Does Concentrated Shareholding Impact Family Firm Internationalisation?

Abstract

This article investigates whether increase in concentrated shareholding impacts the internationalisation of family firms. Based on a multi-theoretic approach and using zero inflated beta model on a panel data set covering 307 largest Indian listed companies, we observe that concentrated ownership, adverse employee relations and business group affiliation discourage internationalisation. But as family shareholding exceeds 50%, concentrated ownership has an indirect positive balancing impact on internationalisation. Besides, status as a family firm has a significant favourable impact on internationalisation and it moderates the impact of concentrated ownership, adverse employee relations and group affiliation on internationalisation.

Keywords

Ownership concentration family business international business business group affiliation employee relations

Introduction

Internationalisation has drawn substantial attention from family business researchers of late, but it has not developed as much as general management literature (Casprini et al., 2020). Prior studies confirm mixed opinions relating to family firms’ performance on internationalisation (Debellis et al., 2021; Kontinen & Ojala, 2010; Pukall & Calabrò, 2014; Thukral & Jain, 2021). Besides, the extant literature on the impact of concentrated shareholding on family firm internationalisation have produced mixed results ranging from U-shaped (Liang et al., 2014; Santulli et al., 2019) to inverted U-shaped (Mitter et al., 2014) relationship. As we apprehend that export intensity may vary at different levels of concentrated family shareholding, it is significant to explore whether the impact will vary at different levels of founder shareholding, that is, those with shareholding up to 26%, those with shareholding between 26% and 50% and those with shareholding more than 50% up to 75%. With increase in family shareholding, the impact of factors on export intensity may not be the same. Therefore, we explore how export intensity changes with increasing levels of family founder shareholding and whether the favourable/unfavourable factors driving exports gain/lose significance at different levels of ownership concentration.

Family firms pursue unique human relations practices resulting in mutualism in their relationship with their employees. Favourable work environment enables better productivity and quality thereby facilitating exports. However, the impact of employee relations on internationalisation is yet to be explored.

Firms facing total absence of exports significantly differ from firms having different levels of exports. Prior studies have examined export intensity, but none of the studies have explored the distribution of export intensity which ranges between 0 and 1, that is, absence and presence of exports. The logic is that we can often think of proportions of 0 or 1 as qualitatively different and generated through a different process as the other proportions. However, most of the studies have used tools such as Tobit which does not capture the impact of absence of export vs. presence of exports. Zero one inflated beta model fits, by maximum likelihood, a zero one inflated beta distribution to a distribution of a variable which ranges between 0 and 1 and it will estimate the probabilities of having the value 0 and/or 1 as separate process. Therefore, it is a pertinent to use zero inflated beta model to investigate proportion of export intensity of family firms Further, this can facilitate to highlight the contrasting impact of higher levels of concentrated ownership on internationalisation.

Therefore, we analyse the internationalisation of family firms using the zero inflated beta model and investigate the impact of different levels of concentrated shareholding and adverse employee relations on family firm internationalisation. As recent studies have highlighted the purported negative repercussions of group affiliation on firm performance and entrepreneurial orientation (Aggarwal et al., 2019; Purkayastha & Gupta, 2023), we also consider the impact of group affiliation on internationalisation. The average concentrated founder ownership (Bansal & Thenmozhi, 2020) and affiliation to business groups (BGs) are high in India. Therefore, the Indian setting is appropriate to study these aspects.

Using a panel data set covering 307 largest Indian listed companies over 6 years, we found that family firms’ status positively impacts internationalisation. However, our results indicate that concentrated ownership and BG affiliation discourage internationalisation and as family shareholding exceeds 50%, concentrated ownership has an indirect positive balancing impact on internationalisation. We also found that adverse employee relations have a negative impact on internationalisation. Moreover, our results confirm an indirect positive moderating impact of family firm status on the impact of concentrated shareholding, adverse employee relations and group affiliation on internationalisation. We also unwrap the heterogeneity among family firms, as the level of shareholding determines the extent of principal-to-principal and principal-to-agent conflicts that impact efficient resource deployment for internationalisation.

This article makes the following contributions to the literature: Following extant studies, which use a multi-theoretic approach to study family firm internationalisation (Gaur & Delios, 2015; Purkayastha et al., 2018; Singla et al., 2017), we integrate agency theory, stakeholder theory, theory of socioemotional wealth (SEW) and the resource-based view of the firm and found that concentrated ownership has simultaneous but contrasting impact on internationalisation—while restricting the internationalisation capabilities, it also ensures that the ‘international firm’ tag continues by ensuring exports do not converge towards zero at higher levels. By highlighting the contrasting impact of concentrated ownership for the first time using the zero inflated beta model, we contribute to the literature on internationalisation. Using the zero inflated beta model, we establish the rationale for total lack of internationalisation and the rationale for different levels of internationalisation separately, adding to the novelty. For the first time, we investigated and found out the impact of employee relations on internationalisation in an empirical study. We also found that status as a family firm, in addition to having a direct positive impact on internationalisation, also has a positive moderating impact on the negative effects of concentrated ownership, adverse labour relations and group affiliation on internationalisation.

