Family Ties in Entrepreneurs' Social Networks and New Venture Growth

Family Ties inEntrepreneurs’ SocialNetworks and NewVenture GrowthJean-Luc ArregleBat BatjargalMichael A. HittJustin W. WebbToyah MillerAnne S. Tsui

Family ties are an important conduit of resources for entrepreneurs, but both positiveand negative outcomes can arise. Building upon a family embeddedness perspective, wedevelop hypotheses about curvilinear relationships between the proportion of family tiesin entrepreneurs’ networks and venture growth. We test them on entrepreneurs fromChina, France, Russia, and the United States. These effects appear to be related to the typeof entrepreneurs’ social network (business advice, emotional support, and businessresources). Our results confirm effects specific to each network: an inverted U-shape foradvice and emotional support networks but a U-shape for the business resource network,measuring what proportion of kin in each entrepreneurial network type is valuable to or,conversely, undermines new venture growth.

Introduction

Entrepreneurs rarely possess all of the resources and capabilities they need to createand grow their ventures (Granovetter, 1995). To access financial and other resources,entrepreneurs often rely on personal social networks to facilitate their activities (e.g.,Granovetter, 1985, 1995; Greve & Salaff, 2003; Jack & Anderson, 2002; Starr &MacMillan, 1990). In particular, family ties represent an important conduit of resourcesfor entrepreneurs in developing new ventures (Birley, 1985; Hite & Hesterly, 2001) andare a constant component of entrepreneurs’ networks across the globe (Anderson, Jack, &

Please send correspondence to: Jean-Luc Arregle, tel.: +33-478-33-79-45; e-mail: [email protected], toBat Batjargal at [email protected], to Michael A. Hitt at [email protected], to Justin W. Webb [email protected], to Toyah Miller at [email protected], and to Anne S. Tsui at [email protected].

PTE &

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1May, 2013DOI: 10.1111/etap.12044

Drakopoulou Dodd, 2005; Drakopoulou Dodd & Patra, 2002). While it is generallyaccepted that family ties can provide different types of resources to support entrepre-neurs’ efforts in overcoming the various challenges associated with new venture growth(Johannisson & Monsted, 1997; Larson & Starr, 1993), the specific role of an entrepre-neur’s family ties on new venture performance remains an equivocal and a complex issue.

On the one hand, research suggests that family ties can facilitate venture developmentbecause they provide unique and valuable resources with lower costs and risks (e.g.,Aldrich & Cliff, 2003; Anderson et al., 2005; Bruderl & Preisendorfer, 1998; Greve &Salaff, 2003; Jack, 2005; Sanders & Nee, 1996). On the other hand, research also suggeststhat family ties can hinder new venture growth because of redundant, overlapping,and inward-focused networks (e.g., Bates, 1994; Hite & Hesterly, 2001; Jack; Renzulli,Aldrich, & Moody, 2000). Therefore, unsurprisingly, prior research on entrepre-neurs’ family ties has been inconclusive and contradictory, finding both positive andnegative linear effects of family ties on venture creation and performance (Bruderl &Preisendorfer; Renzulli et al.).

In this study, we aim to provide clarity to this puzzle. We draw upon a familyembeddedness perspective—a nuanced lens of the social embeddedness perspective(Granovetter, 1985; Uzzi, 1997)—that focuses on embeddedness within the specificcontext of family ties. Consistent with the idea of social embeddedness (Granovetter,1985, 1995), entrepreneurs’ economic actions and decisions are influenced by concrete,ongoing personal relations (i.e., embedded). These embedded relationships create oppor-tunities and constraints depending on the entrepreneurs’ positions in their social networks(Aldrich & Zimmer, 1986; Carsrud & Johnson, 1989; Jack, 2005). More specifically, the“family embeddedness” perspective suggests that business and family are strongly inter-twined, and the family plays a strong role in business-related decision-making processesand their outcomes (Aldrich & Cliff, 2003; Cruz, Justo, & De Castro, 2010; Steier, Chua,& Chrisman, 2009). By providing a nuanced theory for explaining embeddedness inthe specific context of family ties, the family embeddedness perspective facilitates ourexamination of the influence of family relations on new venture growth through threedifferent types of networks: business advice, business resources, and emotional support(Renzulli & Aldrich, 2005). Hence, family embeddedness facilitates efficiencies by easingaccess to key resources; however, the extent to which entrepreneurs are embedded in a setof ties can also lead them to rely on redundant information, rely on obligations, anddisregard external knowledge, thereby constraining their abilities to adapt to environmen-tal changes (Uzzi, 1996, 1997). These latter constraints can result in negative outcomes fornew ventures (i.e., the entrepreneurs are over-embedded in their networks).

We examine the following two research questions. First, given the potential forentrepreneurs’ embeddedness in family ties, what proportion of kin representation inentrepreneurial networks is valuable to or, conversely, undermines new venture growth?Second, are these relationships contingent upon the type of entrepreneurs’ networks usedto leverage different types of resources? We develop and test hypotheses about potentialcurvilinear relationships between the proportion of family ties in entrepreneurs’ socialnetworks and the performance of new ventures (measured as revenue growth). A singlenetwork may not provide adequate levels of the different types of resources needed byentrepreneurs for their ventures. Therefore, entrepreneurs utilize separate networks to gainaccess to different types of resources (Lechner, Dowling, & Welpe, 2006; Li, Zhang, Li,Zhou, & Zhang, 2012). Valuable resources to entrepreneurs in new ventures that may beacquired through network ties include tangible resources, knowledge and advice, andemotional support. We focus on the percentage of entrepreneurs’ family members in eachnetwork as an indicator of embeddedness (Marsden, 1990; Uzzi, 1997), consistent with

2 ENTREPRENEURSHIP THEORY and PRACTICE

previous research on entrepreneurs’ personal networks (Greve & Salaff, 2003; Renzulli& Aldrich, 2005; Renzulli et al., 2000). We employ primary interview data from 515entrepreneurs—owner-chief executive officers of firms 8 years or younger (Zahra,1996)—in China, France, Russia, and the United States to examine the research questionsand test the hypotheses.

The current study extends the family embeddedness perspective and research onentrepreneurs’ networks in three important ways. First, our theoretical arguments suggestthat, while family ties offer potential benefits, families are social institutions in whichentrepreneurs can become highly embedded with negative consequences for their newventures. These contrasting influences produce the possibility of a curvilinear relationshipbetween entrepreneurs’ family embeddedness and new venture growth. Our study ascer-tains the shape of this effect and the levels at which family embeddedness has positiveeffects on venture growth as well as when family embeddedness becomes a liability.

Second, whereas existing embeddedness research has predominantly focused onnetworks in general or on the discussion network (e.g., Jack, Drakopoulou Dodd,& Anderson, 2008; Uzzi, 1997), scholars have more recently noted the potential forentrepreneurs to strategically leverage different types of networks for different utili-ties (Lechner et al., 2006). We incorporate this notion of different network utilities in afamily embeddedness perspective to examine not only how entrepreneurs’ level of familyembeddedness within their networks influence their ventures’ growth, but also how thiseffect varies across different types of networks. Hence, we examine the effects of familyembeddedness on new venture growth for three types of networks through which entre-preneurs access resources. Our research highlights the importance of a more fine-grainedanalysis to understand the role of family ties in different types of networks and to discerntheir respective effects on new venture growth.

Third, unlike previous empirical studies on entrepreneurs’ family ties, we collecteddata on established new ventures in four countries with different institutional profiles(developed versus emerging economies), which allows us to explore the stability of theseeffects relative to the potential influences of venture age, economic development, andsocietal culture.

Theoretical Framework and Hypotheses

Entrepreneur’s Embeddedness: Positive and Negative OutcomesEmbeddedness is the nature, depth, and extent of individuals’ ties with their environ-

ments (Dacin, Ventresca, & Beal, 1999; Jack & Anderson, 2002). Actors are embedded inongoing systems of social relations, and, as a result, their behavior cannot be construedas independent (Granovetter, 1985). While a certain level of embeddedness affords effi-ciencies, individuals can become over-embedded in their social networks. This occurswhen individuals rely excessively on their strong ties (Uzzi, 1996) to the extent that theobligations and expectations built into these relationships constrain them from formingnew relationships or taking advantage of potential opportunities (Uzzi, 1997). As opposedto weaker, arm’s-length relations, strong ties imply high trust and frequent exchangesbetween individuals that facilitate economic and entrepreneurial activities through numer-ous informal mechanisms and channels (Hite, 2005). These mechanisms emerge fromongoing interactions that establish expectations and obligations for exchanges (Granovet-ter). For example, over-embeddedness occurs when, as a result of the excessive presenceof strong ties, entrepreneurs access primarily redundant information while disregarding orfailing to access key external knowledge or identify potentially valuable opportunities.

