exhibit greater levels of corporate entrepreneurship.

However, there is still a lack of research that looks

at how the impact of perceptions of the competitive

environment on EO may differ in family firms.

Consistent with the generational perspective, we

argue that the importance of the external environ-

mental factors on EO is likely to vary with the

generation in charge of the firm.

While the role of the competitive environment is

important for EO, so are the internal characteristics of

the firm (Lumpkin and Dess 1996). In particular,

access to and use of different firm resources, such as

managerial and financial resources, have been shown

to be crucial for EO (Covin and Slevin 1991;

Wiklund and Shepherd 2003, 2005). The access to

managerial resources means a greater possibility to

develop capabilities that support the process of

renewal (Stevenson and Jarillo 1990). In the same

vein, access to financial resources may create an

abundance of resources that facilitate the pursuit of

entrepreneurial opportunities (Bourgeois 1981; Zahra

1991). Moreover, since financial resources are a

general type of resource, they can be changed into

other resources. This means that if financial resources

are available, other resource constraints, such as lack

of physical or human resources, may be easier to

overcome (Wiklund and Shepherd 2005).

Family business research has pointed out that the

non-family dimension is a key internal resource for

EO in family firms (Habbershon and Williams 1999;

Sirmon and Hitt 2003). In particular, studies have

emphasised the role of external investors and non-

family managers in fostering entrepreneurship (Sal-

vato 2004; Carney 2005).

So far, however, researchers have not explicitly

investigated to what extent the impact of these non-

family resources on EO varies among family firms of

different generations. This is a significant limitation

since family businesses differ in their characteristics

and behaviours depending on the generation in

charge. In this article, the key argument is that both

external and internal determinants of EO tend to

differ between first-, second- and third-and-beyond-

generation family firms. The next section builds on

this argument and examines the relationship between

the determinants of EO and the generational phase of

the firm.

3 Current study

3.1 Generational differences within family firms

The family business literature states that as family

businesses develop and grow beyond the founder

organisation, family owners and managers must

contend with the evolution of both the business and

the family, which are rarely synchronised. Accord-

ingly, some prior studies of family businesses have

investigated developmental issues or the stages of the

evolution of family business growth.

Entrepreneurial orientation in family firms: a generational perspective 35

123

The generational perspective of a family business

emphasises that members of different generations

differ in terms of the stage of development of their

firm, as well as in terms of their own capability to

influence the firm’s strategic direction (Greiner 1972;

Sonfield and Lussier 2004). While founders, as first-

generation family managers, are entrepreneurs with

the necessary background to create a business (Schein

1983; Aldrich and Cliff 2003), this is not always the

case for founder descendents, who face different

challenges (Peiser and Wooten 1983). Moreover, a

generational perspective maintains that the degree of

family identification, influence and personal invest-

ment in the firm changes as the firm moves through

generations (Gersick et al. 1997; Schulze et al.

2003). Consequently, researchers have found gener-

ational differences among first-, second- and third-

and-beyond-generation family firms, along different

variables (e.g. Bammens et al. 2008; Sonfield and

Lussier 2004).

Some empirical studies have examined the role of

generational involvement in determining the level of

EO. However, results are mixed. For instance, while

Martin and Lumpkin (2003) found the EO dimen-

sions autonomy, risk-taking and competitive aggres-

siveness to decrease as later generations became

involved in the family firm, Kellermanns and Eddle-

ston (2006) found no direct impact of generational

involvement on corporate entrepreneurship. We

argue that an analysis of the drivers of EO, from a

generational perspective, may help to shed some light

on this debate. Specifically, in the next two sections,

we state that the influences on EO of (1) the CEOs

perceptions of the external competitive environment

and (2) the presence of non-family resources are

likely to differ among generations in family

businesses.

3.2 Influence of external factors on EO

from a generational perspective

In first generation family firms, the presence of the

founder is the most powerful influence on organisa-

tional development (Brun de Pontet et al. 2007). As

Hollander and Ellman (1988, p. 148) state: ‘‘the

culture of the business often becomes an embodiment

of the founding personality; this culture then influ-

ences operational style which in turn affects both the

development of the business and its ability to respond

to change’’. This founder-centric orientation implies

the development of an internal cultural orientation

(Zahra et al. 2004), which emphasises the develop-

ment of knowledge and expertise that resides within

the founder’s personality, priorities and values (Kelly

et al. 2000; Schein 1983).