Development of Hypothesis

Family Firm Status and Internationalisation

In their pursuit of SEW, family firms optimise non-economic goals for the betterment of the family as against the business. Family firms prioritise potential loss of SEW over potential financial losses (Berrone et al., 2012). Due to their hesitation in diluting the family stake in ownership and management, and their tendency to prefer family managers to outside professionals for filling up managerial positions, they face financial and managerial resource constraints (Fernández & Nieto, 2005). The lack of resources may impact internationalisation negatively.

Family firms’ long-term orientation (LTO) even while helping innovation and autonomy is expected to limit their risk taking and competitive aggressiveness (Lumpkin et al., 2010). Even though family firms have an LTO, they are also considered to be risk averse and less keen on pursuing fresh opportunities (Riviezzo et al., 2015). Family firms are conventional and resistant to risk taking. While higher levels of innovation and autonomy will help internationalisation (Claver et al., 2009), risk aversion will favour focus on local rather than foreign markets unless confining to local markets is considered a higher risk. Family firms’ risk aversion is expected to be ameliorated by the participation of later generation and non-family members in management (Claver et al., 2009; Fernández & Nieto, 2005).

Decision-making in family firms is driven by the expected impact of such decisions on the firm’s (and family’s) basic beliefs. SEW is often mentioned as the differentiating factor between family and non-family firms (Debicki et al., 2016). Major decisions believed to be influenced by SEW in the family firm context include international diversification (Gomez-Mejia et al., 2010). However, the level of importance attached to SEW by different families would be different with differing levels of impact on strategic decisions like diversification mentioned above as also internationalisation (Debicki et al., 2016). Acknowledging the quid pro quo between internationalisation and SEW, Kraus et al. (2016) found that there exist several ways to attain higher levels of internationalisation by using external resources even at the same level of SEW endowment.

Differentiating between present and future SEW, Yang et al. (2020) found a more pronounced negative impact of SEW on export propensity than on export intensity. Another view is that SEW, by itself, does not impact family firms’ internationalisation. Bifurcation bias, which distinguishes between family and non-family resources has a role to play. The personal standards of family owners and non-family employees and the comprehensive societal standards affect the consequences of bifurcation bias, which in turn determine if SEW has a positive or negative impact on internationalisation (Verbeke et al., 2020).

Globalisation of economies worldwide throws up a new challenge to family firms by making confinement to local markets riskier than internationalisation. Alliances and government aid assist family firms to innovate with lower risks (Yıldız et al., 2021). The intention of family firms being to ensure survival and growth across generations, innovation has been found to augment their entrepreneurship capabilities (Diaz-Moriana et al., 2020). Although family firms minimise risk in general, based on their willingness to take additional risk when SEW is in trouble (Gómez-Mejía et al., 2007) and their LTO, with confinement to home markets getting riskier because of globalisation, we expect family firms to do well on internationalisation and formulate our first hypothesis as follows:

H₁: There will be a positive relationship between family firm status and internationalisation.

Concentrated Ownership and Internationalisation

Results of previous studies on the impact of promoters’ involvement in terms of ownership, board presence and management on internationalisation have been mixed. Higher ownership and family involvement in management were found to impact internationalisation favourably in some studies (Fang et al., 2018; Gaur & Delios, 2015; Purkayastha et al., 2018; Zahra, 2003) and in some other studies, the negative impact was moderated/worsened by specific factors (Alessandri et al., 2018; Claver et al., 2009; Fernández & Nieto, 2005; Naldi & Nordqvist, 2008; Ray et al., 2018; Singla et al., 2017; Yang et al., 2020).

The relationship between family involvement and internationalisation was found to differ among studies—J-shaped (Sciascia et al., 2013), inverted U-shaped (Mitter et al., 2014), U-shaped for family ownership and inverted U-shaped for family management (Liang et al., 2014) and U-shaped for family ownership (Santulli et al., 2019).

The level of shareholding influences the degree of synchronisation of interests between owners and managers in order to eliminate agency problems arising because of the separation of ownership and control. Concentrated shareholding minimises principal–to–principal differences. In the family firm context, the family’s LTO (Lumpkin et al., 2010), their preference to treat various stakeholders with long-term interests in mind (Miller et al., 2008) and their intention to preserve SEW (Gomez-Mejia et al., 2010; Liang et al., 2014) should be higher at higher levels of shareholding thereby impacting internationalisation favourably. While block holders in larger firms are likely to exhibit higher dedication in providing the required resources for successful internationalisation, resulting in positive impact of block holders on internationalisation, in the case of smaller firms the related risk makes it work in the opposite direction (Miravitlles et al., 2018).

Keeping in mind the overwhelming negative influence of concentrated ownership found in previous studies coupled with the expected positive impact of family firm status, we formulate our next hypothesis as follows.

H₂: Family firm status moderates the impact of concentrated ownership on internationalisation.