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From a comparative standpoint, weak dyadic ties are more likely to provide access todiverse knowledge that can enhance entrepreneurs’ ability to recognize opportunitiessurfacing at the periphery, and the arm’s-length nature of weak ties gives the entrepreneursthe flexibility to take action as necessary (Burt, 1992; Jack, 2005; Rowley, Behrens,& Krackhardt, 2000). In summary, embeddedness can both facilitate and constraineconomic, and more specifically, entrepreneurial action. As such, scholars suggest thatentrepreneurs benefit from a moderate level of embeddedness as they balance strong andweak ties and their respective benefits (e.g., Jack; Johannisson, 1986; Uzzi). Therefore, foran entrepreneur, being either under-embedded (i.e., with no or not enough strong ties)or over-embedded (i.e., dominated by strong ties that provide redundant resources/information) in a network has negative outcomes, whereas an intermediate level ofembeddedness is likely to produce the greatest benefits.

Family ties are often strong for a number of reasons. They are strong in partbecause of years of socialization within the family (Webb, Ketchen, & Ireland, 2010).This socialization leads to a significant sharing of norms, values, and beliefs amongfamily members, thereby creating strong cognitive and emotional attachments (Collins,Maccoby, Steinberg, Hetherington, & Bornstein, 2000; Leaptrott, 2005). Because of thisattachment and the uniqueness of the family social institution (Bourdieu, 1986; Bubolz,2001), family ties have distinctive characteristics resulting in a particular type of socialcapital (Arregle, Hitt, Sirmon, & Very, 2007), characterized by higher levels of trustamong family members in general that supports cooperation, mutuality, and greatercomfort in information sharing (Ensley & Pearson, 2005; Luo, 2012). As a result, entre-preneurs and their family members have shared obligations and expectations throughongoing interactions.

Therefore, the family represents an important source of network ties in which entre-preneurs can be embedded, an idea embodied in the “family embeddedness” perspectiveinitially developed by Aldrich and Cliff (2003), suggesting that entrepreneurship andfamily are strongly intertwined. The embeddedness of entrepreneurs increases as theydraw upon their families for resources, and the family may offer resources to the entre-preneurs with certain business- or nonbusiness-related stipulations or obligations. To theextent that entrepreneurs rely heavily on family ties, their performance or new ventureexpansion (Jack, 2005) may be undermined because of the limited resources of familymembers, and the increasingly redundant information and knowledge provided by theseties. For instance, Renzulli et al. (2000) found a linear negative relationship between theproportion of kin in entrepreneurs’ discussion networks and their propensity to startnew ventures. Bates (1994) found that heavy reliance on family members for support istypical of less profitable and more failure-prone new businesses. However, Bruderl andPreisendorfer (1998) found an opposite effect: Entrepreneurs’ family support had apositive linear effect on new venture success due to the strong sense of obligations,loyalty, commitment, and reciprocity within a family.

These conflicting empirical results highlight the need to identify the level at whichfamily network ties are an advantage or become a liability for entrepreneurs and newventure growth. However, to do so, we first examine the different types of social networksin which entrepreneurs are embedded, each providing a different set of resources.

Three Types of Entrepreneurs’ Social NetworksExisting empirical network-based entrepreneurship research and research on entre-

preneurs’ family ties have focused predominantly on networks in general or on the“discussion” network (Lechner et al. [2006] is a notable exception). However, as Renzulli


and Aldrich (2005) suggest, entrepreneurs’ network ties can be distinguished by threedifferent types of utility (i.e., advice, resources, and emotional support) central to sup-porting venture growth. Each type can affect venture growth in different ways (Aldrich,Reese, & Dubini, 1989). As scholars have discussed (e.g., Alvarez & Barney, 2005),entrepreneurship represents an uncertain context in which outcomes cannot be known exante. While uncertainty cannot be reduced, scholars suggest that sources of uncertaintycan be resolved or understood in ways that allow entrepreneurs to feel more comfortablethat a certain outcome is more likely (e.g., Deligonul, Hult, & Cavusgil, 2008). Advicenetworks serve as a source of valuable information that helps entrepreneurs to resolveuncertainty. Advice networks help entrepreneurs to recognize opportunities for new prod-ucts or services, new markets for existing products, changes and gaps in supply chains anddistribution channels, new technology developments, the latest trends in consumer behav-ior, and changes in laws and regulations (Batjargal, 2003, 2007a). Advice networkscan also facilitate access to specialized knowledge on industry trends, research anddevelopment, sales and marketing strategies, and financial decisions.

Uncertainty also introduces risks, may lead entrepreneurs to face unforeseenobstacles, and can cause entrepreneurs to experiment much longer than originally antici-pated (e.g., Sarason, Dean, & Dillard, 2006; Singh, Tucker, & House, 1986). Emotionalsupport from network members generates emotional stability and psychic resources,helping entrepreneurs to focus their energy on growing their new venture despite the risksand obstacles (Anderson et al., 2005; Bruderl & Preisendorfer, 1998; Reynolds & White,1997). Finally, entrepreneurship involves exploiting opportunities without regard to theresources one necessarily controls (Stevenson & Jarillo, 1990). This suggests that entre-preneurs draw upon other individuals to access key resources that facilitate their oppor-tunity exploitation and subsequent venture growth. Entrepreneurs’ resource networksenable them to assemble such diverse resources as financial capital, labor, supplies, andnew technology (Batjargal & Liu, 2004; Shane & Cable, 2002; Stuart & Sorenson, 2007).The variety of resources available through their networks allows entrepreneurs to developcapabilities that help them meet the demands associated with growing their new ventures(Lechner et al.).1

In the next sections, we construct hypotheses concerning the relationship between theextent of entrepreneurs’ family embeddedness, captured as the proportion of family ties ineach of these three types of entrepreneurs’ networks, and new venture growth.

Family Embeddedness in Advice Networks and Venture GrowthThe unique characteristics of the family as a social institution make the family an

enduring and powerful form of social capital (Bourdieu, 1986, 1994), which has beenreferred to as “prescriptive altruism” (Fortes, 1969, pp. 231–232) or as “sharing withoutreckoning” (Bloch, 1973, p. 76). Because of this family social capital, family members arelikely to provide their best (to the limits of their ability) and most reliable advice toentrepreneurs. Due to these family relationships, which are based on devotion, genero-sity, solidarity, love, trust, and reciprocity (Bourdieu), entrepreneurs minimize the riskof biased, partial, and distorted information and advice compared with advice from

1. Scholars have identified other utilities for entrepreneurs’ networks, such as accessing legitimacy/reputation(Lechner et al., 2006). We focused on advice, emotional support, and resource networks given their immediateutility to entrepreneurs and because the perceived benefits are most likely recognized by the entrepreneurs. Inaddition, we expect that family ties have less potential to provide legitimacy benefits to entrepreneurs on ageneral basis.

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nonfamily members. Given their strong bonds, family ties also allow entrepreneurs toaccess mentoring or advice characterized by high quality and rapidity at low cost, alongwith stewardship behaviors (Davis, Schoorman, & Donaldson, 1997). Moreover, entre-preneurs’ managerial networks can benefit from business advice thanks to the diversity offamily ties. As explained by Nicholson (2008), “The gene lottery dictates that familygroups will display more diversity than one regularly finds in business teams” (p. 109)that, due to homophily, friends-based networks can end up being populated by people whoexhibit very similar personal traits, limiting the diversity of advice and information.Certainly, a family-based network is likely to vary more in terms of occupations, gender,and age than a friends-based network. In other words, a network characterized by prima-rily strong family ties may actually be more diverse than a network based on strongfriend-based ties.2 And, the occupational, gender, and age diversity may be facilitatedby entrepreneurs’ extensive use of their relatives to access links to other people for adviceand as sounding boards for new ideas (Anderson et al., 2005; Greve & Salaff, 2003;Jack, 2005).

However, a high proportion of family ties in the advice network can also have negativeeffects on venture growth. It can result in the relative isolation of entrepreneurs, prevent-ing them from receiving business information and counseling from nonfamily members,who may provide different and unique perspectives. Research has also shown that a highlevel of family embeddedness for individuals is associated with greater trust in theirfamilies and lower levels of generalized trust (i.e., outside the family), creating an “amoralfamilism” in extreme cases (Alesina & Giuliano, 2009; Banfield, 1958; Chai & Rhee,2010; Putnam, 2000). The perceived division between family and nonfamily can pro-duce distrust, underappreciation, or even dismissal of advice given by nonfamily ties(Nordqvist, 2005). Thus, advice networks dominated by relatives are likely to becomeredundant, inward-looking, and clan-like over time (Renzulli et al., 2000). Moreover, suchnetworks can provide a limited set of information that may not match future businessneeds, thus hindering venture growth (Jack, 2005).