Consequently, EO will be closely tied to the

founder as he or she is the most central actor in

entrepreneurial activities (Schein 1983; Kelly et al.

2000). The founder is an entrepreneur, who drives the

firm’s development and expansion based on his or her

intuition, business idea and strategies, rather than on

industry characteristics and/or competitors’ moves.

As a result, it is expected that entrepreneurship is

driven by the founder to a greater extent in first

generation family firms (Schein 1983; Mintzberg and

Waters 1983).

This founder centrality is reduced as the firm moves

to the second generation. Although the founder may be

present as an owner and/or board member, there are

more family members involved in governance and/or

daily operations (Gersick et al. 1997). Consequently,

decision making becomes less centralised and per-

sonalised (Carney 2005; Kelly et al. 2000). Moreover,

second-generation managers face different challenges

(Gersick et al. 1997; Peiser and Wooten 1983). They

need to find new ways to revitalise and further expand

the business they have inherited (Hoy 2006; Keller-

manns and Eddleston 2006) while at the same time

deal with the shadow of the founder (Davis and

Harveston 1999). A founder’s legacy tends to include

imprinting forces that leave the firm with strongly

defined internal characteristics (Schein 1983; Gersick

et al. 1997), while the external conditions may have

changed. Therefore, second-generation CEOs must

push for new ways to do things, given the changing

environmental conditions if they want to move beyond

the legacy of the previous generation (Handler 1992).

Consequently, second-generation CEOs need to

develop a more external cultural orientation that

places a greater value on signals from the external

environment. This includes studies of market trends

that provide insights into emerging entrepreneurial

opportunities (Zahra et al. 2004). As a result of the

greater emphasis on the external competitive environ-

ment, second-generation CEOs will gear their firms’

EO to market demands and industry characteristics to

a greater extent than first-generation founders. As

stated by Peiser and Wooten (1983, p. 61), ‘‘especially


123

in dynamic environments, the second generation sees

opportunities for growth that the first generation would

prefer to pass over’’.

The greater awareness of external conditions is not

only a need but also a consequence of the evolution

towards a more formal leadership from first- to

second-generation family firms (Coleman and Carsky

1999). Compared to first-generation founders, sec-

ond-generation managers often possess more formal

education and outside experience (Sonfield and

Lussier 2004; Kelly et al. 2000), which gives them

a greater ability to engage in analysing markets and

competitors in order to find room for new entrepre-

neurial activities.

Therefore, we expect EO in second-generation

family firms to reflect the dynamism, growth and

opportunities within their industry to a greater extent

than in the case of first-generation family firms. What

Miller (1983, p. 785) calls the environmental and

structural imperative, that is, a firm’s effort to adapt

its entrepreneurial activities to the demands of its

environment and the capacity of its structures will

thus be a major driver of EO in second-generation

family firms.

We further argue that this environmental-structural

imperative is reduced as firms move into the third-

generation and beyond. When the firm moves through

generational family relationships, it tends to become

more distant and differences intensify (Jaffe and Lane

2004). Growing numbers of family members and

increased presence of non-family managers (Gersick

et al. 1997) require a greater use of formal control

systems and structures (Bammens et al. 2008) that

reduce a firm’s flexibility to adapt to unpredictable

external pressures (Miller 1983). A firm buffering

itself from the environment makes it less responsive

to these pressures (Mintzberg 1973).

At the same time, third-and-beyond-generation

companies are typically characterised by a profes-

sional management style (Coleman and Carsky 1999;

McConaughy and Phillips 1999). Professional man-

agement implies, in most cases, more time engaged in

strategic planning (Kellermanns and Eddleston 2006).

Consequently, entrepreneurial activities in third-and-

beyond-generation companies become more planned

and based on formal strategies (Miller 1983), rather

than just on a founder’s intuition or on how the CEO

perceives the competitive industry characteristics.

Therefore, the positive influence of a CEO’s perceived

environmental characteristics on EO is reduced in

third-and-beyond-generation family firms compared

to second-generation companies. These arguments

suggest a convex trend of the impact of external

environment on EO. The positive impact of external

conditions on EO is increased from the first generation

to the second, but is then reduced as the firm moves to

third generation; formally stated:

H1 Perceived external environmental characteris-

tics and generation of the family firm will interact to

predict EO such that, for second-generation family

firms, perceived external environment characteristics

will have a stronger effect on EO compared to first-

and third-and-beyond-generation family firms.