Employee Relations and Internationalisation

Improved employee relations impact productivity positively (Buchele & Christiansen, 1999). Family firms treat their stakeholders, including employees, with the long-term interests in mind (Miller et al., 2008). This should positively help internationalisation since quality (Crinò & Epifani, 2012) determines the destination of goods in the international markets and quality and productivity are best achieved through a motivated, cooperative work force that believes in and works alongside the management.

Despite paying comparatively lower wages, family firms make up for it through indirect assurances on tenure of service (Sraer & Thesmar, 2007). Even if family firms were to cut jobs due to exigencies, the short-term impact of such action is minimal (Stavrou et al., 2007). Job stability is higher in family-owned companies and they care more for their repute while dealing with their employees (Block, 2010). Since family firms rely less on head count reduction and instead reduce further hiring, if needed, they manage to offer better job security despite paying less on a comparative basis (Bassanini et al., 2013). Retrenchment wields noteworthy negative influence on firm reputation (Love & Kraatz, 2009), even as the family members are inspired to seek good reputation for the family firm (Deephouse & Jaskiewicz, 2013). Family firms resort to retrenchment or salary roll back to a lesser extent (van Essen et al., 2015) also in order to safeguard SEW by exhibiting their social responsibility (Sanchez-Bueno et al., 2020).

Adverse employee relations will impact productivity and quality negatively with negative impact on internationalisation. Given the positive slant in employee relations in family firms, we expect family firm status to have a positive moderating effect on the negative impact of adverse employee relations on internationalisation. Therefore, we formulate our next hypothesis as follows.

H₃: Family firm status moderates the impact of adverse employee relations on internationalisation.

BG Affiliation and Internationalisation

Group affiliation, as another peculiar aspect of family firms can play a positive as well as negative role. While BG affiliation facilitates networking thereby improving sourcing and sharing information which must aid internationalisation (Yaprak & Karademir, 2010), it may help internationalisation only up to a limit beyond which BG characteristics prevent FDI possibilities (Yiu et al., 2013).

Group firms can be the source for reliable information and facilitate networking with the relevant connections which can greatly aid internationalisation. Group affiliation also improves trustworthiness from the business partner’s perspective thereby helping group firms internationalise (Lamin, 2013). Members of BGs do better at innovation due to sharing of technical knowledge and financial resources (Chang et al., 2006). Higher level of innovation facilitates internationalisation (Claver et al., 2009). Having a BG affiliated local partner has been found to help performance of the International Joint Venture (Lu & Ma, 2008). BG affiliation positively impacts the effect of innovation on export performance (Yi et al., 2013).

Literature on BGs from emerging markets is focused on BGs substituting for the lack of institutional support referred to as institutional approach, BGs help in getting over market imperfections referred to as market approach and BGs having more resources at their command than standalone firms referred to as resource-based approach (Yaprak & Karademir, 2010). Support in terms of resource and market approach implies group affiliation should help internationalisation. Horizontal and vertical linkages among group members have been found to impact asset seeking and market seeking internationalisation strategies (Yiu et al., 2013). BG affiliation helps transform higher levels of R&D spending into higher levels of internationalisation (Purkayastha et al., 2018).

Earlier studies on BG affiliation in the context of internationalisation have focused more on the impact of such affiliation on performance than on internationalisation as such (Gaur & Delios, 2015; Gaur & Kumar, 2009; Iona et al., 2013; Singla & George, 2013). While group affiliation by itself does not influence longevity of foreign subsidiaries, it was found to impact longevity in conjunction with the maturity level of the country of location (Garg & Delios, 2007). Firms affiliated to BGs find it easier to upgrade from exports to making foreign direct investment (Gaur et al., 2014). Since BGs act as channels for dissemination of knowledge and financial resources, members of a BG who are closely integrated will exhibit homogenous levels of internationalisation (Shukla & Akbar, 2018).

Previous studies discussing pros and cons of BGs in the context of internationalisation, while acknowledging internal market and within group past learning experiences as aids for internationalisation, identified self-regard, intricacies and lack of flexibility as negative factors resulting in conflicting conclusions on the impact of BG affiliation on internationalisation (Holmes et al., 2018).

However, there exist significant differences between BG and family BG. In comparison, family firms and BG affiliated firms have only one thing in common—common ownership. There are many differences. Family firms are reputed for their LTO (Hiebl & Martin, 2013; Lumpkin et al., 2010), whereas all BGs may not necessarily focus on the long term. The SEW (as relevant in the family firm context) is different from non-economic goals of managers in non-family firms (Gómez-Mejía et al., 2018). Compared to a non-family firm, when taking risky decisions, what is at stake in a family firm is not only the financial resources invested in the family firm, which the family will lose, but also the other non-economic benefits derived out of the family firm, collectively referred to as SEW (Kempers et al., 2019). Hence, SEW takes centre stage for the family firm owners unlike BGs, in strategic decision-making. Family members associate themselves more intensely with the family firm, as compared to non-family members within family or non-family firms (Deephouse & Jaskiewicz, 2013), and hence the emotional quotient attached to decision-making also varies.

