Relationship Conflict,Family Name Congruence,and Socioemotional Wealth in Family Firms

Introduction

“The parties have amicably resolved all of their disputes out of court and look forward to the continued growth of the business. That doesn’t mean the animosity is gone. The harsh words and tactics over the years left wounds that will take a long time to heal (Grant, 2017).”

Socioemotional wealth (SEW) is the nonfinancial utility or affective endowments attached to ownership of the family firm (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007). Scholars use a family business setting to investigate owners’ socioemotional utility because nonfinancial considerations are prevalent in this context (Gedajlovic, Carney, Chrisman, & Kellermanns, 2012). As such, nonfinancial utility, or socioemotional wealth is recognized as an integral component of the total value owners attribute to ownership in the family firm (Astrachan & Jaskiewicz, 2008; Zellweger & Astrachan, 2008; Zellweger & Dehlen, 2012). Yet recent findings show that SEW can also detract from firm valuation and trade-offs between financial wealth and SEW are made (Kotlar, Signori, De Massis, & Vismara, 2018). Accordingly, the subjective valuation of the family firm by its owners accounts for both the financial and nonfinancial utility of ownership (Astrachan & Jaskiewicz, 2008; Kammerlander, 2016). Specifically, we define subjective valuation of the family firm as the minimum acceptable price at which owners would be willing to sell the firm to a buyer from outside the family (Zellweger, Kellermanns, Chrisman, & Chua, 2012).

Scholars show that owners’ desire to preserve and enhance SEW drives family firm behavior and decision making (e.g., Berrone, Cruz, Gómez-Mejía, & Larraza Kintana, 2010; Chrisman & Patel, 2012; Gómez-Mejía, Patel, & Zellweger, 2018; Zellweger, Kellermanns, Chrisman, et al., 2012); however, the literature does not describe how owners handle negative experiences related to the family firm, hereafter referred to as socioemotional costs. Socioemotional costs arise from negative features related to ownership, such as relationship conflict and the associated negative emotions (Astrachan & Jaskiewicz, 2008), as well as sacrifice and pressure (Zellweger & Astrachan, 2008).

In this study, we draw on SEW, behavioral agency model (BAM; Wiseman & Gómez-Mejía, 1998), and mixed gambles (e.g., Gómez-Mejía et al., 2014), which are all three grounded in prospect theory, to investigate how owners account for the socioemotional cost of relationship conflict in their subjective valuation of the family firm. We challenge the intuitive assumption that socioemotional costs would automatically lead to lower valuations. We propose that socioemotional costs such as relationship conflict among family members are viewed differently by family members and can thus increase or decrease subjective valuations of the family firm. Specifically, we hypothesize a U-shaped relationship between relationship conflict in family firms (e.g., Eddleston & Kellermanns, 2007) and subjective firm valuations; whereby low levels and high levels of relationship conflict promote greater levels of subjective valuations. We further hypothesize that family name congruence, evident by the presence of identical firm and family owner names, interacts with relationship conflict to influence subjective valuations. Indeed, family name congruence between the owning family and firm is shown to affect the presence of SEW (Gómez-Mejía, Cruz, Berrone, & De Castro, 2011).

Our study makes multiple contributions to the literature. First, we extend the SEW literature by examining socioemotional costs associated with negatively valenced functions such as relationship conflict. To this point, the literature has only been mostly concerned with positively valenced sources of SEW. Rather than a simple depletion of SEW, we hypothesize and demonstrate that owners account for socioemotional costs in a counterintuitive, nonlinear fashion when assigning subjective value to the family firm. These findings have implications for how scholars view family firm owners’ potential responses to a broader range of negatively valenced socioemotional costs. It also provides new insights on the research of mixed gambles in SEW and the role of vulnerability (e.g., Gómez-Mejía et al., 2014; Martin, Gomez-Mejia, & Wiseman, 2013). Second, we contribute to a better understanding of the subjective valuation of family firms by their owners (e.g. Foss, Klein, Kor, & Mahoney, 2008; Kotlar et al., 2018; Leitterstorf & Rau, 2014; Thomsen & Pedersen, 2000; Zellweger, Richards, Sieger, & Patel, 2016; Zellweger, Kellermanns, Chrisman, et al., 2012). Third, our article adds to the insights of the wider prospect theory by showing how an endowment effect can be driven by relationship conflict and family name congruence (Carmon & Ariely, 2000; DeSteno, Petty, Wegener, & Rucker, 2000; Lerner, Small, & Loewenstein, 2004; Loewenstein & Lerner, 2003). As such, our findings have implications for family firm governance (Lubatkin, Schulze, Ling, & Dino, 2005) and the transfer of private family firm ownership (e.g., Capron & Shen, 2007). Finally, we extend the literature on relationship conflict (e.g., Eddleston & Kellermanns, 2007; Jehn, 1995) by not only tying relationship conflict to firm valuation but also by showing that the curvilinear relationship varies based on family name congruence. This suggests complexities of family firm conflict not previously acknowledged in the literature and contributes to the ongoing debate on family firm heterogeneity (e.g., Chua, Chrisman, Steier, & Rau, 2012; Stanley, Kellermanns, & Zellweger, 2017; Westhead & Howorth, 2007).

