Succession issues and business performance : evidence from UK small and medium family sized businesses
Family business is the most prevalent form of business organisation and accounts for about 70% of all companies in European countries. Studies of this sector attract an unusually diverse group of researchers and practicioners. A review of the growing literature reveals that most of the recent family business studies generally discuss succession issues which may be of particular concern to family businesses, and they often lack a firm empirical basis. furthermore, there exists a shortage of studies that establish linkages between family business succession issues and business performance. The importance of this study is acknowledged by the fact that it gives empirical evidence that links the succession issues and the state of performance in small and medium sized family businesses in the UK. Specifically, this thesis tries to develop a multifaceted concept of succession and investigates its relationship with multiple dimensions of financial performance, such as return on capital employed (ROCE), return on shareholder equity (ROSE), profit margin, return on total assets (ROTA), sales growth, progit growth, employment growth and employee productivity. In the research, propositions were generated based on Morris el's (1997) model of perspectives on the relationships between succession issues, characteristics of the transfer and post-transition performance. Morris et al's model classifies succession issues into three dimensions, namely preparation of heirs, nature of family and business relationships and planning and control activities. In this study, apart from these three dimensions, an additional dimension, focusing on compensation issues, was incorporated based on the literature. One primary hypothesis is to investigate whether business performance is associated with the four latent dimensions of underlying succession issues. In addition, this study focuses on the influence of business objectives on business performance. The literature suggests that family considerations and business performance can be competing goals in the family businesses (eg Dunn, 1995). Therefore it is very important to investigate whether business objectives have any impact on business performance. A stratified sample of 924 small and medium sized family controlled businesses was selected from the FAME (Financial Analysis Made Easy) database. 169 Usable responses were received, making the response rate 18.3%. With the sample, a variety of statistical techniques were used to analyse the data. Factor analysis and reliability analysis were employed to build up a succession issue scale. Hierarchical cluster analysis was involved for grouping family businesses, according to their commonalities on succession issue views, plus the subsidiary factors of business age and business size. Finally one way ANOVA and correlation analysis were conducted to determine the relationships between family business succession issues and business performance. Further development of the research was undertaken in two steps. First the assumed influence of subjective variables, such as business objectives on the business performance was investigated. A second postal survey was sent to the 169 companies which replied in the first survey and seventy usable responses were received (the response rate was 41.4%). Secondly, in depth interviews (six case studies) were conducted with incumbent managers and potential successors, which reveal that succession issues and business objectives both have significant relationships with various dimensions of performance, ie profitability ratios, growth ratios and efficiency ratios. It is therefore suggested that business owner-managers use multidimensional conceptualisation to consider succession issues and business objectives to better balance requirements for both family and business to achieve competitive advantage in running their business. Avenues for future research are also addressed at the end of the thesis.