As the institutions and markets develop in countries and as the capability of firms to access resources improves, it is likely that the positive effects of group affiliation get reduced with respect to internationalisation. In spite of benefits which group affiliation carries, it can induce agency conflicts leading to enrichment of major shareholders at the cost of group firms, more so in emerging markets (Aggarwal et al., 2019). Hence, we hypothesise that group affiliation will have a negative impact on internationalisation moderated by family firm status.

H₄: Family firm status moderates the impact of group affiliation on internationalisation.

Data and Methodology

The sample comprises companies constituting the NIFTY 500 index of the National Stock Exchange of India (NSE) for the 6-year period from 2013 to 2018. This group of companies represents the 500 largest listed companies in India. We excluded companies in sectors such as utilities, financial services, etc., and companies with incomplete data, resulting in the final data set of 307 companies covering six years, giving a total of 1,842 data points. The financial data was obtained from the Prowess database maintained by the Centre for Monitoring Indian Economy. Shareholding data for determining the family firm status of the companies was downloaded directly from the website of NSE.

Measurement of Variables

Dependent Variable

Internationalisation is measured as the proportion of exports to total revenue which is one of the commonly used measures. Hence, the dependent variable can be 0, 1 or anywhere in between 0 and 1.

Independent Variables

Status: Family firm is defined as one in which one or more families together hold a minimum of 26% of the share capital (enough according to Indian laws to ensure stability of ownership/management) with at least one family nominee on the board. Family involvement in the firm is characterised by a dummy variable, which is coded 0 for a non-family firm and 1 for a family firm.

Shareholding is the percentage of shares held by the promoters and is collected from the Prowess database.

Labour represents adverse employee relations: We have used a unique data set of labour disputes disrupting the functioning of the company reported to the stock exchange by the listed companies. Dummy variable carries the value 1, if the company has reported any labour dispute, and 0, if none.

Group affiliation: It is taken as classified by the Prowess database. Dummy variable is used, which carries the value 1 if affiliated to BG and 0 otherwise.

Interaction Variables

We include the interaction between status as family firm and adverse employee relations, BG affiliation and promoter shareholding, to understand whether it has a moderating effect.

Control Variables

In line with earlier studies (Liang et al., 2014; Naldi & Nordqvist, 2008; Singla & George, 2013; Sirmon et al., 2008; Zahra, 2003), we adopt the following control variables: firm size, firm age, R&D intensity, firm performance measured by cash profit and financial status measured by leverage and cash holding. We measure firm size by log of assets; firm age is calculated as the number of years since incorporation, and R&D intensity as proportion of R&D costs to total revenue. Cash profit is calculated as profit after tax plus depreciation divided by total assets. Leverage is calculated as long-term borrowing divided by the total assets. Cash holding is calculated as the total of bank balances and short-term investments divided by total assets. We also include industry and year dummies.

Methodology

As export intensity is a proportion which takes values from 0 until 1, including any of the values in between 0 and 1, the zero inflated beta model has been used for analysing the factors driving export intensity of family firms.

The ‘zero-one inflated beta’ model (ZOIB), has been chosen since it is highly flexible and recognises three different processes taking place. One is a process that distinguishes between zeros and non-zeros. In our context, it accepts that there exist factors that differentiate between companies that export and those that do not export at all. Another process distinguishes between ones and non-ones. In our context, this indicates differences that exist between companies that are wholly export oriented and those that are not. The third process determines how much export a company does, if it is engaged in exports. The models for level of exports run separately and they can have their own set of predictors and their coefficients. As our sample contains no firm that derives the whole of its revenue from exports, we ran the command with zero inflated model alone with robust option. We estimated the zero inflated beta model via Maarten Buis’s ZOIB programme in Stata (Buis, 2010), which fits, by maximum likelihood, a zero–one inflated beta distribution and takes into account heteroskedasticity. We believe that the factors influencing zero exports can be different from those that influence low, moderate and high exports as against a firm that is completely export oriented and hence we felt justified in using this model. We explore the relationship between status as a family firm, the level of promoter shareholding, employee relations and BG affiliation with internationalisation using the zero inflated beta model.

{Export}_{i,t} {= β}_{0} {+ β1 size}_{i,t} {+β2 cashprofit}_{i,t} {+ β3 cashholding}_{i,t} {+ β4 leverage}_{i,t} {+ β5 rd}_{i,t} {+ β6 age}_{i,t} {+ β7 group}_{i,t} {+ β8 status}_{i,t} {+ β9 shareholding}_{i,t} {+ β10 labour}_{i,t} {+ year}_{t} {+ Inddummies + є}_{i,t}

Results

The descriptive statistics are given in Table 1. The average promoter shareholding was around 43%. Around 63% of the firms were classified as family firms, in accordance with our definition and 64% of the firms belonged to a BG. There were nine instances of employee disputes reported during the period.

Table 1.

Descriptive Statistics.