Socioemotional Wealth and Family Firm Valuation

SEW is “the non-financial aspects of the firm that meet the family’s affective needs” (Gómez-Mejía et al., 2007, p. 106) and is also referred to as affective endowment or socioemotional endowment (Berrone, Cruz, & Gómez-Mejía, 2012; Gómez-Mejía, Makri, & Larraza-Kintana, 2010). SEW helps explain how the pursuit of nonfinancial goals drives family firm behavior (cf. Chua, Chrisman, & De Massis, 2015; Martin & Gómez-Mejía, 2016; Miller & Breton-Miller, 2014; Schulze & Kellermanns, 2015).

The subjective valuation of the firm by its owners is particularly salient in the family firm setting owing to the affect-dense setting of the family system (Anderson & Reeb, 2003; Sharma & Manikutty, 2005) and the prominence of SEW as a primary reference point (Gómez-Mejía et al., 2007) since ownership is typically maintained within the family with transgenerational sustainability intentions in mind and as the firm is typically not for sale outside the family (Zellweger et al., 2016). Valuing privately held family firms is subjective in most cases as no liquid market for shares exists (Fernando, Schneible, & Suh, 2014). These valuations are complex, involve considerable uncertainty, and are often biased by social desirability concerns (e.g., family legacy considerations). In these circumstances, individuals’ cognitive processes are likely to be infused by affect (Forgas, 1995), whereby affect primes what is selectively recalled and interpreted and, ultimately, biases valuations.

To further our understanding of how SEW acts as a reference point to influence the subjective valuation of family firm ownership (Zellweger & Dehlen, 2012), which is likely to impose biases in the decision process, we use multiple approaches. First, we draw on prospect theory to establish a baseline prediction for the typical case. The endowment effect, a central tenet of prospect theory, explains the difference between the price at which an individual is willing to purchase and sell an object. Prospect theory postulates that it takes a more advantageous offer to make an individual sell an endowed asset in comparison to the price at which the individual would be willing to buy the same asset, owing to loss aversion and a bias toward the status quo (Tversky & Kahneman, 1991). Prospect theory also recognizes the propensity for owners to capitalize prior investments such that they are less willing to relinquish an asset for its current market value even if the decision puts that value at risk (Arkes & Blumer, 1985). As a consequence of attributing value to prior investments of time, money, and affect, decision makers display a decreasing willingness to part with the asset (Moon, 2001). Likewise, owners can consider these costs to be part of the value of an asset, thereby heightening its minimum acceptable sale price (Thaler, 1980). Prior research suggests this is particularly true of affect-infused assets, specifically the socioemotional endowments related to family firm ownership (Zellweger & Astrachan, 2008; Zellweger & Dehlen, 2012). Thus, consistent with prospect theory, we expect owners to include the nonfinancial component of giving up the SEW associated with ownership when deciding the minimum acceptable sales price of the family firm. Moreover, prospect theory suggests the subjective value attached to the nonfinancial component of firm valuation will most likely be biased upward given the positive affect associated with SEW, and the reluctance to relinquish it.

Yet we propose the application of prospect theory to this general case cannot fully explain how owners account for negative affect in subjective valuations. For example, we know that some aspects of family firm ownership, such as relationship conflict, are infused with negative affect (Zellweger, Kellermanns, Chrisman, et al., 2012). Yet we do not know if owners account for negative affect in their evaluation of SEW by simply reducing their SEW assessment and with it firm valuation. Furthermore, we do not know if the owner’s reference point for subjective valuation will still incorporate a nonfinancial component (SEW) in the case of negative affect or shift solely to the financial wealth component of the valuation. To address these complexities, we extend our theorizing beyond prospect theory and draw on both BAM and mixed gambles reasoning in SEW.