This logic suggests an optimal level of family embeddedness in entrepreneurs’ advicenetworks. Having some family members in an advice network is beneficial to entrepre-neurs as they provide easy access to trustworthy and honest information. Therefore, somepercentage of family ties (i.e., a moderate level of embeddedness) is likely to have positiveeffects on new venture growth up to a point. However, there are likely to be diminish-ing returns with a larger percentage of family ties in networks due to (1) redundantadvice resulting in strategic simplicity and in a limited diversity of information, and (2)distrust and dismissal of nonfamily ties’ input. Based on these arguments, we formulatethe following hypothesis:

Hypothesis 1: There is an inverted U-shaped relationship between the percentage offamily ties within entrepreneurs’ advice networks and new venture revenue growth.

Family Embeddedness in Emotional Support Networks andVenture Growth

In addition to providing advice, entrepreneurs’ social networks can also serve asvaluable sources of emotional support (Bruderl & Preisendorfer, 1998; Reynolds & White,1997). Establishing new ventures is an emotion-laden process. Emotional support can help

2. We thank an anonymous reviewer for this idea.


individuals more effectively understand the risks and challenges of their actions, as well ashelp them cope with the uncertain demands of their situation (Cohen & Wills, 1985; Cordes& Dougherty, 1993). Moreover, emotional support can help individuals fight off exhaustionby increasing motivation, commitment, and confidence (Baruch-Feldman, Brondolo,Ben-Dayan, & Schwartz, 2002; Hobfoll & Freedy, 1993; Lee & Ashforth, 1996). Increasedconfidence in uncertain stages of new ventures can lead entrepreneurs to engage in more“entrepreneurial” actions such as risk taking and quick decision making in order to exploitmarket opportunities, which in turn can facilitate new venture growth (Krueger & Dickson,1994). In addition, greater emotional stability in entrepreneurs allows them to focus theirenergy on growing their new ventures (Bruderl & Preisendorfer).

Family members tend to be the most reliable providers of emotional support (Harrell,1997; Leiter, 1990). The interactions and the resulting trust that develops over the yearsbetween entrepreneurs and their families increase the comfort level, such that entrepre-neurs are willing to share their feelings and emotional concerns (Tagiuri & Davis, 1996).Moreover, a common cognitive mindset and family language shared between the entrepre-neurs and their families enables family members to understand the personal significance ofthe venture to the entrepreneurs and the passion that they have for it. Such understandingfacilitates family efforts to motivate the entrepreneurs, reduce their stress, and make senseof their entrepreneurial experience (Hoffman, Hoelscher, & Sorenson, 2006). As a result,family embeddedness helps entrepreneurs deal with the emotional challenges presented bythe context of the new venture and, thereby, can facilitate new venture growth.

Over-reliance by entrepreneurs on their family for emotional support can limitthese aforementioned advantages for venture growth for at least two reasons. First, familymembers in entrepreneurs’ emotional support networks may lack understanding of theirventures’ business operations and critical relationships with stakeholders (i.e., clients,suppliers, etc.). Therefore, the family may provide blind encouragement and praise toentrepreneurs without critical assessments of venture strategies and results or withouteven understanding the core issues that create the entrepreneurs’ stressors. This may resultin an escalation of commitment by the entrepreneurs, resulting in wasted resources andcapabilities. In addition, it is probable that venture-related pressures will also affect thefamily and vice versa, creating personal stress for the entrepreneurs (Bakker, Demerouti,& Dollard, 2008). For instance, work–family conflict can result from intense work-relatedpressures, unfavorable work schedules, or emotional demands in the business (Bakkeret al.; Bakker & Geurts, 2004; Demerouti, Geurts, Bakker, & Euwema, 2004; Grzywacz& Marks, 2000), all of which are typical in new ventures. Without nonfamily sources(e.g., mentors, co-religionists, or friends), the strain of entrepreneurs’ need for emotionalsupport can eventually overburden the families. In turn, this may lead to the deteriorationof family relationships and result in family conflicts (Jackson & Maslasch, 1982) thataffect the entrepreneurs’ work (cf., Byron, 2005) and distract the entrepreneurs fromgrowth initiatives in their ventures.

These arguments suggest that family ties in emotional support networks can have apositive influence on venture growth by helping entrepreneurs to deal with the stressorsfrom uncertain contexts. However, when family ties dominate entrepreneurs’ emotionalsupport networks, this positive effect is likely to decrease because of family members’limited understanding of key business issues and the potential for work–family conflict toexacerbate the entrepreneurs’ stress. These arguments lead to the following hypothesis:

Hypothesis 2: There is an inverted U-shaped relationship between the percentage offamily ties within entrepreneurs’ emotional support networks and new venture revenuegrowth.

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Family Embeddedness in Business Resource Networks and Venture GrowthResearch on the resource mobilization process in entrepreneurship emphasizes the

importance of a new venture’s resource base, which is composed of financial, physical,and other tangible forms of capital (Aldrich & Cliff, 2003; Brush, Greene, & Hart, 2001;Sirmon, Hitt, & Ireland, 2007). The entrepreneur develops a resource network to acquiresuch resources from both family and nonfamily sources. Strong ties, such as familyrelationships, have been explicitly highlighted in this resource mobilization process(Aldrich, 1999; Bruderl & Preisendorfer, 1998; Hite & Hesterly, 2001; Jack, 2005; Pages& Garmise, 2003; Sanders & Nee, 1996; Starr & MacMillan, 1990).

Acquiring tangible resources, such as financial capital, equipment, and volunteerlabor, is extremely difficult for new ventures without a track record of success(Zimmerman & Zeitz, 2002); however, family ties facilitate an immediate structure ofobligation and trust (Pearson, Carr, & Shaw, 2008) that can provide ready access toresources. This, paired with strong family identification, creates cooperation and a beliefin mutual interdependence (Nahapiet & Ghoshal, 1998) in pursuit of resources, with alevel of sacrifice, timeliness, and flexibility that ties, in general, rarely provide (Andersonet al., 2005; Stewart, 2003). For example, entrepreneurs may be able to call upon familymembers to work an emergency shift, make impromptu financial loans, or provide officeequipment to the new venture. Moreover, not only do family ties provide resources morewillingly to entrepreneurs, but also trust and family identification between entrepreneursand family reduces transaction costs to where family ties can provide these resources atless-than-market rates (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001). Additionally,family members are often willing to provide “patient” financial capital, which does notrequire repayment in the short term (Sirmon & Hitt, 2003).3 These assertions suggest thatfamily ties in entrepreneurs’ business resource networks can have positive effects on newventure growth as they could help the entrepreneurs to seize opportunities and developtheir ventures.

However, other previous studies suggest that high levels of entrepreneurs’ familyembeddedness in their business resource networks can have negative influences. Strongties, such as family ties, can be essential to starting a new venture but can limit its futuregrowth (see Jack, 2005), even its profits or survival (Bates, 1994), as the set of availableresources existing in a family is often limited. Therefore, these limited resources do notnecessarily satisfy the new venture’s business needs to achieve growth and can restrain itsstrategy and development. The limited financial capital and other resources may disallowexploiting some new opportunities, thereby resulting in lower growth. Thus, intensivelyusing family ties to gain access to resources may have a negative influence on the growthof the venture.

Moreover, out of loyalty to the family and considering the high failure rate of newventures, entrepreneurs may also try to avoid placing many family assets at risk in anew venture. As a result, to minimize the sustainability risks of the family system (Olsonet al., 2003), entrepreneurs will try to avoid the intense use of family resources if it ispossible to obtain resources from other sources. Using many family ties to access businessresources, thereby increasing the family embeddedness, also means that these familymembers likely may try to influence the decisions in the new venture even if they are notformal shareholders, increasing family’s interferences in the management of the newventure, and possibly undermining a fast and efficient decision-making process. These

3. This behavior has been specifically analyzed for family firms but is relevant for the role and behavior offamily ties in entrepreneurship.


family ties have a strong bargaining power as they provide a lot of the business resourcesneeded by the entrepreneurs. As a result, using family resources intensively may have anegative influence on the financial success of the venture, even if these resources couldrestore the firm to some degree of solvency and thus provide for its survival. For instance,Au and Kwan (2009) found that Chinese entrepreneurs do not necessarily seek initialfunding from their family due to this risk of family interference in the business. Thus, alow or moderate presence of family ties in entrepreneurs’ resource networks (i.e., anintermediate level of family embeddedness) may indicate that the entrepreneurs are ableto develop most of the resources from nonfamily sources based on the intrinsic value oftheir project (Batjargal & Liu, 2004).