Variable	Obs	Mean	Std. Dev.
Export	1842	0.155	0.248
Shareholding	1842	0.429	0.249
Labour	1842	0.005	0.070
Status	1842	0.635	0.482
Size	1842	4.614	0.605
Rd	1842	0.016	0.122
Age	1842	42.174	23.146
Group	1842	0.642	0.480
Cash profit	1842	0.109	0.090
Cash holding	1842	0.122	0.142
Leverage	1842	0.081	0.108
Correlation Matrix
Variables	Export	Size	rd	Age	Leverage	Cash Profit	Cash Holding
Export	1
Size	−0.043	1
Rd	0.081*	−0.080*	1
Age	−0.142*	0.115*	−0.070*	1
Leverage	−0.012	0.301*	−0.050*	0.003	1
Cash profit	0.095*	−0.177*	−0.227*	−0.048*	−0.383*	1
Cash holding	0.069*	−0.058*	0.042	−0.01	−0.360*	0.373*	1

Note: The sample consists of firms constituting NIFTY 500 index in NSE during the period 2013 to 2018. export = Export/Total revenue, status = 1 if family firm, else 0, labour = 1 if labour disputes reported during the year else 0, group = 1 if member of business group else 0, shareholding = percentage of shares held by Indian promoter, size = log of total assets, Rd = Research & development costs/Total revenue, age = Number of years since incorporation, leverage = Long term borrowings/Total assets, cash profit = (Profit after tax + depreciation)/Total assets, cash holding = (Bank balances + short term investments)/Total assets. *p < .1.

The results of the zero inflated beta regression are given in Table 2A and 2B. The results of the first four models are given in Table 2A and the next four models are given in Table 2B. The first model includes only the control variables. Model 2 includes the family firm status, and subsequent models add other variables. We found support for Hypothesis 1—positive impact of family firm status on internationalisation—across all models on proportion arm. Status as a family firm also has a significant negative impact on zero inflated arm across four of the models, reconfirming support for Hypothesis 1. The results suggest a significant positive impact of status as family firm on internationalisation as expected.

Table 2A.

Moderation Impact of Family Status on Concentrated Ownership and Internationalisation.

	Proportion	Zero	Proportion	Zero	Proportion	Zero	Proportion	Zero
Variables	Model 1	Model 1	Model 2	Model 2	Model 3	Model 3	Model 4	Model 4
Size	0.174**	0.156	0.178**	0.154	0.135*	0.157	0.104	0.119
	(0.070)	(0.184)	(0.069)	(0.184)	(0.069)	(0.186)	(0.072)	(0.190)
Cash profit	1.101*	−0.589	0.817	−0.407	1.023*	−0.731	1.108*	−0.729
	(0.575)	(1.281)	(0.583)	(1.285)	(0.590)	(1.303)	(0.599)	(1.327)
Cash holding	−0.521	−0.726	−0.413	−0.812	−0.533	−0.675	−0.398	−0.473
	(0.382)	(0.658)	(0.372)	(0.668)	(0.386)	(0.680)	(0.370)	(0.687)
Leverage	1.170***	1.144	0.862*	1.436	0.556	1.851	0.521	1.828
	(0.435)	(1.164)	(0.475)	(1.187)	(0.492)	(1.202)	(0.482)	(1.202)
Rd	3.797***	0.464	3.553***	0.640	3.694***	0.468	3.744***	0.497
	(0.718)	(0.539)	(0.651)	(0.579)	(0.698)	(0.543)	(0.638)	(0.546)
Age	−0.008***	−0.001	−0.007***	−0.001	−0.010***	0.001	−0.011***	0.000
	(0.001)	(0.003)	(0.001)	(0.003)	(0.001)	(0.003)	(0.001)	(0.003)
Status			0.240***	−0.263	0.459***	−0.648***	1.310***	0.104
			(0.089)	(0.203)	(0.119)	(0.235)	(0.179)	(0.404)
Shareholding					−0.824***	1.610***	−0.053	2.166***
					(0.196)	(0.443)	(0.216)	(0.528)
Labour
Labour#status
Status#shareholding							−1.983***	−1.680**
							(0.305)	(0.781)
Group
Group#status
Constant	−2.937***	−2.461**	−3.109***	−2.303**	−2.649***	−2.847**	−2.640***	−2.742**
	(0.304)	(1.070)	(0.317)	(1.083)	(0.315)	(1.119)	(0.323)	(1.134)
Year	Y	Y	Y	Y	Y	Y	Y	Y
Industry	Y	Y	Y	Y	Y	Y	Y	Y
Firm	N	N	N	N	N	N	N	N
Observations	1,842	1,842	1,842	1,842	1,842	1,842	1,842	1,842

Note: This table reports the results of the proportion arm and the zero arm of the Zero inflated beta regression. Model 1 is with control variables, Model 2 includes family status, Model 3 includes concentrated ownership and Model 4 includes moderation of family status on concentrated shareholding. Robust standard errors in parentheses. ***p < .01, **p < .05, *p <.1.

Table 2B.

Moderation Impact of Family Status on Labour Relations and Group Affiliation and Internationalisation.

