The influence of the culture subscale on financial performance

The influence of the

Culture Subscale on

Financial Performance

in the

Dr. R. van der Voort

MSc Entrepreneurship thesis

Vrije Universiteit Faculty of Economics and Business Administration

Universiteit van Amsterdam Economics and Business

Abstract

In the family business literature, consensus is still missing on what defines a family firm, how to measure involvement and Familiness and its appropriate setup to examine the link to performance. There is a lot going on around the research on the most elusive aspect of Familiness, Culture. Delightfully, Familiness has become a predominant topic in family business literature since the introduction of the F-PEC index by Klein, Astrachan and Smyrnios in 2002. This standardized and valid instrument revolutionizes the way in that family firms are measured in degrees of ‘familiness’, instead of dichotomously categorizing firms in family or nonfamily. The author endeavored to apply Culture construct of the F-PEC index and made an effort to examine its relationship with financial performance. This research is done for the total sample, and with a distinction between four sectors. Consequently, the research question posed is: Which effect does the Culture construct have on financial firm performance for Family Businesses in the Netherlands? The conclusion is not a very solid conclusion to make. It is possible to give it the benefit of the doubt, because five financial indicators are positive (one significant) related, and one is negative and significant. The negatively significant indicator, which is the solvency, disrupts the assumption that businesses with a high ‘family’ score, use less debt than businesses with a low ‘family’ score. The most important findings of the comparison between the four sectors, is that if a company in the Consumer Goods sector has a familiness culture, it will probably perform better than other companies. Another notable result is that if there is a sector which scores higher on the financial indicators, that sector also always has a higher Culture score.

Keywords: Familiness, F-PEC, Solvency, Culture, Consumer Goods and Financial Performance.

The copyright rests with the authors. The authors are solely responsible for the content of the thesis, including mistakes. The university cannot be held liable for the content of the author's thesis

Tabel of content

1.0 Introduction ... 1.1Commencement of the Subject. ... 1.2 Research question and the gap in the Familiness literature. ... 2.0 The literature review ... 2.1 The F-PEC Index ...

2.1.1 Power ... 10 2.1.2 Experience ... 10 2.2 Culture ... 2.2.1 Values ... 12 2.2.2 Transgenerational Intention ... 13 2.2.3 Commitment ... 13 2.2.4 Essence ... 16

2.3 Conclusion literature review ... 3.0 The Research Model ... 3.1 The research model; validity, reliability and generalizability ... 4.0 Methodology ... 4.1 Sample ... 4.2 Data Collection Questionaires ... 4.2.1.Questionnaire Operationalization ... 24

4.3 Data collection financial ratio’s ... 4.3.1 Financial Indicators used ... 26

4.4 Data Analytics Procedure ... 5.0 Results ... 5.1 Comparing the four sectors ... 6.0 Discussion and Conclusion ... 6.1 Limitations ... 6.2 Theoretical Contributions ... 6.2.1 Practical implications ... 39

1.0 Introduction

‘Culture is the collective programming of the mind which distinguishes the members of one group or category of people from another.’ (Hofstede, 1994)

What make a family business different from a non-family business? For the ordinary mortal, the two most important things in life are family and employment. The coalescence of these two has been an evolving field of inquiry over the last decades. However, due to the multidisciplinary character of a ‘family business’ there is still much debate and heterogeneity to solve (Carney et al. 2015; O’Boyle et al., 2012; Anderson & Reeb, 2003). And what are the cultural aspects which may distinguish a family business from a non-family business. The culture in the company, the shared and learned mindset of a group of people (Williams, 1986), is important result of the standards and values that the founders have brought into the company. The family members who work in the company keep these standards and values alive, but the selection of staff also maintains the cherished standards and values.

Source: Harms (2014, p.291)

Harms (2014) analysed 267 journal articles to draw a picture of the academic landscape with regards to family involvement topics. As seen in the figure above, performance studies which mostly address financial (e.g. Return on Assets) and nonfinancial performance indicators (e.g. Corporate Social Responsibility) have been the predominant topic for family business research

(i.e. 151 studies). The results of many of these studies are mixed (e.g. Anderson & Reeb, 2003; Martinez, Stohr & Quiroga, 2007; Sraer & Thesmar, 2007; Flören et al., 2010).

The definitional issue and search for clarification on what defines a ‘family business’ has been largely to the concern of the past, to a great deal of researchers in the respective research arena. Rutherford et al. (2008) refer to this as the ‘family business theory jungle’ to point out the lack of consensus because of many competing theories that examine familiness related to certain performance measures. Harms (2014) attempted to clarify the definitional issue by systematically clustering the relevant articles to obtain an overview of their definitional disparity.