Particular issues surface for entrepreneurs when they seek resources from both familyand nonfamily sources, which may have different objectives in supporting the venture.The moral order of kinship is at odds with the “amoral” logic of business operations andmarkets (Stewart, 2003, p. 385). For instance, when family ties provide resources toventures, entrepreneurs may face normative family pressure to support or subsidize theextended family (Bloch, 1973; Stewart; Whyte, 1996). When kinship logic coexists withor supersedes business logic, it often creates problems and conflicts for the venture, a factwell documented in family firm research (e.g., Gallo & Vilaseca, 1998; Gomez-Mejiaet al., 2001). Such conflicts can be about the strategy, development, and objectives for thenew venture, but regardless of the basis, the conflicts can undermine the venture growthby undermining efficient decision making.

In summary, we expect that family ties can provide access to key resources morewillingly and at less-than-market rates based on their trust and family identification thatdevelops through the socialization process in the family, facilitating growth of the newventure. At the same time, opposite mechanisms, such as the limited stock and diversityof resources from family ties or conflicts between family and nonfamily ties, can limitventure growth if entrepreneurs rely extensively on family ties and do not eventuallyseek out other resource providers and rely extensively on family ties. Based on thesearguments, we hypothesize:

Hypothesis 3: There is an inverted U-shaped relationship between the percentage offamily ties within entrepreneurs’ business resource networks and new venture revenuegrowth.

Method

Research ContextTo test our hypotheses, we collected data on entrepreneurs operating recently estab-

lished ventures (i.e., up to 8 years old) in four countries: China, France, Russia, and theUnited States. We sampled entrepreneurs in several countries to explore the generaliz-ability of our hypotheses on family embeddedness in different contexts. Previous researchon the roles or performance effects of family ties in new ventures has focused onentrepreneurs in developed economies. Because of the increasing importance and weightof emerging economies in the world economy, it is important to know if the effectsexamined hold for entrepreneurs within different economic contexts. Therefore, weselected two emerging economies—China and Russia—and two developed economies—France and the United States These four countries have different cultural profiles in anumber of existing international culture studies (e.g., Hofstede, 1980; House, Hanges,Javidan, Dorfman, & Gupta, 2004), giving us the possibility to check the stability of our

9May, 2013

results across different societal cultures. The four countries are further distinguishedby strong cultures, formed through the unique historical confluence of philosophical,religious, and institutional traditions.4

Social networks can play different roles in entrepreneurial activities depending on thestage of the business as well (Greve & Salaff, 2003; Jack et al., 2008; Wilken, 1979).Although there are different ways to categorize these stages (Jack et al.), we focus onrecently established ventures (i.e., not in the prestart-up stage) because, at this period ofdevelopment, all of the different types of networks (business advice, emotional support,and business resources) are commonly used.5 Moreover, there are gaps in our knowledgeabout the relationship between entrepreneurial networks and start-up firm growth(Lechner & Dowling, 2003). Hence, the second condition was that the firm be establishedand fully operational, but it could not be more than 8 years old, in line with previousresearch on new ventures (McDougall, 1989; Zahra, 1996).

Sample and ProcedureA particular challenge in international entrepreneurship research is to achieve

methodological and sampling equivalence across international contexts (Klapper, Amit,Guillen, & Quesada, 2007). We adopted the following procedures to ensure equivalenceas much as possible. First, we sampled recently established firms (8 years or younger)in large, metropolitan areas (i.e., Beijing, Moscow, Houston, Phoenix, and Paris). Weexcluded “lifestyle” start-ups; self-employed sole entrepreneurs; and necessity-based,survival-type ventures from our sample (Langowitz & Minniti, 2007), focusing ongrowth-oriented ventures (i.e., the entrepreneur had an objective of growing in terms ofrevenues and employment [size] when it was created; e.g., Jack et al., 2008).6 Second,to ensure that the venture had financial and managerial independence, the firm could notbe a franchise, subsidiary, or spin-off of an established organization. Third, each venturewas required to have domestic ownership (i.e., no foreign stake in the venture), and last,the respondent had to be the primary decision maker with a majority ownership of thefirm. We identified entrepreneurs using various information sources. In the UnitedStates, entrepreneurs were identified through the Dun and Bradstreet database and busi-ness directories in Texas and Arizona. In Russia and China, as there is no equivalent ofthe Dun and Bradstreet database, the sample was derived from a number of datasources: government-created databases, telephone directories, and specialized businessdirectories in Beijing and Moscow. In France, entrepreneurs were identified fromleading entrepreneurs’ associations and business school alumni directories. Althoughthe use of various information sources makes sampling less systematic, this approachenabled us to identify more and diverse ventures and, arguably, made the samplemore random because various databases and directories are likely to counterbalance oneanother’s biases.

We collected these data through telephone interviews by trained interviewers. We firstdeveloped an English version of the survey instruments. Then, we translated it into the

4. The United States is characterized by low uncertainty avoidance and low social collectivism. China is theexact opposite, characterized by high uncertainty avoidance and high social collectivism. French culture ischaracterized by low social collectivism and high uncertainty avoidance. Russia has a culture with the lowestuncertainty avoidance of all four countries and high social collectivism (House et al., 2004).5. We use “recently established venture” and “new venture” interchangeably in the next sections.6. At the beginning of each interview, the interviewer checked with the entrepreneur that the venture was nota “lifestyle” start-up; self-employed sole entrepreneur; or necessity-based, survival-type venture.


language of each country. We employed back translation (Brislin, 1980) to ensure equiva-lence in the survey questions across the four countries. Respondents were told that thiswas a study concerning their social networks, and we shared the survey with them priorto conducting the interview.

The Chinese and Russian data were collected in the summer and fall of 2005, theUnited States data in winter 2006 and spring 2007, and the French data in spring andwinter of 2007. Our final sample was composed of 637 entrepreneurial ventures, con-sisting of 205 Chinese (40% response rate), 105 French (37%), 172 Russian (30%), and155 American (30%). This compares favorably with most network surveys (Marsden,1990). Review of our data revealed 19% of the sample to have missing data on therevenue growth variable; therefore, we used 515 observations with complete data forour hypotheses testing, but we included the full data set of 637 in reporting the descrip-tive statistics.

Measures

Dependent Variable. Revenue (sales) growth is a common measure used to evaluate theperformance of new ventures (Bruderl & Preisendorfer, 1998). In the interviews, we askedfor revenue growth information for the 4 years prior to the time of the telephone survey.7

Annual growth is the difference between sales in two consecutive years divided by sales1 year earlier. Revenue growth is the sum of revenue growth percentages divided by thenumber of revenue years (average 2.5–3 years).

Independent Variables. We used the name generator method (Anderson et al., 2005;Batjargal, 2007c; Burt, 1992; Jack et al., 2008; Marsden, 1990; Stam, Arzlanian, &Elfring, 2013) to obtain data on personal (egocentric) networks of entrepreneurs. Thismethod enabled us to measure structural properties of the networks (i.e., size and com-position) more efficiently than through other methods, such as the position generatormethod. It is especially appropriate for collecting data on entrepreneurs (Greve & Salaff,2003). The respondent-entrepreneur was asked to provide the first and/or last names of upto five individuals (Greve & Salaff; Jack et al.) from whom he or she had obtained advice(e.g., information and suggestions), business resources (e.g., finances and supplies), andemotional support in the previous 6 months. The respondent had to indicate if a namedcontact was a family member. Then for each network, we computed the variable familyties percentage as the number of family ties divided by the total number of ties multipliedby 100. We have three independent variables measuring the degree of an entrepre-neur’s family embeddedness in the three networks: family percentage in business advicenetwork, family percentage in emotional support network, and family percentage inbusiness resource network.

Control Variables. Firms experience unique challenges at different stages of their lifecycle (Bruderl & Schussler, 1990; Sorenson & Stuart, 2000). Therefore, we controlled for

7. Revenue growth was chosen as a measure of new venture performance for a number of reasons. First, asa methodological concern, the vast majority of entrepreneurs operate private companies and are wary aboutproviding exact revenue and profit figures; examining growth allows researchers to circumvent this concernof entrepreneurs. Second, and more importantly, revenue growth can represent the ability of an entrepreneurto continuously exploit new opportunities and expand the venture and proving the viability of the firm thatdistinguishes between new ventures (e.g., Gilbert, McDougall, & Audretsch, 2006).