BAM (Wiseman & Gómez-Mejía, 1998) in the family firm literature builds on the endowment effect emphasized in prospect theory, suggesting that the value owners place on preserving SEW is associated with ownership in the family firm. BAM proposes the owner’s primary reference point for decision making is framed by aversion to loss of the current SEW endowment (Gómez-Mejía et al., 2007). Indeed, prior research shows that motivation to preserve SEW influences family firm decisions (e.g., Berrone et al., 2010; Chrisman & Patel, 2012; Patel & Chrisman, 2014). The applications of BAM often hold the implicit assumption of a trade-off between SEW and financial wealth (Martin & Gómez-Mejía, 2016).

Extending BAM, the literature further introduced mixed gambles in their theorizing (e.g., Gómez-Mejía et al., 2014; Martin et al., 2013), which relaxes the sole focus on loss aversion (pure gamble with only loss outcome) to consider the potential for both gain and loss outcomes (mixed gamble) in the decision maker’s framework (Martin et al., 2013). Indeed, as Bromiley (2010) points out there are few decisions that involve the chance for only loss or only gain. When applied to the family firm context the mixed gamble is compounded as the potential for loss or gain applies to both socioemotional and financial wealth (Gómez-Mejía et al., 2018; Kotlar et al., 2018).

These theoretical developments can explain complex family firm behavior. For example, while the literature previously suggested that loss aversion of SEW would lead to underinvestment in R&D, using the above referenced theoretical lenses, we can now understand the pursuit of gains due to reference point shifts (Gómez-Mejía et al., 2014). Similarly, recent research by Kotlar et al. (2018) suggests a dynamic, rather than static nature of the family firm owner’s reference points, leading to changes in the valuation of SEW. Suggesting that the classic trade-off between financial wealth and SEW may not be as straightforward and likely heterogeneous across family firms (Martin & Gómez-Mejía, 2016; Schulze & Kellermanns, 2015). These trade-offs have implications for the valuation of the firm (Kotlar et al., 2018; Leitterstorf & Rau, 2014) and we propose that the level of relationship conflict, a key family firm process variable (Eddleston & Kellermanns, 2007), may affect subjective valuations in a counterintuitive fashion. Furthermore, strong identification with the family firm (Kotlar et al., 2018; Zellweger, Eddleston, & Kellermanns, 2010), indicated by family firm name congruence in our article, alters how family firm owners assess the effects of the relationship conflict on overall valuations. Below, we develop these relationships in more detail.

Relationship Conflict and Valuation in Family Firms

Relationship conflict is defined as “an awareness of interpersonal incompatibilities [that] includes affective components such as feeling tension and friction” (Jehn & Mannix, 2001, p. 238). Amason (1996) echoes the inseparability of relationship conflict and negative affect and adopts the term affective conflict, and Priem and Price (1991) use the label “social-emotional conflict” to describe negative conflict. Relationship conflict is characterized by disagreements, argumentation, political maneuvering, competition, hostility, and aggression (Barki & Hartwick, 2004). Relationship conflict is embedded with a wide array of negative emotions such as anger, frustration, hatred, animosity, and annoyance (Barki & Hartwick, 2004; De Dreu & Weingart, 2003). According to Deutsch (1969), relationship conflicts decrease goodwill, mutual understanding, and camaraderie, which hinder the completion of organizational tasks and work performance. Jehn (1995) also shows that relationship conflict leads to reduced satisfaction and a lack of regard for other group members. To date, no evidence shows positive effects of relationship conflict on either performance or satisfaction (McKee, Madden, Kellermanns, & Eddleston, 2014).

Relationship conflict is prevalent in family firms (e.g., Beehr, Drexler, & Faulkner, 1997; Danes, Zuiker, Kean, & Arbuthnot, 1999; Dyer, 1986; Eddleston & Kellermanns, 2007; Kellermanns & Eddleston, 2004) and can often have disastrous consequences (Eddleston & Kellermanns, 2007). The dynamics of conflict in family businesses are complex and distinctive because of the unique interdependence between family and business systems (Memili, Chang, Kellermanns, & Welch, 2015; Sorenson, 1999). For example, family member incompetence, entitlement, or opportunism may undermine the SEW investment by other family members and lead to relationship conflict (Eddleston & Kidwell, 2012; Kidwell, Kellermanns, & Eddleston, 2012). Also, relationship conflict may become particularly intense in family firms because conflicts among family members are sustained in repetitive interactions in both work and family settings (e.g., Kaslow, 1993). These relationship conflicts become institutionalized and difficult to resolve because families are social groups with long histories and enduring memories, and the personal costs of exiting either the family or firm are high (Schulze, Lubatkin, & Dino, 2003). Thus, rather than providing an endowment, relationship conflict could lead to socioemotional cost, which can manifest itself as hostile rejection, abject dependence, mental distrust, manipulation, and maladaptation among family members (Eddleston & Kellermanns, 2007; Kellermanns & Eddleston, 2004). Below, we will argue the connection between relationship conflict and the family firm owner’s subjective valuation of the firm in more detail.