H1a The positive effect of CEOs’ perceptions of

environmental dynamism on EO will be stronger for

second-generation family firms than for first- and

third-and-beyond-generation family firms.

H1b The positive effect of CEOs’ perceptions of

technological opportunities on EO will be stronger

for second-generation family firms than for first- and

third-and beyond-generation family firms.

H1c The positive effect of CEOs’ perceived indus-

try growth on EO will be stronger for second-

generation family firms than for first- and third-and-

beyond-generation family firms.

3.3 Influence of internal factors on EO

from a generational perspective

Although rarely tested empirically, scholars acknowl-

edge that the increased presence of non-family

managerial and financial resources are crucial to

secure continued entrepreneurship (Salvato 2004;

Steier 2003; Carney 2005). Based on the generational

perspective, we expect this presence to have a greater

impact on EO in family firms controlled by the third

generation and beyond than in first- and second-

generation family firms.

Regarding managerial resources, research suggests

that the presence of non-family managers creates a

more diverse managerial pool of competencies (Jen-

nings and Lumpkin 1989) that adds new perspectives

and ideas that are useful to maintain the EO of the

family firm (Habbershon and Pistrui 2002; Salvato

2004). We argue that this managerial diversity is

more important to foster entrepreneurship for family


123

firms controlled by the third-and-beyond generation.

Given their greater complexity, e.g. as a result of

more-established and formalised governance and

management structures, there is a greater need for

diverse opinions in order to generate and capture

entrepreneurial opportunities in these family firms

(Kellermanns and Eddleston 2006). Moreover, also as

a result of the increased complexity, third-and-

beyond-generation family firms demand a broader

range of managerial skills to be able to exploit these

opportunities in an efficient manner. The quality and

experience of the internal pool of managers within

the owning family may not be enough to meet these

demands (Carney 2005).

Further, firms in third-and-beyond generations can

be assumed to rely more on delegation of responsibil-

ity to a wider set of functional managers to drive EO

than family firms controlled by the first or the second

generation (Sharma et al. 1997; Sonfield and Lussier

2004). The reduced family dominance in these family

firms may mean that non-family managers have more

discretion to challenge family-based assumptions and

priorities (Gersick et al. 1997). Consequently, non-

family managers have more discretion to act on

entrepreneurial opportunities and introduce change in

family firms controlled by the third generation and

beyond (Ensley and Pearson 2005).

Finally, family firms controlled by the third

generation or a later generation are typically more

socially and politically complex, with a significant

number of family members involved as owners and/

or managers (e.g. Gersick et al. 1997). Quite often,

individual family members or family branches have

different interests and expectations about the kind of

outcomes their family firm can produce (Sonfield and

Lussier 2004; Bammens et al. 2008). In this context,

the discretion for non-family members to contribute

to the EO of the firm may be higher, as they are seen

as neutral stewards of the business rather than as

representatives of vested family interests. Thus, while

managerial resources are crucial to sustaining EO for

all companies, we expect that family firms in the

third-generation or beyond will benefit, to a greater

extent, from the presence of these resources to

maintain their EO. Formally stated:

H2 Non-family managerial resources and genera-

tion of the family firm will interact to predict EO such

that, for third-and-beyond-generation family firms,

the presence of non-family managers will have a

stronger effect on EO compared to first- and second-

generation family firms.

Research suggests that the need for additional,

non-family financial sources for growth is particu-

larly strong in later generations of family firms

(Steier 2003; Sonfield and Lussier 2004). However,

there are different types of non-family investors and

they may exercise a different influence on corporate

entrepreneurship (Zahra 1996). We argue that the

presence of venture capitalists and/or other profes-

sional investors will especially foster EO in third-

and-beyond-generation family firms.

In these firms there is a greater presence of passive

shareholders (Jaffe and Lane 2004). These are

typically less overinvested in the firm (Schulze et al.

2003, p. 185) and prefer short-term dividend pay outs

rather than reinvesting profits (Vilaseca 2002; Bam-

mens et al. 2008). Venture capital (VC) and profes-

sional investors ask for high returns and an early exit.

Thus, they will be particularly pivotal in pushing

managers to undertake and support new EO. Indeed,

the presence of VCs triggers the development of

specific systems to reward managers for creative and

innovative actions that may enhance the firm’s

entrepreneurial potential (Mason and Harrison 2000).