	Proportion	Zero	Proportion	Zero	Proportion	Zero	Proportion	Zero
Variables	Model 5	Model 5	Model 6	Model 6	Model 7	Model 7	Model 8	Model 8
Size	0.134*	0.139	0.139**	0.137	0.178***	0.186	0.236***	0.252
	(0.069)	(0.186)	(0.069)	(0.187)	(0.066)	(0.187)	(0.068)	(0.191)
Cash profit	1.002*	−0.901	0.999*	−0.908	0.963*	−0.755	0.926*	−0.723
	(0.589)	(1.308)	(0.589)	(1.310)	(0.574)	(1.312)	(0.555)	(1.312)
Cash holding	−0.521	−0.675	−0.523	−0.675	−0.590	−0.696	−0.579*	−0.714
	(0.387)	(0.680)	(0.388)	(0.680)	(0.370)	(0.681)	(0.352)	(0.670)
Leverage	0.555	1.832	0.524	1.837	0.495	1.869	0.378	1.830
	(0.492)	(1.200)	(0.493)	(1.202)	(0.496)	(1.199)	(0.511)	(1.209)
Rd	3.689***	0.417	3.688***	0.414	3.766***	0.493	4.016***	0.638
	(0.691)	(0.536)	(0.685)	(0.536)	(0.733)	(0.553)	(0.907)	(0.589)
Age	−0.010***	0.001	−0.010***	0.001	−0.009***	0.002	−0.009***	0.003
	(0.001)	(0.003)	(0.001)	(0.003)	(0.001)	(0.003)	(0.001)	(0.003)
Status	0.455***	−0.633***	0.451***	−0.632***	0.605***	−0.558**	0.952***	0.002
	(0.119)	(0.235)	(0.119)	(0.236)	(0.144)	(0.242)	(0.189)	(0.355)
Shareholding	−0.839***	1.593***	−0.835***	1.593***	−0.855***	1.598***	−0.863***	1.576***
	(0.196)	(0.442)	(0.196)	(0.442)	(0.203)	(0.442)	(0.200)	(0.445)
Labour	−0.616	1.503***	−0.867	1.574**
	(0.670)	(0.572)	(0.681)	(0.675)
Labour#status			1.405**	−0.358
			(0.693)	(1.166)
Status#shareholding
Group					−0.298***	−0.246	0.053	0.275
					(0.101)	(0.209)	(0.124)	(0.323)
Group#status							−0.594***	−0.937**
							(0.176)	(0.402)
Constant	−2.642***	−2.737**	−2.661***	−2.731**	−2.871***	−2.952***	−3.319***	−3.508***
	(0.316)	(1.121)	(0.317)	(1.123)	(0.299)	(1.125)	(0.338)	(1.186)
Year	Y	Y	Y	Y	Y	Y	Y	Y
Industry	Y	Y	Y	Y	Y	Y	Y	Y
Firm	N	N	N	N	N	N	N	N
Observations	1,842	1,842	1,842	1,842	1,842	1,842	1,842	1,842

Note: This table reports the results of the proportion arm and the zero arm of the Zero inflated beta regression. Model 5 includes labour relations, Model 6 includes moderation of family status on labour relations, Model 7 includes group affiliation, Model 8 includes moderation of family status on group affiliation. Robust standard errors in parentheses. ***p < .01, **p < .05, *p < .1.

Model 3 includes shareholding of Indian promoters, which has a significant negative impact on the proportion arm and a corresponding significant positive impact on the zero arm, which appears logical. Shareholding of Indian promoters also displays similar relationship in all other models except one. In Model 4, when interaction between family firm status and shareholding is introduced, interaction variable between shareholding and status is negatively significant in the proportion arm. However, it is also negatively significant in the zero arm. We interpret this to mean that family involvement modifies the negative influence of the promoter shareholding to the extent that while dampening the export intensity it also discourages zero export level. The results suggest a significant negative relationship between concentrated shareholding and internationalisation, thereby supporting Hypothesis 2. It is also clear from the results that interaction variable between shareholding and family firm status has a significant negative impact on the zero arm (Model 4), thereby confirming the moderating influence of family firm status on the negative impact of concentrated shareholding on internationalisation.

Model 5 includes the impact of adverse employee relations with no significant impact of its own in the proportion arm. However the zero inflated arm supports a significant positive relationship between adverse employee relations and zero internationalisation for Model 5 and 6, which confirms our Hypothesis 3. In Model 6, the interaction between adverse employee relations and family firm status has a significant positive impact on internationalisation in the proportion arm, even as the positive and significant impact of adverse employee relations on internationalisation on the zero arm continues. We interpret this to evidence the positive moderation effect of family involvement on the negative impact of adverse employee relations. The results confirm a significant impact of adverse employee relations on zero exports, which is moderated by family firm status. Model 7 includes the effect of group affiliation and confirms a significant negative impact of group affiliation on internationalisation in the proportion arm and a negative but not significant impact on the zero arm. Model 8 that includes the interaction between family firm status and group affiliation confirms the negative impact of the interaction on zero arm evidencing the moderation effect of family firms on group affiliation confirming Hypothesis 4.