Source: Harms (2014, p. 296)

As can be seen in the figure above, the majority of the articles in the author’s sample are without an explicit definition. Thereafter, a quarter of the articles consist of self-developed definitions. Accordingly, one can get a good intuition in how this missing unified definition concerning family business can cause problems in the research field. As Dyer (2006, p.254) concludes: ‘Thus, some studies likely included firms in their ‘family firm’ sample that would not have been included in other studies’ samples and this mixing of ‘apples and oranges’ might account for the ambiguous findings’. Consequently, it does not come to a surprise that in the twenty-three studies Rutherford et al. (2008) reviewed between family involvement and firm performance, nine demonstrated neutrality, nine studies showed a positive relationship, four studies provided

partial support for a positive relationship and only one study found a negative relationship. What can be the influence of different types of cultures on these performances?

1.1 Commencement of the Subject.

The commencement of writing this paper came from a wish from EY, former know as Ernst & Young, and was originally seized by the Vrije Universiteit (VU), because the VU noticed a growing interest on family businesses in the university. EY wanted to know why and to what extent, family businesses were different to listed firms, looking at their financial performances. This, to know how to adjust and improve their service to their customers in terms of strategic entrepreneurship and of course to use the publication for marketing purposes. As stated in the paragraph before this one, there is a lot of research on family businesses, but not that much on large Family Businesses in the Netherlands. Is the heterogeneity which exists in the global literature, and the assumptions about family business cultures that are generally considered to be true, also applicable on the Family Businesses in the Netherlands?

EY is interested in the differences in performance between family businesses and listed businesses in the Netherlands. This specific subject is explained in another paper, which is made by four authors. This present paper is created due to the discoveries made during that research for EY, and is written by one of those four authors. It is part of a more extensive research; First there is a research on the mentioned subject of EY (listed vs. family), second there are three papers on interesting parts of the F-PEC (Power, Experience and the Culture aspect which is researched in this paper) and one paper about other interesting, distinctive aspects of family businesses (R&D, Internationalization and Capital). The reason that the authors have chosen this index is explained in the next paragraph of this chapter. All those four authors did their researches with a database which they created together.

1.2 Research question and the gap in the Familiness literature.

The question is raised whether the cultural advantages will be offset by the cultural disadvantages, wherewith the effects are cancelled out; suggesting neutrality of familiness to performance. Or else, do the disadvantages dominate the advantages derived from familiness of a firm –or vice versa? This query results in the first research question:

Which effect does the Culture construct have on financial firm performance for Family Businesses in the Netherlands?

The chosen index to answer this question is created fifteen years ago. Astrachan, Klein & Smyrnios (2002) created the F-PEC index to measure to what extent a firm is considered as a family business. Which means that the F-PEC index does not measure if a firm is a family firm (dichotomous/yes or no), it measures the family score in an index, referred to as familiness (Harms, 2014; Holt et al., 2010). The F-PEC has been validated and operationalized in the form of a questionnaire by Klein et al. (2005) and was further tested by Holt et al. (2010). The three F-PEC constructs are Power, Experience and Culture. These three constructs seems to be the most important characteristics of family business, so measuring these constructs should measure the influence of familiness.

It is interesting to index Dutch companies with the F-PEC, but it is even more interesting to see what the specific effect is of one of the three constructs. Undressing the F-PEC index, and applying it to businesses in the Netherlands is unique in the literature. This paper focuses on the last construct, the Culture construct. Culture is probably the most interesting construct because it the hardest to measure at first thought, it seems to be inadmissible. Power can easily be measured with ownership percentages, Experience with just counting the years. But how do you measure Culture? Culture seems like a very subjective subject. The papers mentioned in this indention seems to have important influences on the development of this matter, but there is still just a very little amount of researches which relates Culture on financial firm performance, measured with the F-PEC, for (large) Family Businesses in the Netherlands. To get a complete picture of the Cultural construct, this paper contains the results of the total F-PEC. In chapter 6 where the conclusions are made, the conclusion of the research on the total F-PEC is shortly described for the reader to be able to relate the Cultural construct to the other two familiness constructs (Power and Experience).

The next chapter tries to form a complete picture about all the important research done on the F-PEC index. All the factors related to Culture in family business could be the explanation for an effect of Culture on firm performance. The findings of the theoretical research resulted in an model which is addressed in chapter 3.0. The methodology section follows including information regarding the sample and questionnaire. Then results regarding the Culture

construct are provided followed by a discussion and a conclusion which also addresses the F-PEC construct as a whole.