Moreover, professional investors not only provide

financial resources, but also managerial and strategic

expertise (Astrachan and McConaughy 2001; Upton

and Petty 2000). The latter is crucial to supporting

EO in third-and-beyond-generation family firms,

since the passive shareholders’ knowledge about the

company may be limited (Jaffe and Lane 2004).

Finally, as mentioned before, firms that are

controlled by the third generation and beyond are

typically more socially complex and more influenced

by politics and power tensions between different

family branches. This situation may lead to an inertia

that constrains EO. As was the case with non-family

managers, the presence of these professional inves-

tors can challenge the existing power coalitions and

political dynamics within the firm, promoting change

and enhancing the EO. Therefore, as with managerial

resources, we expect family firms in the third

generation and beyond to benefit more from the

presence of VCs and professional investors regarding

their EO than first- and second-generation family

firms. Formally stated:


123

H3 Non-family financial resources and generation

of the family firm will interact to predict EO such

that, for third-and-beyond-generation family firms,

the presence of venture capital and professional

investors will have a stronger effect on EO compared

to first- and second-generation family firms.

The hypotheses of this study are summarised in the

research model in Fig. 1.

4 Data analysis

4.1 Sample and data collection

We used data collected in 2005 through a phone

survey. To ensure quality, the survey was adminis-

tered by a professional survey research firm. The

survey targeted small- and medium-sized (SMEs)

Spanish companies in business for at least 5 years.

The names and addresses of the companies were

identified from state directories. The survey targeted

each firm’s CEO since this person is directly involved

in the day-to-day operations in smaller firms. He or

she has first-hand information on what is going on

and is an appropriate respondent for studies of firm

level processes such as EO (Wiklund 1998).

A total of 1,400 responses were generated, i.e. a

12% response rate. This response rate is similar to

those obtained in previous mail surveys completed by

CEOs in Spanish family firms (e.g. Gallo and

Villaseca 1996). In 63% of the cases, the CEO said

that more than 50% of the ownership was owned by

members of the family and self-classified as family

businesses.1 The final sample consisted of 882 family

firms.

Descriptive statistics for our sample (see Table 1)

were in line with earlier studies on Spanish family

firms. The average firm has 54 employees and has

been in business for 28 years; 40% of the firms were

in the first, 42% in the second and 11% in the third

generation. Because the number of firms in the fourth

and fifth generation was not large enough to be

statistically significant, they were grouped with those

of the third generation. The third-and-subsequent-

generation category represented 18% of the sampled

firms.

4.2 Measures

4.2.1 Control variables

First, we controlled for size. Larger firms might have

more slack resources to engage in corporate entre-

preneurship, and size may thus bias the results (Zahra

et al. 2004). We used the logarithm of the number of

employees to control for size. A transformation was

necessary to achieve normal distribution. Next, we

External Factors: • Environment dynamism • Technological

opportunities • Industry Growth

Internal Factors: • Non-family managers • Non-family investors

Entrepreneurial Orientation: • Proactiveness • Risk taking • Innovativeness

Generation in Control of the Family Firm

(+)

(+)

Fig. 1 Research model

1 There is no agreed-upon convention among scholars as to the

appropriate definition of a family firm. Our definition follows

Astrachan and Kolenko (1994) who suggest that a family has to

own at least 50% of the business in a private company in order

to qualify as a family firm.


123

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123

controlled for past performance since it could improve

organisational-slack resources (Tasi 2001; Wiklund

and Shepherd 2005). Since firms were private and

objective measures of performance were not available,

we needed to use subjective measures of performance.

In particular, we ascribe to the view that performance

is multidimensional (Cameron 1978) so we included

two self-reported performance measures. Consistent

with prior research, we measured past performance as

the average growth in sales in the 3 years before the

survey was conducted, as reported by the CEO. Then,

since previous EO research suggests that comparison

with competitors’ performance is important (Wiklund

and Shepherd 2005), we asked the respondents to

compare the performance of their own firm over the

past 3 years, with the average of the industry, using a

5-point Likert scale, ranging from ‘‘very below

average’’ to ‘‘very above average’’. Finally, since

diversification has been related to entrepreneurial

behaviour in family firms, we included a dummy

variable that reflected whether or not it was a

diversified company. To account for industry effects,

we used four dummy variables that reflected the

industry classification used in the project on which we

based the samples: manufacturing, construction, ser-

vice and technology.