We found that family involvement has a positive impact on internationalisation, which is identical to Zahra (2003) and Sciascia et al. (2013). We further found that adverse employee relations have a negative impact on internationalisation. Revisiting the effect of group affiliation, we found a negative impact. In addition to the direct favourable impact, we also found that family involvement moderates the negative impact of concentrated shareholding, adverse employee relations and group affiliation on internationalisation. However, this relationship and findings may also be dependent on the level of shareholding held by the promoters.

Concentrated Shareholding and Internationalisation

Previous studies have yielded contrasting results on the impact of ownership on family firm internationalisation. Hence, we re-estimate the zero inflated regression by sorting the firms based on the level of Indian promoter shareholding into three groups—those with shareholding up to 26%, those with shareholding between 26% to 50%, and those with shareholding greater than 50% and up to 75%. The maximum promoter shareholding allowed in respect of listed companies in India is 75%. Hence, we chose to consider the balance firms (21 in the first year but reducing thereafter) as outliers and did not study them further. We ran our zero inflated beta models on the subsamples and results are given in Table 3.

Table 3.

Impact of Family Status at Different Levels of Concentrated Shareholding.

	Proportion	Zero	Proportion	Zero	Proportion	Zero
Variables	sh<26	sh<26	sh26–50	sh26–50	50–75	50–75
Size	0.395***	1.705**	0.052	1.020*	−0.081	−0.140
	(0.133)	(0.722)	(0.199)	(0.577)	(0.137)	(0.374)
Cash profit	3.204*	8.216	4.472**	−8.090*	−0.277	−3.073
	(1.669)	(8.525)	(1.777)	(4.642)	(0.900)	(2.333)
Cash holding	−0.966	−1.845	−1.018	1.296	−0.746	1.877*
	(0.588)	(3.727)	(2.128)	(3.473)	(0.709)	(1.054)
Leverage	−1.917**	14.39***	3.106**	0.187	−0.406	0.730
	(0.908)	(4.882)	(1.218)	(3.626)	(0.777)	(1.851)
Rd	7.758*	−116.7***	5.790**	22.32	2.987***	−0.547
	(4.315)	(33.38)	(2.428)	(16.57)	(0.534)	(0.756)
Age	−0.026***	−0.005	−0.014***	0.043**	−0.016***	−0.005
	(0.004)	(0.023)	(0.002)	(0.017)	(0.004)	(0.006)
Status	1.553**	3.830*	0.584	−2.506***	0.183	0.115
	(0.743)	(2.297)	(0.664)	(0.780)	(0.192)	(0.538)
Group	0.130	−0.503	−0.246	−0.484	−0.364***	0.475
	(0.171)	(0.911)	(0.347)	(0.631)	(0.132)	(0.437)
Labour	−0.178	1.827	0.118	2.315	0	14.48***
	(0.358)	(1.266)	(0.139)	(1.423)	(0)	(1.204)
Shareholding	−0.694	5.013	−2.257	9.772**	−5.557***	−5.350**
	(1.352)	(8.924)	(1.541)	(4.739)	(0.745)	(2.159)
	Proportion	Zero	Proportion	Zero	Proportion	Zero
Constant	−4.522***	−6.387**	−2.239*	−9.661**	1.785**	−0.483
	(0.665)	(2.850)	(1.204)	(3.985)	(0.804)	(2.806)
Year	Y	Y	Y	Y	Y	Y
Industry	Y	Y	Y	Y	Y	Y
Firm	N	N	N	N	N	N
Observations	416	416	583	583	775	775

Note: This table reports the results of the Zero inflated beta regression on sub-samples based on concentrated ownership. We re-estimate the zero inflated regression by dividing the firms based on the level of Indian promoter shareholding into three groups—those with shareholding up to 26%, those with shareholding between 26% and 50%, and those with shareholding greater than 50% and up to 75%. The maximum promoter shareholding allowed in respect of listed companies in India is 75%. Hence, we chose to consider the balance firms (21 in the first year but reducing thereafter) as outliers and did not study them further. Robust standard errors in parentheses. ***p < .01, **p < .05, *p < .1.

While confirming the earlier results (reported in Tables 2A and 2B) that shareholding of the promoters has a significant negative impact on internationalisation, we found that the impact is not uniform across different levels of shareholding. Only when the shareholding is above 26% does promoter shareholding have a significant negative impact, but it is interesting to note that at higher levels (>50% to 75%) shareholding also has a balancing indirect positive impact—which we interpret to mean that even as higher levels of shareholding do not encourage internationalisation, the intention to preserve the status as an international company reflects itself by ensuring that exports do not cease altogether.

Status as a family firm has a significant favourable impact only till the shareholding reaches 50%. Once the shareholding exceeds 50%, status as a family firm no more has a significant impact on internationalisation. On the contrary, the negative impact of adverse employee relations and group affiliation on internationalisation is significant only at higher levels of shareholding.

Robustness Checks

We conducted some robustness checks to confirm our findings. The zero–one inflated beta distribution allows for heteroskedasticity and we derived robust standard errors.