In the absence of relationship conflict, that is, in harmonious relationships, positive affect can be expected (Isen & Baron, 1991), heightening commitment to the firm and increasing SEW. Given the positive family relationships within the firm, we expect owners to frame subjective valuations based on the desire to preserve socioemotional endowments associated with ownership in the firm (Zellweger & Astrachan, 2008). Prospect theory/BAM suggests that owners will not only place a high value on the current SEW endowment but also be strongly averse to losing it (Gómez-Mejía et al., 2007). Owners will therefore include a premium for relinquishing SEW in their subjective valuation of the firm.

If relationships among family members deteriorate from low or no relationship conflict to moderate levels, however, goodwill and mutual understanding is reduced (Jehn, 1997) and disappointment, resignation, and sadness begin to take hold (Simons & Peterson, 2000). Keltner, Ellsworth, and Edwards (1993) state that sadness and frustration evoke the implicit goal of changing one’s circumstances (Lazarus, 1991). This can result in the desire to exit the business and a willingness to accept a lower valuation for the firm in order to move on. Indeed, Lerner et al. (2004) suggest that sadness induced by relationship conflict reduces selling prices, as owners seek opportunities to withdraw. This is also consistent with Kotlar et al. (2018) view of dynamic reference points, suggesting that owners are willing to realize losses in current valuations as they adjust to expectations of declining SEW and abate their initial aversion to loss of the endowment. Thus, at moderate levels of relationship conflict we expect owners to arrive at lower subjective valuations.

At high levels of relationship conflict, the conflict escalates and gains in fervor, size, and scope and is accompanied by arduous in-fighting, stress, acute negativity, jealousy, hatred, and anger (e.g., Jehn, 1997). When negative affect is extreme, it can overrun and overrule rational and sound reasoning (Thomas, 1992), constituting a socioemotional cost to the owner. This has multiple consequences for the valuation of the firm. Angry people are more prone to ill-considered judgments, suffer from illusions of control, escalate their commitment into the conflict, and engage in self-serving biases that conflate what is perceived as fair (Lerner & Keltner, 2000; Simons & Peterson, 2000). The irrational behavior is also likely reflected in the firm valuation. Rather than withdrawing, they will likely expect to be compensated for the emotional pain suffered through the conflict and thus include the socioemotional cost in their subjective valuation of the family firm. In addition, we adopt the notion of dynamic reference points (Kotlar et al., 2018) and argue its impact in the case of high relationship conflict. Here, owners may have little left to lose in reference to SEW and may focus more on financial wealth. Indeed, when the probability and size of gains outweighs losses the decision makers tendency toward loss aversion decreases and the preference for prospective gains increases (Gómez-Mejía et al., 2014), as would be the case here. This reference shift to financial gain, will lead to increased subjective valuations, as owners focus on financial wealth as the primary means of compensation for firm value in addition to including the value of lost SEW. Thus, the combination of a focus on financial wealth as well as the desire to price in socioemotional cost, will lead to higher valuations.

Accordingly, we hypothesize a U-shaped relationship, in which subjective valuations are higher when relationship conflict is high or low, and subjective valuations are lower when relationship conflict is moderate. Formally stated,

Family and Firm Name Congruence and Valuation in Family Firms

Organizational identity captures the most central, distinctive, and enduring characteristics of an organization (Albert & Whetten, 1985). Scholars suggest that, in the case of family firms, a high degree of overlap between family identity and firm identity is often present (Dyer & Whetten, 2006; Zellweger et al., 2010). Yet it is widely recognized this sense of shared identity varies considerably among family firms (Sundaramurthy & Kreiner, 2008), implying that a strong linkage between family and firm identity cannot be assumed strictly on the basis of ownership considerations.