EO may be contingent on the personal character-

istics of the executive (Kellermanns et al. 2008). We

controlled for CEO and top manager age since

research suggests that entrepreneurial efforts will

decline over time (Levesque and Minniti 2006). We

controlled for CEO and top manager gender since an

entrepreneurial mode has been associated with men

to a greater extent than women (Olson et al. 2003).

4.2.2 Independent variables

Data were captured from the CEOs’ perceptions of the

environmental characteristics of interest to our study.

Following Zahra (1991), respondents were asked to

assess the degree to which they perceived their

industry to be rich in technological opportunities

using a single item scale. Next, environmental dyna-

mism was measured, using a three-item scale that

captured the CEOs’ perceptions about the predictabil-

ity of actions of competitors and of demand and

customers’ taste in their main industry. The items were

taken from Miller (1983). Finally, following Zahra

(1991), industry growth was measured using a two

item scale that captured the CEOs’ perceptions about

the life cycle of the industry in which the firms

operated. Both multi-item scales showed acceptable

reliability (a = 0.82 for the dynamism scale and

a = 0.77 for the industry growth scale).

We captured the presence of non-family resources

along two dimensions. We measured the presence of

VCs and professional investors with a dummy

variable that took the value of ‘‘1’’ if the firm had

received money from VC funds or from professional

investors (business angels); otherwise, it took the

value of ‘‘0’’.2 Then, we measured the presence of

non-family managers using a continuous variable that

measured the percentage of non-family members in

the top management team.

We operationalised generational stage by the

generation that controlled the family business (Bam-

mens et al. 2008; Davis and Harveston 1999; Sonfield

and Lussier 2004). Consequently, generational

involvement was measured with a single-item ques-

tion that asked respondents to indicate the generation

that was managing the firm (Bammens et al. 2008).

We recorded this variable in three categories: first

generation, second generation and third-and-beyond

generations. Three dummy variables were generated

accordingly. This definition is consistent with previ-

ous studies that have dealt with generational issues in

family firms (Davis and Harveston 1999; Schein

1983).

4.2.3 Dependent variable

An accepted approach to operationalise firm-level EO

is from the CEOs perspective, especially in the case

of small and medium-sized firms (Wiklund and

Shepherd 2003). We asked the CEO to rate the EO

of their company by utilising a nine-item, seven-point

scale, developed by Miller (1983) that covers the

three proposed dimensions: proactiveness, risk taking

and innovativeness. This scale has documented

reliability and validity (e.g. Covin and Slevin 1989;

Wiklund and Shepherd 2005). Our measure demon-

strates acceptable reliability, with an alpha of 0.81.

2 Following previous studies (Harrison and Mason 1992),

regarding private investors, we distinguished ‘‘professional

business angels’’ from other informal investors, the so-called

3Fs, family, friends and fools.


123

4.3 Methods

We tested for common method bias as suggested by

Posakoff and Organ (1986). All items pertaining to

the independent, moderator and dependent variables

were entered into a factor analysis which extracted

seven factors explaining 77.6% of the variance. The

factors separated cleanly and the first factor explained

only 28.9% of the variance, and the remaining factors

explained 48.7%. Thus, common method variance

was not a major concern in this study, since no single

method factor emerged. Table 1 reports descriptive

statistics and correlations for the variables used in

this study. In general, these bivariate correlations are

consistent with our expectations. No problem with

multicollinearity seemed to exist.

All hypotheses were tested using hierarchical

regression analysis. As is customary, control vari-

ables were entered in a first step, followed by main

effects (environmental and non-family resources) in a

second step. To examine the hypothesised interac-

tions, we entered multiplicative terms in a third step.

We evaluated the significance of each step with

Change F (DF) and interpreted betas with t values.

Moreover, for each model we computed variance

inflation factors (VIF) which were all far below

values suggesting multicollinearity concerns.

5 Results

The results are shown in Table 2. Model 1 presents

our control variable results. As shown in Table 2, firm

size was positive and significantly associated with

EO. Similarly, diversified firms exhibit greater EO.

Only the performance measure that compares the

firm with its competitors is significantly related to

EO. Regarding CEO and TMT characteristics, as

expected CEO and TMT age are significant predictors

of EO, with the negative sign indicating that EO

decline over time. Similarly, the positive sign for the

CEO gender coefficient and the negative one for the

proportion of women in the TMT indicates a lower

entrepreneurial posture for women. Lastly, our results

suggest that third-and beyond-generation family firms

are more entrepreneurial.