Just as family involvement influences internationalisation, internationalisation may also influence family involvement (Ray et al., 2018). Reverse causality can result in potential endogeneity. Considering the limitations in identifying sufficient number of suitable instrument variables and following Stadler et al. (2018), we restrict ourselves to control for potential endogeneity between internationalisation and family firm status. We used instrument variables regression (FRACIVP) in Stata, which estimates Fractional Response Probit models with continuous endogenous regressors. We used the square of promoter shareholding as instrument. The Wald test results indicated that internationalisation and family firm status are exogenous confirming that the earlier results (refer Table 2) hold good. The results of the instrument variable regression (refer Table 4) confirmed the significant positive impact of family involvement and the negative impact of Indian promoter shareholding but can be ignored in view of the Wald test result.

Table 4.

Robustness Analysis.

Variables	I V Regression
Status	0.510***
	(0.159)
Size	0.022
	(0.056)
Cash profit	0.570
	(0.377)
Cash holding	−0.066
	(0.230)
Leverage	0.374
	(0.351)
Rd	0.536**
	(0.257)
Age	−0.007***
	(0.001)
Shareholding	−0.795***
	(0.170)
Labour	−0.282
	(0.286)
Group	−0.090
	(0.075)
Constant	−1.843***
	(0.265)
Year	Y
Industry	Y
Firm	N
Observations	1,842
P value of Wald test	.129

Note: This table reports the results of the robustness analysis using instrument variables regression. Robust standard errors in parentheses. ***p < .01, **p < .05.

Conclusion

This article is unique in using the zero inflated model to explore the reasons for lack of exports separate and distinct from the reasons for different levels of exports. The analysis of zero arm suggests that firms do not tend to zero exports at higher levels of concentrated shareholding and the proportion arm clearly suggests that at lower level of shareholding family firms favour exports. Similarly, the zero arm also suggests that family firms do not favour zero exports when concentrated shareholding is between 26% and 50% . Use of the zero inflated beta model enables us to highlight the contrasting impact of concentrated ownership on internationalisation. Overall, we found that status as family firms positively impacts internationalisation and whereas concentrated ownership, adverse employee relations and BG affiliation discourage internationalisation, status as family firm moderates the impact and ensures greater focus on exports.

The favourable impact of status as family firm at lower levels of shareholding reflects the desire on the part of the promoters to reorient themselves with the other shareholders when their shareholding goes down and de-prioritise SEW in the process of decision-making. Given the general risk aversion of family firms (Riviezzo et al., 2015), the positive impact of family involvement suggests that family owners consider risk of confining to the local market to be greater than the risk of trying out new markets outside the country. Our findings on the impact of concentrated shareholders on internationalisation should encourage family firms aspiring to internationalise to go in for lower promoter shareholding.

Using panel data set covering 307 largest Indian listed companies over 6 years, we integrated agency theory, stakeholder theory, theory of SEW and the resource-based view of the firm and found that status as family firms positively impacts internationalisation. Our results indicate that concentrated ownership, adverse employee relations and BG affiliation discourage internationalisation. However, as the level of shareholding determines the extent of principal-to-principal and principal-to-agent conflicts that impact efficient resource deployment for internationalisation, we investigated the impact of different levels of shareholding on internationalisation. The results suggest that shareholding in excess of 50% also has an indirect positive balancing impact by ensuring that exports do not tend towards zero. Otherwise, as the shareholding goes up, we found that the favourable factors lose significance and unfavourable factors gain significance.

As expected, we also found that adverse employee relations have a negative impact on internationalisation. Interestingly, our results confirm an indirect positive moderating impact of family firm status on the negative impact of concentrated shareholding, adverse employee relations and group affiliation on internationalisation. Use of the zero inflated beta model enables us to highlight the contrasting impact of concentrated ownership on internationalisation for the first time.

Even though our focus has been on family firms’ internationalisation; we also contribute further to the literature on internationalisation through our findings especially on the effect of employee relations on internationalisation for the first time in an empirical study. This article also contributes to family firm literature through the finding of a moderating influence which family firms’ status has on the negative impact of adverse employee relations, BG affiliation and concentrated shareholding on internationalisation.

Overall, the results bring out the significance of concentrated ownership of family firms and also explain family firm heterogeneity in the case of internationalisation. Our study suggests that family firms could be willing to take risks where they are convinced about it, despite their general risk aversion and moderate the impact of adverse employee relations. The reasons for the better equation that family firms enjoy with their employees and the practices that aid them are worth studying in greater detail in view of the proven favourable impact in this study. However, the generalisability of the findings to large unlisted companies as well as smaller companies requires to be explored and the robustness of results for different measures of internationalisation would augment the results of the study.

Our findings reveal that lower levels of family shareholding have favourable impact on internationalisation. It may be worthwhile, as suggested by Thukral and Jain (2021), to examine the most desirable level of family shareholding more precisely for family firms to improve their performance on internationalisation. Values mirror the nucleus of family firms and research is yet to focus on the role of values in family firm internationalisation (Debellis et al., 2021). We have looked at the role of values in family firms internationalisation relating to various stakeholders like employees and group firms. We suggest future researchers to examine the role of values in family firm internationalisation from other perspectives.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

ORCID iDs

V. Vijayagopal

M. Thenmozhi

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