Some families actively seek a high fit between family and firm identity (Zellweger, Nason, Nordqvist, & Brush, 2013). For example, families may use symbolism, infuse family values in the business, and employ family members in key roles to foster integration between family and business identities (Sundaramurthy & Kreiner, 2008). More specifically, visibility of the family name as part of the firm name is one of the most potent means families use to reinforce the connection between family and firm identities in the eyes of family members, as well as external stakeholders (Deephouse & Jaskiewicz, 2013). The family name stands as perhaps the most central, distinctive, enduring, and visible characteristic of the family. As such, we argue that, when families use the family name as the firm name, they do so with the goal of increasing the strength and visibility of the bond between family and firm identities (De Massis, Kotlar, Mazzola, Minola, & Sciascia, 2018; Sundaramurthy & Kreiner, 2008). As a consequence, family and firm name congruence is not only an observable signal of high identity congruence (e.g., Deephouse & Jaskiewicz, 2013; Zellweger et al., 2010) but also closely associated with behavioral consequences of the family firm often designed to enhance SEW (De Massis et al., 2018; Deephouse & Jaskiewicz, 2013).

Indeed, scholars have shown that family and firm name congruence is associated with higher importance of SEW to family firm owners (Cabrera-Suárez, Deniz-Deniz, & Martin-Santana, 2014; Zellweger et al., 2013). In turn, family owners make decisions aimed at fulfilling noneconomic goals and increasing SEW (De Massis et al., 2018). Although the owners’ emphasis on enhancing SEW may create a potential trade-off between socioemotional and financial wealth (De Massis et al., 2018), evidence also suggests a positive association with the owners’ subjective assessments of performance (Zellweger, Kellermanns, Eddleston, & Memili, 2012). For example, family firm name congruence is associated with increased corporate social responsibility and philanthropic activities aimed at promoting the visibility of the family and firm in the community (Campopiano, De Massis, & Chirico, 2014). The goodwill and reputational effects generated by these activities provide positive feedback to the family firm owners, increasing SEW (Campopiano et al., 2014; Kotlar & De Massis, 2013). The increased pursuit of SEW and the closer perceived ties to the family firm should consequently result in higher perceived subjective valuation of the firm by its owners. Formally stated,

The Interaction of Name Congruence With Relationship Conflict on Subjective Valuation

We argue that name congruence interacts with relationship conflict to affect the subjective valuation of the family firm. At lower levels of relationship conflict, or its absence, name congruence has likely only a limited reinforcing impact, as all is well and SEW-related benefits can be obtained by the family. However, the presence of name congruence affects the U-shaped relationship in a more complex manner at moderate or higher levels of relationship conflict, as we outline below. Name congruence heightens awareness of the efforts family members have made in building the firm and the loss of SEW tied to the family’s identity if the firm is to be sold (Zellweger, Kellermanns, Eddleston, et al., 2012). When faced with the prospect of selling the business and the loss of SEW, owners may be more willing to endure the negative aspects of relationship conflict in order to retain SEW associated with control of a firm that bears the family’s name. Furthermore, it has been argued that negative expressions of affect embedded in moderate relationship conflict are socially acceptable in settings where the actors are interdependent (e.g., Rusbult & Lange, 2003). Supporting such a perspective, Yang and Mossholder (2004) propose that a wider range of emotional displays becomes acceptable when interdependencies exist because members are more familiar with the signals used to express strong feelings. Not only does the family provide a framework for interdependence, name congruence of the family with the firm heightens this interdependence as any action that affects the firm simultaneously affects the family members bearing this name. Accordingly, name congruence increases the salience of the strong linkages and interdependence between family and firm, effectively dampening the negative effects of moderate relationship conflict on the subjective valuation of the family firm. Furthermore, based on the mixed gamble logic, name congruence should lead to more perceived vulnerability of the family member. Accordingly, at moderate levels of conflict, this is likely to lead to a shift of the reference point toward a financial preference (see also Gómez-Mejía et al., 2018; Kotlar et al., 2018).

At high levels of relationship conflict, however, we reason that family members would exhibit a more negative relationship between relationship conflict and subjective firm valuation in the face of name congruence. Family and firm name congruence blurs the boundaries between family, firm, and individual owners, making it more apparent to external parties that the firm is not controlled by an anonymous group of shareholders but by a personal and identifiable social group (Zellweger et al., 2013). In this situation, relationship conflict has direct negative consequences that may cause the reputation of the family and the firm to be irreparably damaged and thus may lead to an inclination to move away from the situation (De Dreu & Van Vianen, 2001). Indeed, as relationship conflict becomes more acute it is likely to have a negative spillover effect on owners’ relationships with other internal and external stakeholders. For example, owners could lose face and social standing inside and outside the family if they are seen as the cause or even as primary actors in intractable family conflicts (e.g., Fiol, Pratt, & O’Connor, 2009). Furthermore, when expectations for potential improvement in relationships within the family or with external stakeholders are remote, it likely affects the ability to accumulate SEW in the long run and also negatively affects financial performance (Eddleston & Kellermanns, 2007), thus leaving the individual with only a loss perspective, resulting in lower overall evaluation of the value of the firm. Formally stated,