11May, 2013

firm age, measured as years since the date of founding. We controlled for the number offull-time employees (firm size) as firms face unique administrative challenges as theygrow. We controlled for industry because previous research suggests that industry-levelforces often influence a firm’s performance (Dess, Ireland, & Hitt, 1990). Followingprecedent, industry is measured by three categorical variables: information technology,software, biotech, or other high-technology industries (high technology); trade/service;and other industries, which includes manufacturing (used as the referent group). Wecontrolled for the human capital of the entrepreneur including entrepreneur’s age (years),education (1 for less than an undergraduate degree, 2 for an undergraduate degree, 3 fora master’s degree, and 4 for a doctorate degree), and managerial experience (years as amanager before starting the new venture). We further controlled for the size of the threenetworks—the total number of contacts named (Renzulli et al., 2000), resulting in threevariables: business advice network size, emotional support network size, and businessresource network size. We also controlled for gender (Bruderl & Preisendorfer, 1998;Renzulli et al.): female equals 1 and male equals 0. While our sampling procedurerequired that all entrepreneurs have growth as a core objective, this objective can havedifferent levels of priority. Therefore, we included the variable importance of growth forthe entrepreneur (measured from 1: most important objective to 9: least important objec-tive) as a control variable. Finally, we controlled for the four countries with three dummyvariables: China, Russia, and the United States.

Data ValidityWe took additional steps to check the accuracy of our data.8 In the U.S. sample, we

randomly selected 34 entrepreneurs from the sample. We reinterviewed these entrepre-neurs about 3 months after the initial interview. Agreement was 80% between the initialand follow-up data on firm size, firm age, and revenue growth. In France, we reinter-viewed 11 entrepreneurs, or 10% of the sample. We obtained a 95% agreement on thesame questions. Based on James, Demaree, and Wolf (1984), reliability is establishedwhen there is agreement of at least 80% between multiple raters (or test–retest).

In China and Russia, we cross-checked the social network data by interviewing theentrepreneur’s contacts. We obtained the phone numbers of 18 contacts in China and 12contacts in Russia from the entrepreneurs. We telephoned these contacts and asked aboutthese contacts’ functional backgrounds and how they got to know this entrepreneur. Theresponses of 17 Chinese contacts (94%) and 10 Russian contacts (83%) were consistentwith the entrepreneurs’ answers. We also checked the revenue data for the Chineseand Russians firms since these entrepreneurs might be reluctant to provide reliableinformation. We identified 30 ventures in each country by selecting every fifth or sixthentrepreneur in the samples. We checked the revenue growth data with the government

8. We also performed a Heckman (1979) two-stage estimation procedure to control for potential selectionbias in the results regarding revenue growth for China and Russia. We used all surveyed and nonsurveyedfirms in China and Russia only because of the lack of data on nonsurveyed firms in France and the UnitedStates. In stage one, the inverse Mills ratio was calculated using the total sample of surveyed and nonsur-veyed firms in China and Russia. The nonsurveyed firms are the ventures that met our sampling criteria butdid not respond to our requests or that we were unable to reach. We used firm age, the trade/service dummy,and interaction of firm age and the trade/service dummy as the independent variables in this first stagebecause we had information on these variables in both the surveyed firms and the nonsurveyed firms. Then,the inverse Mills ratio was inserted into stage two for models 2, 4, and 6. The inverse Mills ratio was notsignificant, and we obtained the same results for our variables of interest in the three models, providing noevidence of selection bias.


tax offices in Beijing and Moscow, respectively. Accuracy was confirmed on the revenuegrowth data for 27 Chinese firms (90%) and 24 Russian firms (80%).

We further considered the potential of common method bias in our study. This biascould be due to attribution, consistency, or social desirability (Malhotra, Kim, & Patil,2006; Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). In our study, all variables in ourhypotheses involve factual information (e.g., the number of people in each network andnature of ties—family or nonfamily). Moreover, our regression models involved nonlineareffects for our three social networks (Chang, van Witteloostuijn, & Eden, 2010; Podsakoffet al.). It is unlikely that the respondents were guided by a cognitive map involving uniqueand nonlinear relationships.

Results

We used regression analyses to test our hypotheses, including a squared term foreach independent variable to test for curvilinear effects. Table 1 presents the descriptivestatistics and correlations. The average percentage of family ties in the entrepreneurs’three social networks ranges from 6.14% (for the business resource network) to 35.73%(for the emotional support network). These numbers are in the same range as compa-rable international studies about the roles of entrepreneur’s family ties (e.g., Andersonet al., 2005). The total network size (average: 5.72, standard deviation: 2.60) is similarto those reported in other network studies (Aldrich et al., 1989; Batjargal, 2007c;Marsden, 1990; McPherson, Smith-Lovin, & Brashears, 2006). We also present themean family ties in each network by country in Table 2. Although the means arelower for the emerging economies, the numbers are in the same range as in compar-able studies on the roles of entrepreneur’s family ties in developed economies (e.g.,Anderson et al.).

Hypothesis 1 suggested an inverted U-shaped relationship between the family embed-dedness of entrepreneurs’ business advice networks and new venture growth. As shown inmodel 2 in Table 3, this main effect of family embeddedness (B = 0.11), and its squareterm (B = -0.00) are not statistically significant, while this is also the case for model 1without the square term. Therefore, hypothesis 1 does not receive support as the entre-preneurs’ family ties in the business advice networks appear to have no significant effecton their ventures’ growth.

Hypothesis 2 suggested that the family embeddedness of entrepreneurs’ emotionalsupport networks has an inverted U-shaped relationship with new venture growth. As seenin model 4 (Table 3), the family embeddedness of entrepreneurs’ emotional supportnetworks has a positive and statistically significant main effect (B = 0.63, p < 0.05), andits square term (B = -0.006, p < 0.05) exhibits a negative and statistically significanteffect. These results provide support for hypothesis 2.

Hypothesis 3 suggested that the family embeddedness of entrepreneurs’ businessresource networks has an inverted U-shaped relationship with new venture growth.Results in model 6 (Table 3) do not show this effect as the family embeddedness ofentrepreneurs’ business resource networks has a negative and statistically significant maineffect (B = -1.06, p < 0.05), and its square term exhibits a positive and statisticallysignificant effect (B = 0.012, p < 0.05). These results suggest a relationship opposite tohypothesis 3. All of these effects were obtained controlling for the size of each network.We also ran full model including all variables (see model 7), which confirmed the resultsobtained with the separate models.

13May, 2013

Tabl

e1

Des

crip

tive

Stat

istic

san

dC

orre

latio

ns

NM

ean

SD1

23

45

67

89

1011

1213

1415

1617

1R

even

uegr

owth

515

34.6

059

.21

12

Gen

der

(fem

ale)

637

0.44

0.49

-.11

**1

3Fi

rmag

e(y

ears

)63

74.

462.

20-.

22**

.08*

14

Firm

size

636

35.7

461

.5-.

04-.

07.2

6**

15

Tra

de/s

ervi

ce63

70.

460.

49-.

07.1

4**

-.03

-.11

**1

6H

igh

tech

637

0.25

0.43

-.05

-.04

.12*

*.0

7-.

54**

17

Ent

repr

eneu

r’s

age

633

38.7

68.

55-.

03-.

04.1

4**

.09*

.08*

-.10

**1

8E

ntre

pren

eur’

sed

ucat

ion

637

2.14

0.76

.14*

*-.

10**

-.08

*.0

5-.

27**

.27*

*.0

11

9M

anag

eria

lex

peri

ence

633

5.82

6.85

.21*

*-.

10**

-.12

**-.

03.1

0*-.

11**

.57*

*.0

61

10C

hina

637

0.32

0.46

-.07

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.07

.26*

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03.1

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**-.

08*

-.08

*1

11R

ussi

a63

70.

270.

44-.

25**

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.26*

*.0

9*-.

04.0

7-.

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112

Uni

ted

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es63

70.

240.

42.3

4**

-.07

-.14

**-.

22**

.07

-.24

**.2

9**

.03

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39**

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%—

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ines

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603

10.6

625

.22

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07-.

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9*-.

13**

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1

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.76

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17B

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ess

reso

urce

netw

ork

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1.91

1.09

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9*.1

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07.3

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1

18Fa

mily

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21.9

3.0

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0408

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01SD

,sta

ndar

dde

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ion.


Robustness ChecksWe ran five robustness checks. First, previous research on the roles or performance

effects of family ties in new ventures focused on entrepreneurs in developed countries.9

Renzulli et al. (2000) considered entrepreneurs in the United States (before the establish-ment phase); Bruderl and Preisendorfer (1998) in Germany; Greve and Salaff (2003) inNorway, the United States, Sweden, and Italy; and Anderson et al. (2005) in Scotland,Japan, the United States, Canada, Greece, Northern Ireland, Italy, and Sweden. As othershave noted, determining whether the effects examined hold for entrepreneurs acrosscontexts warrants scholarly attention, especially considering the importance of emergingcountries in the current world economy. Therefore, we tested for possible differencesbetween entrepreneurs in emerging and developed economies for each relationship devel-oped in our hypotheses, using for each network an interaction term of the two family tiesnetwork variables (first and second order) and context (developed economy: yes/no). Theresults were statistically significant (p < 0.05) only for hypothesis 1 (business advice).Therefore, we examined the relationship proposed in hypothesis 1 separately in a devel-oped economies sample (France and the United States) and in an emerging economiessample (China and Russia). The relationship in hypothesis 1 was statistically significantonly for the developed economy sample, and the model is reported in Table 3 (see model2a). As shown in model 2a (Table 3), the main effect for the percentage of family tiesin an entrepreneur’s business advice network (B = 0.97, p < 0.05) and its square term(B = -0.012, p < 0.05) are both statistically significant, indicating an inverted U-shapedrelationship. Hypothesis 1 is thus supported but only for the developed economies. Ourobjective was to check if the hypothesized relationships are contingent upon the economytype, and it is the case for family embeddedness of the business advice network.