Model 2 shows the main effect of the proposed

external and internal determinants of EO. The model

shows that the three external factors, environmental

dynamism, technological opportunity and industry

growth, exercise a positive and strongly significant

effect on EO. However, the main effect of the non-

family resources is not clear, with only the presence

of professional non-family investors showing a

marginally-significant effect. This result is consistent

with previous contradictory findings on the effect of

family influence on a firm’s entrepreneurial activities.

It strengthens our argument about the need to adopt a

generational perspective to study EO in family firms.

Model 3 shows the results regarding the hypoth-

esised stronger effect of environmental factors on EO

for second-generation family firms. As shown in

Table 2, the results offer partial support to H1. The

introduction of the interaction effects results in a

significant 4% increased in the explained variance.

The coefficient for the interaction between the

dummy for the second generation and environmental

dynamism is positive and significant (b = 0.08,

p B 0.05), thus offering support for H1a. Similarly,

Table 2 shows that the impact of technological

opportunities on EO is higher for second-generation

than for first- and third-and-later-generation family

firms (b = 0.09, p B 0.05), confirming H1b. How-

ever, the interaction effect with industry growth was

insignificant, meaning that H1c is rejected.

Hypothesis 2 is tested in Model 4. A significant

change in R2 was observed as a result of the

introduction of the moderator effects. As showed in

Table 2, the positive sign of the interaction variable

between third-generation-and-beyond and non-family

manager (b = 0.119, p B 0.05) indicates that the

presence of non-family managers enhances EO in

family firms led by third generation or beyond.

Finally, the positive sign for the non-family investor

coefficient indicates that, as per H3, the presence of

professional non-family investors has a stronger

effect on EO for third-and-later-generation family

firms, although this effect is only significant at the

0.10 level.

6 Discussion

Our study demonstrates the importance of incorpo-

rating a generational perspective to extend our

understanding of how families influence their firms’

EO. This perspective is not intended to investigate the

main effect of generational involvement on corporate


123

entrepreneurship. Rather, we examine the role that

internal non-family factors (managerial and financial)

and external factors (environmental conditions) plays

on EO depending on the generation in charge of

family firms. As Litz and Kleysen (2001) suggest,

entrepreneurship can be found in both first-generation

and later-generation family firms, while some family

firms may lack entrepreneurial spirit across many

generations. Therefore, the important question to

answer is what drives entrepreneurship in each

generation of the family firm.

The empirical investigation supports our overall

conceptual logic that perception of environmental

factors and EO correlate differently in family firms

depending on the generation in charge. This is an

interesting finding that is an important addition to our

existing knowledge on corporate entrepreneurship in

family firms (Kellermanns and Eddleston 2006;

Salvato 2004). It is also important in light of the

recent call for research to take into account the

heterogeneity of family firms (Westhead and

Howorth 2007).

Table 2 Hierarchical regression analysis for EO

Variables Model 1 Model 2 Model 3 Model 4

Past performance .024 .018 .015 .015

Diversification .097** .102** .104** .103**

Relative performance .178** .139** .134** .139**

Size .087* .069* .072* .068*

Sector manufacturing -.067 -.038 -.032 -.037

Sector services -.052 -.023 -.021 -.020

Sector construction -.007 .007 .009 .008

CEO age -.059� -.039 -.044 -.038

CEO sex .075* .071* .072* .069*

TMT age -.073* -.071* -.070* -.071*

Proportion women TMT -.054� -.050 -.052 -.050

Second generationa .001 -.004 -.006 .004

Third-and-later generationa .065� .059 .053 -.059

Industry growth .117** .083* .111*

Technological opportunities .137** .072 .132

Environmental dynamism .109** .051 .110

Proportion of non-family members in the TMT .043 .044 .011

VCs and professional investors .058� .055� .032�

Second generation 9 industry growth .052

Second generation 9 technological opportunities .090*

Second generation 9 environmental dynamism .085*

Third and later generation 9 proportion of non-family members in the TMT .119*

Third and later generation 9 VCs and professional investors .071�

F 5.326** 6.708** 6.284** 6.560**

R2 0.08 0.13 0.17 0.17

DR2 0.05** 0.04** 0.03**b

Adjusted R2 0.06 0.11 0.15 0.14

N = 882� , **, *** Significant at 0.10, 0.05 and 0.01 level, respectively

Standardised coefficients are shown in the tablea First generation is the suppressed comparison categoryb Change in R2 with respect to Model 2


123

With the exception of perceived industry growth,

we find support for our predictions that the influence

of the external competitive context on EO in family

firms follows a convex generational trend. This trend

suggests that environmental factors are more impor-

tant to predict EO in second-generation family firms

than in first- and third-and-beyond-generation family

firms. This supports our argument that EO is moder-

ated by the generation in control, in that managers in

second-generation family firms pay greater attention

to the competitive environment in order to expand,

revitalise and capture entrepreneurial opportunities

beyond the founder’s original ideas and goals. The

external EO is then reduced as the firm moves to the

third-and-beyond generations.