2.0 The literature review

To get a complete picture of the total F-PEC model, and to see the Culture construct in its perspective, this literature review starts with elaborating on the total F-PEC index. The Power and Experience constructs are shortly addressed, after that the Culture construct and everything that goes with it is addressed more detailed.

2.1 The F-PEC Index

The F-PEC index is a scale to help understand the dynamics of family business on a continuous, rather than a dichotomous (i.e. simplistic categorization) scheme (Harms, 2014; Holt et al., 2010). This means that businesses are not merely defined as family or nonfamily, but that there is a certain degree of involvement from the family which is most often referred to as ‘familiness’. The three dimensions of involvement of the family within the business are measured according to the F-PEC index. The abbreviation stands for: Family influence on (1) Power: the influence the family has on governance and management of the firm. (2) Experience: the information knowledge, judgement, and intuition that comes through successive generations. And (3) Culture: the alignment of the family’s goals and with the firm’s (Cliff & Jennings, 2005 p.342). The figure below arrives at the index of all constructs with its corresponding dimensions in the F-PEC index.

Source: Astrachan et al., 2002 (p.52)

2.1.1 Power

The Power construct consists of a family’s potential to influence the business via ownership, governance and management (Astrachan et al., 2002). In addition, this measure also takes into account legal considerations, such that due to legislation, the Netherlands, for example has a two-tier system. That is, members are not permitted by law to serve a position simultaneously in the governance and management board. Moreover, the construct also takes into account the formation of legal and tax structures. In general, it attempts to assess the overall influence and the degree hereof by measuring the percentage of family members within three categories (i.e. ownership, governance and management). Considering these three dimensions of the Power construct, the abovementioned family factors are contingent on the composition of ownership, governance and management that can potentially unveil performance directions (i.e. positive or negative).

2.1.2 Experience

The second construct of the F-PEC framework is experience. This measure contains the set of knowledge, judgement and intuition that is acquired through successive family generations within a business (Holt et al., 2010). Informative scales of this measure are the generation of ownership, generation active in the management team, generation active in the board and the number of contributing family members within a company (Astrachan et al., 2002). Based on the theory, the more generations that are involved in a family firm, the more detrimental effects appear which harms firm performance (Poutziouris et al., 2006 ; van Stein Callenfels, 2016 ; ECFB, BDO & Rabobank 2017).

2.2 Culture

The last item of the F-PEC index, and the main focus of this paper, is termed Culture. Culture resembles the family commitment to the firm and the possible overlap between family and business values (Chrisman et al., 2010; Mazzi, 2011) or as Rutherford (2008) states: The alignment of the family’s goals with the firm’s goals. The most important components of Culture in case of family businesses are, goals, values, commitment and intention. Between these components is a large overlap. Values are understood as a very important factor to

consider commitment and intention together as some kind of new dimension of culture: Essence, which is explained in chapter 2.2.4.

Sharma (2005) speaks about the resource-based view in combination with Culture, which says that a firm needs unique, valuable, non-substitutable, and non-imitable resources to create a competitive advantage. Is a low or high familiness Culture an advantage or a disadvantage? The type of culture to which prevails in a business can be very much of an influence on het competitive advantage, and thus on financial performances (Zahra, Hayton & Salvatro, 2004). One can imagine that in a company, where one family is that explicitly present, the culture of that family will imbue into the rest of the company (Sanchez, 2017). That brings disadvantages and advantages with it. In general, family firms have cultural advantages over ‘regular’ firms in the long term since it is understood that positive factors such as orientation, loyalty, teamwork, shared values and (reciprocal) altruism are more established within these firms; also known as the ‘bright side’ of family involvement. Contrarily, the ‘dark side’ poses possible downsides of family involvement such that businesses could be subject to conservatism, conflict, free-riding, deviance, and lack of professionalism (O’Boyle, Pollack, & Rutherford, 2012). The bundles of resources and capabilities, that are distinct for a family firm are referred to as ‘familiness’ (Bromiley & Rau, 2015). An example of a positive competitive advantage of a family Culture is proved by Denison et al. (2004), they say that a family firm has a competitive advantage because the people in the firm are more aligned in what they want with the firm and how do accomplish that.

2.2.1 Values

Dyer (2006) underlines that the values of families have the potential to influence the performance of the company in a positive way due to lower agency costs and deep trust and shared values amongst the family members involved. Although downsides could also be present. Furthermore, future research ought to verify how family firms mitigate the ‘dark side’ of altruism and the entrenchment effects and within which thresholds. Here, entrenchment meaning that family members serve top management positions whilst not being competent enough for it as a result of nepotism (i.e. favouritism granted to relatives).