Method

Our sample includes 149 CEO owners of family firms located in Germany. We obtained the initial sample frame of 4,000 family firms from an accounting firm. The frame included firms with substantial ownership by a family, family member, or community of heirs. Two mailings yielded 349 questionnaires, representing 326 distinct, privately held family firms. As the focus of our study centers on relationship conflict among family members in a firm, we further restricted the sample to those cases where there are two or more family members working in the firm. Out of the 349 respondents, we had 149 respondents from firms that met these conditions and who provided estimates of the price they would be willing to sell the firm to an outside party (our dependent variable). These 149 respondents form the sample of the present study. The overall response rate of 8.7% (349 respondents out of 4,000 originally contacted) is lower than we desired. Family firm studies, in general, suffer from low response rates, particularly when inquiries involve highly sensitive data (e.g., Chrisman, Chua, & Litz, 2004). Our response rate and sample size compare favorably with prior studies investigating acceptable sale prices (e.g., Horowitz & McConnell, 2002), however.

Results

Table 1 shows means, standard deviations, and zero-order correlations of our sample. We tested our hypotheses using hierarchical regression analysis (see Table 2). In Models 1 to 4, the natural logarithm of the acceptable sale price for a sale to a nonfamily member was the dependent variable. Model 1 includes the control variables. The independent variables relationship conflict and its squared term were added in Model 2, and name congruence was added in Model 3. In Model 4, the interaction terms were introduced. The variance inflation factors for our variables did not exceed 2.4, suggesting that multicollinearity is not a concern. Furthermore, with an alpha of .05, 22 total predictors, and assuming moderate effect sizes, we obtained a power level of .75, which is in line with general power levels in strategic management research (Mazen, Hemmasi, & Lewis, 1987). Moreover, as shown below, we obtained statistical support for most of our hypotheses, which further mitigates power related concerns.

OPEN IN VIEWER

Table 1.

Correlation Matrix, Means, and Standard Deviations (N = 149).

	M	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16
1. LN WTA (nonfamily)	15.76	1.58
2. LN WTA (family)	15.16	2.12	.728**
3. Performance	1098751.33	3523758.86	.489**	.432**
4. LN (Total Asset)	15.29	1.49	.639**	.417**	.484**
5. Past performance	4.95	1.21	.342**	.367**	.181*	.210*
6. Size (No. of employees)	437.18	2190.13	.347**	.288**	.271**	.343**	0.072
7. Manufacturing	0.39	0.49	.270**	0.128	0.132	.169*	0.078	−0.044
8. Service	0.46	0.51	−0.024	0.092	0.115	−0.088	−0.034	0.088	−.572**
9. Long-term orientation	5.16	1.26	.429**	.444**	.254**	.256**	.297**	0.145	0.138	−0.063
10. Private benefits	9.97	0.94	0.158	.183*	0.110	0.074	0.048	0.008	0.143	−0.005	0.114
11. Firm age	54.09	44.6	.411**	.264**	.194*	.264**	0.043	0.067	.201*	−0.134	.214**	0.111
12. No. of family employees	2.52	1.25	0.071	0.048	−0.056	−0.010	−0.022	−0.018	0.117	−0.055	0.052	0.061	0.036
13. CEO age	51.94	11.52	0.016	0.125	0.111	−0.051	0.007	−0.081	0.034	0.024	0.071	0.002	0.043	0.071
14. Positive emotions	5.79	1.17	.200*	0.134	0.090	0.131	0.074	0.078	0.092	−0.008	.314**	−0.081	0.148	0.039	0.092
15. Personal ownership	66.00	30.67	−.269**	−.251**	−.279**	−.366**	0.127	−.183*	0.042	−0.055	−0.031	.164*	−0.157	−0.137	0.053	−0.051
16. Relationship conflict	2.75	1.21	−0.005	−0.048	−0.040	0.059	−0.025	0.055	−0.134	0.017	−0.033	0.023	0.048	.232**	0.052	−0.149	−0.120
17. Name congruence	0.55	0.50	0.009	0.075	−0.045	−0.104	0.120	−0.067	0.027	−0.005	0.134	0.127	.169*	.229**	0.092	0.044	0.053	−0.001

Note. LN WTA = logarithm willingness to accept.

*

Correlation is significant at the .05 level (two-tailed). **Correlation is significant at the .01 level (two-tailed).