Our results further demonstrate that adopting a

generational perspective to the study of EO in family

firms is pivotal when examining the role of internal,

non-family resources. The interaction analysis of the

moderating effects in our model shows that the

presence of non-family managers has a positive effect

on EO only in third-and-later-generation family firms.

This means that while non-family managers are not as

central in promoting an EO in first-generation and

second-generation family firms, their presence leads

to greater EO in family firms in later generations.

These results extend earlier exploratory case

research that has indicated that a supply of non-

family managers is important to sustain EO across

generations (Nordqvist et al. 2008). We suggest that

this finding is related to a need for new blood, fresh

ideas, perspectives and insights from non-family

managers to revitalise the organisation and to sustain

EO in older and more mature family firms. Moreover,

non-family managers may have more discretion to

drive entrepreneurship when the family group is

larger and more diverse, which is typically the case in

third-generation-and-beyond family firms (Gersick

et al. 1997).

Further, as indicated by the important role the

presence of VCs and professional investors play in

predicting EO in family firms controlled by the third

generation and beyond, non-family investors appear

to be given more discretion to influence EO in third-

and-beyond-generation family firms. In addition to

the financial injection that these investors give, they

are likely to offer wider industry knowledge, ideas

and advice, which older family firms need to remain

entrepreneurial.

The results regarding the role of internal factors on

EO may help to explain previous contradictory

findings on the effect of generational involvement

on EO in family firms. Existent research suggests that

to succeed, multigenerational firms must acquire the

preceding generation’s knowledge (Cabrera-Suarez

et al. 2001), while at the same time offering new and

diverse perspectives to modernise organisational

objectives and procedures (Handler 1992). Our

results suggest that for third-and-beyond-generation

family firms, the presence of non-family managers

and professional investors is key to achieve this latter

goal.

Our study has theoretical implications for the

entrepreneurship and the family business literature.

First, our findings contribute to the literature on EO

by addressing recent calls for examining the deter-

minants of EO in specific organisational and owner-

ship contexts (Lumpkin and Dess 1996; Lyon et al.

2000). We demonstrate the importance of incorpo-

rating a generational perspective to extend our

theoretical understanding of how families influence

their firms’ EO. The Spanish sample gives greater

contextual diversity to corporate entrepreneurship

and EO research by broadening its geographical

scope.

Second, we address calls for investigating, in

greater detail, external and competitive conditions

when examining entrepreneurial issues in family

firms. There is a consensus that companies innovate

and venture in relation to their external environment

(Covin and Slevin 1989; Zahra 1996). However, very

little previous research has looked at the role of the

external competitive environment for entrepreneurial

behaviour in family firms. The family business

literature, predominantly driven by the intent to

balance the needs and perspectives of the family and

the business, has focused almost exclusively on

family-related internal drivers of corporate entrepre-

neurship (e.g. Salvato 2004; Zahra 2005; Keller-

manns et al. 2008). We extend this literature by

showing that, in addition to internal governance and

organisational characteristics, the perception of the

external competitive environment has an impact on

EO, particularly in second-generation family firms.

Third, while internal factors have been observed as

important determinants of EO (Lumpkin and Dess

1996), empirical research on the role of specific

internal resource situations is scarce in literature on


123

SMEs and family businesses (e.g. Wiklund and

Shepherd 2005; Zahra et al. 2004). Our findings

show that the extent to which non-family managerial

and investor resources drive EO is moderated by the

generations in charge.

Fourth, by admitting that the determinants of EO

in family firms differ between generations, it must be

acknowledged that the family firm population is not

homogeneous. Our investigation lends further support

to the call for more studies that examine different

types of family firms (Westhead and Howorth 2007).