The statistically significant relationships tested in models 2a, 4, and 6 are presentedgraphically in Figure 1, where we show for each social network the marginal effect ofeach family ties percentage on venture growth (i.e., all other variables being set to 0). As

9. The article by Au and Kwan (2009) is an exception, but they studied the role of family and not theperformance effects. More specifically, the authors explore the role of family funding as a source of start-upcapital for Chinese entrepreneurs. Other articles focus on the attributes of overseas Chinese family businesses(e.g., Ahlstrom, Young, Chan, & Bruton, 2004; Carney, 1998) and the roles of the family, but they do not studythe roles and performance effects of family ties in new ventures.

Table 2

Average Percentage of Family Ties in Each Network by Country

Country

Family ties %

Business advice Business resources Emotional support Total network

China 7.50 4.02 30.10 12.31Russia 2.51 3.48 33.81 12.79United States 16.79 5.91 35.02 20.84France 23.71 20.98 55.78 35.18

15May, 2013

Tabl

e3

New

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ture

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even

ueG

row

thE

xpla

ined

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rcen

tage

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sin

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ess

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ourc

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etw

orks

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iabl

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odel

0

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ines

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vice

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nal

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ork

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ines

sre

sour

ces

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el7

Mod

el1

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el2

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el2a

(dev

elop

edco

untr

ies)

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el3

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el4

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el5

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el6

(Con

stan

t)10

1.50

***

92.8

0***

92.9

6***

165.

42**

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20*

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-14.

90*

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age

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rs)

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-3.8

8*-3

.02*

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0*-2

.96*

-2.8

7*-2

.58+

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size

0.01

-0.0

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t0.

110.

63*

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*(F

amily

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ess

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ork

size

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amily

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%—

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20.

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ted

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0.13

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N51

551

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ficie

nts.


shown, the curve “Family ties %—Business advice” in Figure 1 results from model 2a andis relevant only for the recently established ventures in France and the United States.

Second, as shown in Table 2, entrepreneurs in the four countries do not rely on familyties to the same extent for their different social networks. Such differences can beexplained by the unique national cultures that can result in different entrepreneurialnetworks and uses of family ties (Drakopoulou Dodd & Patra, 2002). New venturesoperate within broader contexts (Shane, 2003), a key element of which is the culture of thesociety in which the entrepreneur operates (e.g., Hayton, George, & Zahra, 2002; Kreiser,Marino, Dickson, & Weaver, 2010). However, this does not address the possibility ofdifferent effects of these ties on new venture growth in these four countries for culturalreasons. Two opposite views exist on the reality of differences for cultural reasons. Theuniversalist view argues that entrepreneurs have more in common with their internationalcounterparts than with nonentrepreneurs from their own cultures (i.e., cultural differencesshould have no impact). The second perspective maintains that national differences,alongside other cultural variables, influence significantly the level and nature of entrepre-neurship and the corresponding entrepreneurial networks and their effects (DrakopoulouDodd & Patra, p. 118).

Therefore, we tested the stability of these effects given differences across countries,such as culture, in further models. For each social network, we added interaction variablesbetween the proportion of family ties variables (first and second order) and a countrydummy. For instance, for China and the emotional support network, we ran an additional

Figure 1

Marginal Effects of Family Ties Percentage in an Entrepreneur’s Network onNew Venture Growth

Increase or decrease ofaverage revenue growth (%)

25

20

15

10

5

00 10 20 30 40 50 60 70 80 90 100

–5

–15

–10

–20

–30Family ties % (Business advice - developed countries) Family ties % (Business resources) Family ties % (Emotional support)

–25

Nota bene: (a) The business advice curve is for the sample of entrepreneurs in France and the United States only.(b) The Y-axis is the marginal effect (increase or decrease) in performance corresponding to a given percentage of familyties in the network.

17May, 2013

model with the same variables as model 4 plus two interaction variables: (Proportion offamily ties in the emotional network) ¥ China dummy, and (Proportion of family ties in theemotional network squared) ¥ China dummy. We repeated the same procedure for eachsocial network and each country with the corresponding variables (i.e., we ran three modelsper country resulting in 12 new models in total). In this way, we were able to test the stabi-lity of our effects on national culture differences. None of these interaction effects wasstatistically significant, not even at p > 0.10, except for one specific network and country.Only the emotional support network in Russia has statistically significant coefficients forboth interaction terms (B = -0.99, p < 0.05 and B = 0.01, p < 0.05). Given that only 1 outof 12 models has a statistically significant result, it could be due to random occurrence.Therefore, we conclude based on this robustness test that the effects of family ties in thethree networks on venture growth are essentially similar across the four national contexts.10

We performed a third robustness check on the age of the venture. We know fromprevious studies that the roles of entrepreneurs’ network ties can change over the years(see Jack et al., 2008, for an extensive study). Hence, even if we focus on recentlyestablished ventures that are 8 years old or younger, it may be possible for the effects offamily ties in the three social networks to change over time. We addressed this issue bydeveloping additional models. As it is difficult to arbitrarily divide the lifecycle stages ofventures less than 8 years old into clear and distinct stages (e.g., “establishment” and“growth” stages), we tested an interaction effect between the age of a new venture and theproportion of kin in entrepreneurs’ social networks on venture growth. We added inmodels 2a, 4, and 6 the interaction terms for the proportion of family ties variables (firstand second order) in each network and venture age (years since the date of founding).These interaction terms were not statistically significant (p > 0.10) for the businessadvice and business resources networks, confirming that the effects of family ties ongrowth in these two networks are invariant across different ages of the new ventures.However, for the emotional support network, both interaction terms are statisticallysignificant (B = -0.35, p < 0.05 and B = 0.003, p < 0.05), as shown in Table 4 identifyingdifferent effects of the proportion of family ties in entrepreneurs’ emotional networks onthe growth of the new venture throughout the first 8 years. To illustrate this interactioneffect, we compare ventures in their first, fourth, and eighth year, graphically presented inFigure 2. The positive curvilinear effect of the proportion of family ties in an entrepre-neur’s emotional support network on venture growth diminishes throughout the years tobecome negative in the eighth year.

Fourth, it is possible that the relationship between performance and the percentage offamily ties in the business resource network may suffer from endogeneity. For instance,when a new venture performs badly, entrepreneurs may turn to their families to obtainadditional resources. We addressed this issue in several ways. First, entrepreneurs mayprefer to avoid placing family assets at risk because of family solidarity, stewardship, andthe need for long-term reciprocity. Therefore, in cases of performance problems, entre-preneurs may not increase the family embeddedness of the business resource networksof their troubled ventures. Nevertheless, we explicitly tested this endogeneity using theHeckman procedure (Hitt, Bierman, Uhlenbruck, & Shimizu, 2006; Shaver, 1998). Wecomputed two new variables for performance by computing the average sales growthrate for 2001–2002 and the average sales growth rate for 2003–2004. We then recoded the

10. That said, the previous results about the percentage of family ties in the business advice networks havinga different effect in developed versus emerging economies might lend some evidence to contradict theuniversalist view, even if culture does not seem to be the relevant dimension to explain differences.


variable family embeddedness of business resource network as a dichotomous variable,coded as 0 when the entrepreneur has no family ties in this network and 1 in the oppositecase. In stage one of the Heckman procedure, we ran a probit model, explainingthe variable of family ties in entrepreneurs’ business resource networks (no/yes) by thefollowing variables: gender (female), age of respondent when the firm was created, China,Russia, United States, firm age in 2002, the entrepreneurs’ managerial experience whenthe firm was created, trade industry, high-tech industry, and past performance in 2001–2002. All of these variables could explain the presence of family ties in entrepreneurs’business resource networks. Then, in the second stage of the Heckman method, we ran aregression explaining performance in 2003–2004 by the same variables as in model 6plus the inverse Mills ratio obtained from stage one. The inverse Mills ratio removes anypotential bias due to endogeneity and self-selection (Shaver). The inverse Mills ratio wasnot statistically significant (p > 0.10), and the curvilinear relationship between familyembeddedness of business resource networks and average sales growth 2003–2004 wasstatistically significant (p < 0.05). Therefore, we can reject the notion that endogeneitybias exists in our analyses.