For instance, Habbershon & Williams (1999) argue that due to a shared ‘family language’, family member employees are more productive because they are able to communicate better, wherewith private information can be exchanged more efficiently. Building on this, family relationships result in higher motivation, trust and loyalties. Habbershon & Williams (1999) also touches upon the long-term orientation of family businesses. As business strategies and family objectives are considered to be inseparable, it creates a better long-run strategy as well as the commitment to accomplish it, which is in line with James’ (1999) research. For example, strong family communication and relationships can result in the existence of certain routines (efficient meetings) which can improve the level or professional management and dynamism, which then results in higher productivity and can ultimately result in higher performance.

Erasmus Business School, Rabobank and BDO (2017) acknowledge the importance of family values as a unique factor in the performance of family businesses. These values provide a strong bond between employees in case of identity and loyalty, which is recognizable for external parties and stimulates employees. Le Breton-Miller and Miller (2015) theorize that these values are resulting in a long-term orientation through the intimate connection among family members. Some family firms are talented at accumulating human capital, protecting and leveraging reputation and building strong relationships and slack resources and ultimately passing on tacit knowledge (Le Breton-Miller & Miller, 2015). A group-level phenomenon is represented by the interactions and emotions among the individuals that tie them together, which renders them in a more trusting and collaborative team than individuals working together that are unrelated to each other. Differentiating factors are close personal bonds through affection, shared values, loyalty and trust. Consequently, the devotion to work for the well-being of the family and mutual responsibility result in a favorable working environment.

One of the most recent studies that links family values to the longevity of a company is a study by Fisher et al. (2016). This study tries to identify the most important values considered by family members. The empirical results show that the classification of values concerning the longevity of a company can be divided in three bigger dimensions namely: (1) values that contribute to family cohesion, (2) values that contribute to a firm’s sustainability and (3) Values that allow the transmission of core values. They found that the best way of transmitting these values is through education and socialization. Fisher et al. (2016) suggest that it could be convenient to secure the values in a family protocol. The importance of transmitting values from the family to the company could be overcome by solid governance structures and processes.

2.2.2 Transgenerational Intention

According to Massis et al. (2016) intention is [...]‘an indication of how hard people are willing to try, of how much of an effort they are planning to exert in order to perform the behaviour’(p.280). It is preferable that in the dominant coalition, the family involved maintains or gets an essential role (Chua et al., 1999), which means that if a family has certain intentions for the future of the company, those intentions are leading. Because of common intentions of the family and the understanding of the importance to keep the family firm healthy and in good condition for later generations, they have a long-term orientation and the intention of solid continuity (Campopiano et al., 2016). According Westhead & Howorth (2006) these long-term goals in family firms are mostly family-centred noneconomic goals (FCNE). The continuity of social value is often more important than the gain of financial wealth on short term. Transgenerational family ownership of the firm is then the essential intention of a family to be involved in a family business, for both the current leaders of the family and company, but also for the next generation (De Massis et al., 2016).

2.2.3 Commitment

Commitment can have a substantial effect on the effort family has on the performance of the business. It is an essential factor to determine the firm its survival, success, flexibility, and even longevity (Dawson et al, 2015). According to Dawson et al. (2015), there are three types of commitment: affective commitment (desire based), normative commitment (obligation based), and continuance commitment (cost avoidance based). With evidence of 199 Canadian firms, the authors indicate that: ‘[...] when these individuals’ identity and career interests are aligned with their family enterprise, they experience affective commitment. Family

expectations are associated with normative commitment. Individuals who are concerned about losing inherited financial wealth or who perceive a lack of alternative career paths stay with the family enterprise because of continuance commitment. Finally, individuals driven by desire or obligation exhibit low turnover intentions’ (p. 545).

Commitment in family firms has commonalities with stewardship theory. Family members will act as stewards in the company, not because of individual reasons, but in favor of the family, because they are committed to the family business. Consistent with stewardship theory, Mazzi (2011) explains that many business managers and leaders do not merely aspire only on goals that maximize their short-term, individualistic utility. Instead, stewardship is performed as they altruistically behave in a righteous path, with eyes to obtain beneficial results for the whole organization because stewardship can be formulated into a competitive advantage. Especially, this seems to be prevalent in family firms where leaders are linked emotionally to the family. Thus, in line with stewardship, these corresponding features can be recognized as potential for formation of superior performance and creation of competitive advantages over companies that are subject to agency theoretical features (Eddleston et al., 2012). Stewardship mainly consists of three components. Namely, long-run benefit for future generations, ensuring entrepreneurial longevity and continuity of the firm and its vision and mission. Moreover, it ensures unity and stability in the organizational structure through ‘patient capital’. Which could be R&D, reputation-building and gradual acquisition of larger market shares. Secondly, stewards behave in different ways to employees and co-workers that foster a favourable working environment. This is conducive to the emergence of talented groups of people that is mediated through trust and loyalty that resides in the corporate culture. Thirdly, stewardship promotes long-lasting relationships where trust is central, with third parties such as shareholders (Mazzi, 2011).