The existence of generational differences among

the drivers of EO has also important practical

implications for family business owners and manag-

ers. Given that the transition from one generation to

another implies serious risk (Zahra 2005), this risk

could be minimised by devoting efforts to sharpen a

successor’s ability to create an organisational culture

that fosters corporate entrepreneurship. It seems, for

instance, that encouraging an external orientation is

particularly relevant for second-generation family

firms. Therefore, second-generation successors must

be exposed to market knowledge and tools in order to

understand environmental constraints and their influ-

ence on EO. Similarly, third-generation-and-beyond

successors must ensure firm access to non-family

managerial and financial resources. In doing so, their

EO would be increased.

The research reported in this article is not without

limitations and our results should be interpreted with

caution. First, we are aware of the threat of country-

specific bias. The characteristics of entrepreneurship

and family businesses vary across countries and

cultures. Therefore, the findings may not apply to the

same extent in social and business settings that differ

radically from Spain.

Second, although it is common practice, especially

in research on SMEs (e.g. Lyon et al. 2000; Wiklund

and Shepherd 2005), another limitation of our research

is that we infer firm-level behaviour from the CEO as

the single respondent. Obtaining multiple respondents

from each firm—preferably from different genera-

tions—would add richness to the findings and allow us

to test for interrater reliability. Another empirical

limitation is the perceptive nature of the data. While

respondents’ perception of the competitive environ-

ment is an important part of our model, objective data

for other variables, including the dependent variable,

would have strengthened our results.

We are aware that many developmental and life-

cycle-based models of family firms include more

variables and dimensions than those we have chosen

for this study. We also admit that our approach takes

a rather deterministic view of firm development,

which does not allow for hybrid situations.

We encourage future researchers to undertake more

detailed investigation into how different aspects of

non-family investors and managers influence EO. For

instance, is there a qualitative difference between

different types of non-family investors? In terms of

managerial resources, future research should go

beyond the family/non-family presence on the top

management team and investigate how the presence

of different managerial functions (e.g. marketing,

production, finance) may influence EO, and how these

are divided among family and non-family members to

influence EO.

Moreover, we see a need for research that addresses

not just the role of different types of resources on EO,

but also how these resources are used. Such research

could draw on recent developments in the dynamic

capabilities approach. Researchers should also

explore the impact of resources other than financial

and managerial resources on EO, especially, intangi-

ble resources, such as knowledge and social capital

that are likely to be important for entrepreneurial

activities in family business.

We have not made the link between EO and

performance of family firms. There is general evidence

suggesting that EO is positively related to a firm’s

financial performance (see Rauch et al. 2009). This

suggests that we could expect that the external and

internal factors, which we have identified as determin-

ing EO, would allow for positive performance out-

comes for family firms in different generations.

However, the link between EO and firm performance

may not be as straightforward in the context of family

firms. Naldi et al. (2007), for instance, found risk

taking to be a distinct dimension of EO in family firms,

but also that risk taking was negatively associated with

a firm’s performance. Perhaps the relationship between

EO and performance is moderated by the generation in

charge, like the determinants of EO. The effects of EO

on performance need to be investigated considering

that family businesses do not always strive for financial

performance alone. In most family firms, the desired

performance outcomes are based on a mix of financial

and non-financial goals (Sharma 2004).


123

Finally, our significant but rather low R squares

indicate that there may be other factors influencing

the drivers of EO in family firms from a generational

perspective. Therefore, it would be worthwhile to

devote research efforts to consider the factors com-

prising this unexplained variance. There is great

potential in research that combines the generational

perspective with other theories such as the resource-

based view (to capture the internal resources),

prospect theory (to better capture how risk percep-

tions affect risk taking) and cultural and institutional

theory (to better capture the dynamic processes of

family and firm development over time).

7 Conclusion

Entrepreneurial families face specific challenges to

stay competitive and maintain an EO in their firms as

they move through generations. We have argued that

current research is characterised by too narrow a

focus when investigating the determinants of corpo-

rate entrepreneurship and EO in family firms. By

focusing on the varying impact of both external and

internal factors on EO in different generations, our

study demonstrates that incorporating a generational

perspective enriches our theoretical and practical

understanding of entrepreneurial families and firms.

Acknowledgments The authors thank the four guest editors

and two reviewers for their constructive and helpful feedback on

previous versions of this article. Mattias Nordqvist thanks The

Bank of Sweden Tercentenary Foundation and Center for Family

Enterprise and Ownership (CeFEO) for generous financial

support.

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Entrepreneurial orientation in family firms: a generational perspective