OPEN IN VIEWER

Table 2.

Results of Hierarchical Regression Analysis for the Subjective Value of the Firm When Sold to a Buyer From Outside the Family.^a,b

	Model 1	Model 2	Model 3	Model 4
Constant	.171*	.181*	.181*	.194*
Performance	.000 †	.000*	.000*	.000 †
LN (total asset)	.430**	.407**	.406**	.388**
Past performance	.167*	.141 †	.143 †	.134 †
Size (No. of employees)	.000*	.000*	.000*	.000*
Manufacturing	.520*	.581*	.581*	.668**
Service	.411*	.446*	.446*	.501*
Long-term orientation	.151*	.201*	.202*	.215**
Private benefits	.051	.049	.050	.070
Firm age	.006**	.007**	.007**	.006**
Share of personal ownership	−.005	−.004	−.004	−.003
No. of family employees	.132 †	.101	.102	.127
CEO age	.001	.002	.002	.001
Positive emotions	.035	.060	.059	.085
Relationship conflict		−.679*	−.682*	−.539 †
Relationship conflict squared		.105*	.105*	.081 †
Name congruence			−.015	−.031
Name congruence × relation conflict				1.406*
Name congruence × relation conflict squared				−.225*
Adjusted R2	.584	.593	.590	.604
Change in R2		.014 †	.000	.018*
F statistic	15.683	18.101	18.107	21.208
Change in F statistic		2.418 †	.006	3.101*

Note. LN = logarithm. N = 149, unstandardized regression coefficients.

a

Dependent variable: “What is the minimum acceptable sale price when sold to nonfamily members?” ^bAll variables, except name congruence, were centered prior to the analysis.

†

Coefficient is significant at the .1 level (two-tailed). *Coefficient is significant at the .05 level (two-tailed). **Coefficient is significant at the .01 level (two-tailed).

Model 1 shows subjective valuations are significantly related to the financial control variables: natural log of total assets (β = .430; p < .01), past performance (β = .167; p < .05), manufacturing (β = .520; p < .05), service (β = .411; p < .05), long-term orientation (β = .151; p < .05), and of size (β = .000; p < .05). Firm age (β = .006; p < .01), the number of family employees (β = .132; p < .1), and performance (β = .000; p < .1) are positively related to subjective valuations. The adjusted R² is .584.

To test Hypothesis 1, we added relationship conflict (β = −.679; p < .05) and relationship conflict squared (β = .105; p < .05) to our model. Model 2 explains significantly more variance (adjusted R² = .593) and supports our hypothesized U-shaped relationship between relationship conflict and the subjective value of the firm for sale to a buyer outside the family.

In Model 3, we add name congruence and found no statistical significance, indicating a lack of support for Hypothesis 2. In Model 4, we include the interactions between name congruence and the linear and quadratic terms of relationship conflict. In support of Hypothesis 3, both the linear (β = 1.406; p < .05) and quadratic terms are significant, with the sign for the quadratic term turning negative (β = −.225; p < .05). The adjusted R² of Model 4 reaches 0.604.

In order to facilitate the interpretation of our findings, we have plotted the relationships in Figure 1 following guidance by Cohen, Cohen, West, and Aiken (2003). The plot suggests that with name congruence an inverted U-shaped relationship between relationship conflict and acceptable sales price exists, while in organizations with differences between the last name and the family name the relationship is U-shaped. Both curves intersect at moderate levels of relationship conflict. Furthermore, we need to note that both curves are truncated on the right side.

OPEN IN VIEWER

Figure 1.

Relationship conflict, name congruence, and subjective firm valuation.