Finally, we checked for the stability of our relationships across the different industriesrepresented by the new ventures. We added interaction terms between the industry dummyvariables and the family ties percentage in the models in Table 3. None of these interac-tion effects were statistically significant (p > 0.10), confirming the stability of our effectsacross the different industries.

Table 4

Interaction Effects Between the Proportion of Family Ties in an Entrepreneur’sEmotional Support Network and Firm’s Age

Variables Model 8

(Constant) 80.85***Gender (female) dummy -12.35*Firm age (years) -0.74Firm size -0.01Trade/service dummy -15.78*High-tech dummy -3.11Age—respondent -1.73***Education—respondent -0.13Managerial experience 0.89+China dummy 14.32Russia dummy -0.46U.S. dummy 45.65***Importance of growth 0.59Emotional support network size 5.14+Family ties %—Emotional support 2.10**(Family ties %—Emotional support)2 -0.019**Family ties %—Emotional support ¥ Firm’s age -0.32**(Family ties %—Emotional support)2 ¥ Firm’s age 0.003**Adjusted R2 0.16***N 515

+ p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.00Note: Values represent unstandardized beta coefficients.

19May, 2013

Discussion

Based on the family embeddedness perspective, we identified the effects of theproportion of family ties in three different types of entrepreneurs’ social networks on newventure growth. We found that the levels of family ties in these networks have positive andnegative effects. The results of this study contribute to a deeper understanding of howfamily ties in entrepreneurs’ social networks influence venture growth. In fact, as shownby the results of this study, entrepreneurs mobilize different social networks (businessadvice, business resource, and emotional support) to achieve different objectives indeveloping their new ventures. Thus, it is important to differentiate the role of familyembeddedness in the three networks and their different effects on new venture growth.

Our results also help to reconcile conflicting results from previous research on the roleand effects of family ties on entrepreneurs’ success. The positive and negative implica-tions of family ties interact in different ways depending on the social network type. Forbusiness advice networks specifically in developed economies (business advice networksin emerging economies are discussed later herein), family embeddedness is a mixedblessing for entrepreneurs as some degree of informal family influence is positive, but toomuch presence has a negative marginal effect on new venture growth. When family tiesdominate entrepreneurs’ business advice networks, the negative effects override the ben-efits and venture growth ceases to profit from family ties. Figure 1 shows that the optimallevel of family embeddedness of the advice network is 40% for entrepreneurs in devel-oped economies. This value suggests the optimal condition for new venture performance

Figure 2

Marginal Effect of Family Ties Percentage in an Entrepreneur’s EmotionalNetwork on New Venture Growth and Firm’s Age

60

50

40

30

20

10

Incr

ease

or

decr

ease

of t

he a

vera

ge r

even

ue g

row

th (

%)

Percentage of family ties in the emotional social network

0

–10

–20

–30

0 10 20 30 40 50 60 70 80 90 100

In year 1

In year 4

In year 8


in which the entrepreneur can benefit the most from the positive attributes of family tieswhile avoiding their potential negative effects. At a very high level of family dominance(more than 80%), the negative outcomes from family embeddedness, such as redundancyof information, groupthink, simplicity, or conflicts, emerge and undermine new venturegrowth. Thus, in developed economies, an intermediate level of family ties in the advicenetwork (roughly 40%) may be most conducive to business success, as measured byrevenue growth, in a new venture.

For the emotional support network, an inverted U-shaped effect also exists (seeFigure 1), with a different optimal level of family ties at 63%. Because of their uniquenetwork characteristics, family members can usually provide emotional support to entre-preneurs during their new venture development efforts, and, regardless of the countrycontext, family embeddedness is highest for entrepreneurs’ emotional support network,as seen in Table 2, confirming the results of previous studies (Anderson et al., 2005).However, this effect is more complex than for the two other social networks as a result ofa contingent effect. As found in the robustness checks, the effect of family ties in theemotional support network on venture growth is different depending on the age of the newventure (see Figure 2), identifying the changing effect of these strong ties over time onventure growth. The stronger positive effect in the first year provides clear evidence of thesubstantial benefits of emotional support provided by family ties when the venture is at itshighest risk of failure and there is great uncertainty; but the value of family ties in theemotional support networks decreases up to the eighth year, at which point it becomesnegative.11 This result underlines the fact that previously successful network relation-ships can become useless or even act as a brake on venture growth in subsequent networkevolution (Jack et al., 2008, p. 131; Kim & Aldrich, 2005). Throughout the years, theemotional challenges faced by entrepreneurs can become less acute, or the entrepreneurscan learn to deal with the challenges, and perceived uncertainty may decline based on theirnewly accumulated experience. Nevertheless, we did not find evidence of such contingenteffects for the two other social networks (business advice and business resources) in whichthe effects of family ties on venture growth are invariant across venture age.

The effects are different for business resource networks. Except in the extreme caseof the entrepreneurs relying solely on family ties to provide business resources in a newventure, such reliance has a negative influence on the performance of the venture. Themore they use these family ties relative to other ties, the greater the reduction in perfor-mance, everything else being equal. This downward trend is severe until the point at whichthe percentage of family ties providing this resource begins to approach 45% and higher.

Entrepreneurs often prefer to access business resources from nonfamily partners, suchas venture capitalists, angel investors, or business associates (Au & Kwan, 2009). Thesenonfamily partners can bring not only significant resources to new ventures but also broadexperience in new venture development (e.g., De Clercq & Sapienza, 2001). In addition,out of loyalty to the family and considering the high failure rate of new ventures, manyentrepreneurs may prefer to avoid placing family assets at risk in a new venture becauseif that venture performs badly or fails, the family will suffer. Even if the resourcesprovided by the family ties are not necessarily all lost in the failure of the venture (e.g.,office space, and inventory), using them creates potential for conflicts within the familyor disruption in the balance within the family system. Such negative outcomes can alsothreaten the survivability of the family’s internal social capital and of the family system

11. Our sample was made of ventures that are 8 years old or younger. Therefore, we cannot extrapolate thiseffect for ventures more than 8 years old.

21May, 2013

(Arregle et al., 2007; Olson et al., 2003). Another reason for entrepreneurs to avoid familyembeddedness in their business resource network is the risk of future interference byfamily members in the management of the new venture (Au & Kwan), thus limitingentrepreneurs’ autonomy and increasing the risk of possible conflicts between kinship andbusiness logic. Entrepreneurs may turn to family ties when they have difficulties inaccessing the needed resources in the market to create their new ventures because of therisk involved in or lack of viability of their ventures. Venture capitalists usually try toselect the best or stronger projects and will not fund lower-quality projects. These con-ditions help to explain the initial negative relationship between the presence of family tiesand the performance of these new ventures compared with new ventures without familyties in their business resource networks.

The family embeddedness of the business resource network produces the most dam-aging effect on performance when family ties constitute between 30% and 60% of thisnetwork. In this range, family ties are important sources of business resources, as are othernonfamily ties. However, family ties have different objectives and rationales than dononfamily ties that commonly result in potential conflicts and create problems for themanagement and development of a venture. When one type strongly dominates, suchconflicts are minimized (Brewer & Miller, 1996). Thus, contrary to the two previous typesof social networks discussed, family ties should either not be used in the business resourcenetwork or be a highly dominant source (i.e., high level of family embeddedness) ofbusiness resources.

When family ties are above the threshold of 87% of entrepreneurs’ business resourcenetworks, the family embeddedness in these networks has a positive effect on new venturegrowth. Two scenarios may explain this result. First, as suggested earlier, entrepreneursmay prefer to avoid placing family resources at risk in a new venture. Perhaps, whenundertaking new ventures with lower risk and positive profitability forecasts, entrepre-neurs prefer to use mainly family resources because these are more easily accessible, andthe family can benefit from the future positive returns provided by the venture. In thesecond scenario, the family may have a significant amount of business resources to offerto the entrepreneurs. Therefore, the entrepreneurs can use the family ties to access all thebusiness resources they need to launch their new ventures with lower risk or cost. Becauseof their unique characteristics, family ties often represent more patient capital providersthan do those in the external market, as shown in previous family firm research (Sirmon& Hitt, 2003). Therefore, if the firm requires more time to provide returns, family ties mayprovide a better source of resources for the entrepreneurs.