Discussion and Conclusion

We investigate the impact of relationship conflict and family firm name congruence on the monetary value family owners attach to their firms and demonstrate that relationship conflict negatively interacts with name congruence to affect the subjective valuation of the family firm’s sale price. Specifically, we observed a U-shaped relation between relationship conflict and subjective valuation, providing support for Hypothesis 1. We found that name congruence did not have a direct impact on acceptable sale prices, not supporting Hypothesis 2. It is possible that the effects of name congruence are only salient in interaction with other variables. Name congruence is something individuals would take for granted, unless cognitive processes make the consequence of the name noticeable and thus affect the positive or negative valence of the interacting variables. This is consistent with our next hypothesis. Our third Hypothesis postulates an interaction effect between name congruence and relationship conflict and was supported (see Figure 1). In the absence of family name congruence, relationship conflict and subjective firm valuations are related in a U-shaped manner. In contrast, in the presence of name congruence this relationship is reversed to an inverted U-shaped effect. When the family and firm share the same name, moderate conflict heightens perceived vulnerability that these family members experience causing them to shift their reference points to more financial concerns (see also Gómez-Mejía et al., 2018; Kotlar et al., 2018). We surmise from our findings that such increased awareness of the inextricable link between family and firm leads to increased valuations of the firm and indeed may be the catalyst for an increased commitment to more effectively manage conflict (Bodtker & Jameson, 2001). But as relationship conflicts become more severe, owners apparently begin to realize the high potential for negative spillovers that could jeopardize the family’s reputation and the future value of the firm. When this occurs, family owners may view selling the firm as an opportunity for certain gain vis-à-vis the anticipated future loss of both socioemotional and financial wealth. In short, by unearthing contingency effects, we show how socioemotional costs do not function the same way for all family firms, highlighting the need to better understand the potential negative aspects tied to SEW (Kellermanns, Eddleston, & Zellweger, 2012) and showing the applicability of the mixed gamble logic (Gómez-Mejía et al., 2014; Gómez-Mejía et al., 2018; Kotlar et al., 2018) to relational constructs.

Our findings make several important contributions to the literature. First, our study adds to the SEW literature by showing that socioemotional costs influence the value perceptions of family firm owners in a manner that is more complex than suggested in prior work (Gómez-Mejía et al., 2007; Zellweger, Kellermanns, Chrisman, et al., 2012). Drawing on mixed gambles, BAM, and prospect theory as parts of the wider SEW literature, we help to further understand the interrelationship between financial and socioemotional wealth and the trade-off relationships among them (see also Kotlar et al., 2018). We demonstrate that owners’ reference points may be sensitive to socioemotional costs, that these costs are not perceived the same way by all family firms and that the effects are nonlinear. Socioemotional cost, as induced by relationship conflict and based on contingencies lead to higher or lower valuations. Not only does this support the realization of the growing importance of investigating family firm heterogeneity (e.g., Chua et al., 2012; Stanley et al., 2017) but also the need to more fully capture psychological aspects inherent in SEW (Jiang, Kellermanns, Munyon, & Lane, 2018). Therefore, our study not only suggests that socioemotional reference points and acceptable sale prices are a function of socioemotional benefits but are also likely shaped by current, future, and even previously incurred socioemotional costs and the way these costs are accounted for by owners.

Second, our article expands the stream of literature that suggests that family firm owners value subjective nonfinancial utilities related to the ownership stake (Foss et al., 2008; Thomsen & Pedersen, 2000; Zellweger et al., 2016). We add to the theoretical underpinnings of this claim by integrating new developments in the SEW literature (e.g., Gómez-Mejía et al., 2018; Kotlar et al., 2018; Schulze & Kellermanns, 2015). We show that family firm name congruence and the related identity linkages have an indirect rather than direct influence on the mental pricing of socioemotional benefits and costs and the trade-offs with financial values. Indeed, we shed light on the unexpected finding of Moon (2001), who shows escalating commitment even when costs cannot be recovered. Additionally, our study extends the literatures’ almost exclusive focus on the positive features of the owned asset (Nayankankuppam & Mishra, 2005). We challenge this contention by suggesting that sellers do, in some circumstances, price negative features of assets and thus add to the overall valuation literature in family firms (Kotlar et al., 2018; Leitterstorf & Rau, 2014; Zellweger & Dehlen, 2012; Zellweger et al., 2016; Zellweger, Kellermanns, Chrisman, et al., 2012).

Third, we extend the literature on relationship conflict by introducing a new class of outcome variables: the subjective valuation of a possession, in our case the family firm. So far, the conflict literature has primarily emphasized sources of conflict, quality of interaction, and conflict outcomes such as the performance of work groups. Our study suggests that relationship conflict can have much broader ramifications for family firms. Our study helps understand why some family firms endure conflicts (Gordon & Nicholson, 2008) rather than accept an “appropriate” sales price and shows that the cost of conflict is priced into the valuation. Name congruence, which is directly related to the individual’s vulnerability in mixed gambles (Gómez-Mejía et al., 2014), plays an important part in the relationships. Yet, while relationship conflict is highly emotional, our data still shows that family firm owners are both rational (they value financial gains, as shown by the control variables in our regression) and self-actualizing in the sense that they seek restitution for forgone efforts and frustrations. Yet this behavior (i.e., seeking restitution) is not seen as rational by third parties (e.g., external buyers) and may, thus, lead to inefficiencies in the market for corporate control.