Unlike previous research that has focused on developed economies, our researchincludes emerging economies, which allows for tests of other contingencies that mightinfluence the effects of family embeddedness. We found that family ties in entrepreneurs’business advice networks are associated with new venture performance in developedcountries but not in emerging economies. Entrepreneurship is a new phenomenon inthese emerging markets, especially in former command economies such as China andRussia. Although China and Russia differ in their approach to economic reforms (Shleifer,2005), the institutional transformations in China (Droege & Johnson, 2007) and Russia(Batjargal, 2007b) involved a deinstitutionalization process, along with the erosion anddiscontinuity of the old socialist institutions and practices, followed by an institutional-ization process involving the creation and legitimization of new regulations, structures,practices, and organizations. Therefore, the traditional norms, practices, and knowledgebecame irrelevant in the new environment (Newman, 2000). This is especially true forentrepreneurship, which, with its growth orientation, is a new phenomenon. As a result,the business advice that family members can provide to entrepreneurs in these emerging


countries is probably of lower value or quality as they usually have little expertise orlack an understanding of business development or competition. Although some familymembers may have experience or knowledge acquired before these economic changes,their knowledge may be of lower relevance to entrepreneurs in the new institutional andeconomic setting. In developed countries by contrast, family members do not suffer fromthese knowledge deficits resulting from institutional discontinuities: As the economicmechanisms and institutions have been in place for a long time, they are familiar with suchphenomena and can provide their expertise to help resolve business problems. Theseconditions may explain why family ties in the business advice networks were relevantonly in developed economies.

We can also see from Table 2 that the use of family ties in the business advicenetwork in the emerging economies (2.51% for Russia and 7.50% for China) is muchless common than in the two developed economies (16.79% for the United States and23.71% for France). These results support our explanation of the differences in therelevance of family ties’ knowledge in emerging economies versus developed econo-mies. They also suggest the importance of distinguishing between different social net-works and their contexts to understand their effects on new venture performance. Theseentrepreneurs in emerging economies are likely aware of the weak support and valuethey can receive from their family ties for business advice and thus seek nonfamily tiesfor this type of support.

Compared with prior research, the analyses and results in this study enhance ourunderstanding of family ties and embeddedness in entrepreneurs’ social networks inseveral important ways. They provide a new and nuanced understanding of the roles andeffects of family ties in entrepreneurs’ social networks by identifying key differencesamong the three types of social networks. Each network has different objectives andcontents that need to be considered. Entrepreneurs’ use of family ties results in differenteffects on venture growth depending on the type of social networks and resources needed.Moreover, in the specific case of the business advice networks, the value of family ties forentrepreneurs is contingent upon the economic and institutional environment contextin which they develop their new venture. The results of this study also provide a morefine-grained understanding of the effects of embeddedness identifying the levels whichdifferentiate positive and negative effects. Additionally, our research suggests that highembeddedness in family ties has positive effects in some types of networks and negativeeffects in others. Therefore, the results of this study contribute to our understanding of theimplications of family embeddedness while simultaneously reconciling competing claimsabout the role of family ties in entrepreneurship.

LimitationsThis study has some limitations. First, we used revenue growth as a measure of

entrepreneurial success. Although this measure is common in research on new venturesuccess, different results might be obtained if we used other measures of success, such asprofitability or return on asset or investment. Second, we do not have data on the historyof family businesses in the entrepreneurs’ families. In cases where the entrepreneurs’families have had or currently have other family firms, it would be interesting to comparethe influence of these family ties with those of entrepreneurs who do not have this historyor experience in their families. The success of the other family businesses could have aneffect on the role of family ties in business advice and business resource networks. Third,we collected the data from the four countries over a 3-year period (2005–2007). It ispossible that the entrepreneurial context might have changed during this time, rendering

23May, 2013

some networks more or less important, especially in the emerging economies due toincreasing familiarity among current and future generations with business. However, these3 years were a relatively stable period in all four countries, as they were prior to the currentfinancial crises. Lastly, while we examined different types of entrepreneurial socialnetworks (i.e., advice, resource, and emotional support) focusing on their proportionof family ties, there may be other dimensions of networks that are equally complex orimportant. Network structure, including size, density, diversity, structural holes, andcohesion, may have strong influences on venture growth.

Implications for Future ResearchBeyond the earlier points, this study has several additional implications for future

research on family ties and entrepreneurship. First, it is desirable to further differentiatethe several social networks relevant for entrepreneurs because each network is character-ized by its own dynamics. Such research might focus more precisely on one type of socialnetwork, its characteristics (e.g., size, dyadic tie strength, composition, diversity, dynam-ics, and turnover), and its influences (e.g., on new venture growth and entrepreneursatisfaction). Second, our research explored the possible role of contexts (institutions andeconomic development) on the effects of family ties on entrepreneurship. Further researchcould more clearly specify the differences across diverse institutional and cultural con-texts (Batjargal et al., 2013). For example, in developing economies in which certainsocial groups can be severely marginalized (i.e., women, migrants, ethnic and religiousminorities, etc.; Jackson, 1996), entrepreneurs’ networks high in family embeddedness(Wood, 2003), and how does this influence new venture performance? Third, it would beinteresting to understand more precisely how entrepreneurs use family ties depending onthe nature of the family’s resources. For example, why might families’ resource limita-tions lead some entrepreneurs to pursue nonfamily ties to access resources whereasother entrepreneurs might place their families at risk by more aggressively leveragingfamilies’ resources? Fourth, our research considered one possibility to categorize ties(family versus nonfamily) and their effects on venture growth, but it could be useful toextend this analysis considering other types of entrepreneurs’ social ties (e.g., businessversus nonbusiness-related ties), even other types of strong ties (e.g., friendship ties), orother structural dimensions of their social networks (e.g., multiplexity of ties). Finally,considering the different relationships examined in this study, it would be useful toreexamine how different levels of education and prior experience (and other demographicattributes) influence the way entrepreneurs use and manage family ties in each of the threedifferent social networks.

Our study also seeks to complement family firm research. Family firm researchemphasizes formalized roles of family members in entrepreneurs’ ventures in terms ofmanagement, governance, and ownership (Chrisman, Chua, & Sharma, 2005), or eveninternationalization (Liu, Lin, & Cheng, 2011). Given these formalized roles, familymembers can be expected to interact more on a daily basis within the firm context, leadingto idiosyncratic relational aspects (i.e., communication, conflict, etc.) among familymembers, and between family and nonfamily actors. In comparison, our research focuseson informal family ties based on entrepreneurs’ use of family members to address certainneeds, whether in terms of advice, emotional support, and/or resources. This researchpresents opportunities for scholars to understand more closely how entrepreneurs managetheir family ties. Research can benefit from scholarly inquiry into how entrepreneursfacilitate interactions between informal family and nonfamily ties, to what extent new


venture performance benefits from such interactions, and how interactions differ in thismore informal context (perhaps given that these network ties have less vested in theentrepreneurs’ ventures).

Conclusion

Our study integrates the embeddedness perspective and network theory. Theembeddedness perspective has highlighted the positive and negative effects of relyingon strong ties within a network (e.g., Uzzi, 1997). Recent research using network theoryhas highlighted entrepreneurs’ strategic use of different types of networks to achievespecific outcomes (e.g., Lechner et al., 2006). We bridge these findings by examiningfamily embeddedness across three different network types, showing that the level of familyembeddedness has different effects on new venture growth depending on the networktype. This more fine-grained analysis suggests that the costs and benefits of drawing uponfamily ties depend on how the entrepreneurs actually draw upon their family ties. In somecases, such as resource networks, it appears that entrepreneurs leveraging high levels offamily embeddedness capture greater benefits relative to costs. In comparison, entrepre-neurs benefit to a greater extent by leveraging moderate levels of family embeddednessin advice and emotional support networks. This research contributes to the (family)embeddedness perspective by showing the effects of embeddedness not only on the typeof tie (i.e., family versus nonfamily), but also on the type of network in which that tieis embedded. We hope that this research stimulates further inquiry into entrepreneurs’ useof networks, the role of family within these networks, and how the embeddedness withinthese networks influences entrepreneurial activities and growth.

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Jean-Luc Arregle is a professor at EM Lyon Business School, Ecully, France.

Bat Batjargal is a research fellow at Harvard University, Davis Center, Cambridge, MA, USA, and is a visitingprofessor in entrepreneurship at Peking University, Guanghua School of Management, Beijing, China.

Michael A. Hitt is a professor at Mays Business School, Texas A&M University, College Station, TX, USA.

Justin W. Webb is an assistant professor at School of Entrepreneurship, Oklahoma State University, Stillwater,OK, USA.

Toyah Miller is an assistant professor at Kelley School of Business, Indiana University, Bloomington, IN,USA.

Anne S. Tsui is Emeritus Professor of International Management at W.P. Carey School of Business, ArizonaState University, Tempe, AZ, USA, and is Special Appointment Professor at Peking University, GuanghuaSchool of Management, Beijing, China.

We acknowledge the helpful comments from the editor and two anonymous reviewers, Howard Aldrich, FranzKellermanns, Philip Kim, and David Sirmon. An earlier version of this paper was presented at the Academyof Management’s 2010 annual conference in Montréal, Canada.


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Family Ties in Entrepreneurs' Social Networks and New Venture Growth