However, family members could also affect the Culture in a more negative way than the stewardship theory predicts. The counterpart of the stewardship theory is the Agency theory. The classic owner-manager conflict described by Jensen & Mecklin (1976) could be one of the factors creating or destroying value within family businesses. Agency theory focuses on relationships between owners and managers which could result in a so-called type I agency problem. Within family businesses it would be possible that nonfamily managers make decisions based on self-interest that impact others (owners) in a negative way. Private family firms can be understood as ‘pure’ ownership forms which could be less susceptible to

principal-principal (example conflicts between family managers) agency problems (Carney et al, 2015).

Whereas, secondarily, agency theory focuses on interactions between majority and minority stakeholders; a type II agency problem (Garcia-Castro & Aguilera, 2014)1. Typically, agency theory concerns the principal-agent problem, whereat the principal (e.g. the owner) delegates decision-making to the agent (e.g. the manager), where most commonly this results in misaligned interests. This is due to information asymmetries that can result in moral hazard. That is, the agent acts in favor of its own preferences that can result in opportunistic behavior (Schulze et al., 2001).

Especially, for dispersedly owned companies, type II agency problems occur. As Carney et al. (2015, p.519) provide a good example in that ‘[...] professional managers often enjoy substantial freedom to pursue self-serving courses of action, which may include building large and diversified corporate “empires,” enjoying extensive managerial perquisites, ratcheting up their own pay and making it less contingent upon firm performance, and pursuing entrenchment even after documented poor job performance’. One can imagine a family member (manager) enjoying the same freedom as the manager in the preceding description. Therefore, agency costs need to be incurred to align the interests (e.g. goals and visions) of the two to ensure that the two actors behave according to a shared strategy. This can be done by creating (complete) contracts that expand on eventualities by means of covenants to prevent opportunistic behavior of the agent (Kraiczy, 2013).

Another example of a type II agency problem which appears in family businesses is that when large family shareholders tend to extract private benefits from the company which ultimately can negatively affect smaller family or nonfamily shareholders resulting in less financial performance. Claessens et al. (2002) explain that which of the two agency problems is more detrimental to shareholder value is still inconclusive. Although, family management has the potential to lower type I agency problems it would be possible that associated costs of family management would offset these advantages since it can be the case that hired professionals are better than the family founders or their offspring (Caselli & Gennaioli, 2002).

Carney et al. (2015) explain possible agency costs in greater depth. It is argued that the agency costs and benefits of private family firms lead to different strategies and decision-making processes compared to nonfamily businesses. For this reason, it is proposed to view private family firms as a distinct organizational form. One agency benefit of private family firms is that the high/pure ownership accentuates high-powered financial incentives. Another benefit of private family firms is that the absence of capital market pressures allows for a long-term orientation. Agency costs, on the other hand, are loss aversion, altruism and lack of moderation of noneconomic goals by the capital market pressures. The loss aversion for example, is explainable because the family often thanks their social status to the success and existence of the firm, and are willing to preserve this at all costs. These noneconomic goals can be harmful for the efficiency of the business (Gomez-Meija, Cruz et al., 2011). As already briefly explained, altruism could be also present in these private family firms because the children of the owners, which not always have the best competencies for the job could be favored over better candidates (Shulze, Lubatkin, Dino & Buchholtz, 2001).

The previously mentioned agency costs and benefits of private family firms are considered to be different from the agency costs and benefits of public family firms and both private/public nonfamily firms. These differences in agency costs and benefits provide further reasons to argue that private family firms should be seen as a separate type of business with different strategies and decision-making, which all have its own effect on firm performance (Carney et al, 2015).

Concluding, the two theories are relevant for this paper, as they are considered to be two opposing ‘forces’ that affect a firm negatively or positively. The ultimate question is which of the two is dominant in a firm or which one has the upper hand that ultimately affects firm performance in a (dis)advantageous manner (Eddleston et al., 2008).

2.2.4 Essence

Ownership structures, governance protocols, values and the formation of management boards are characteristics that help distinguish a family firm from a non-family firm. (Chrisman, Chua, & Sharma, 1999). Fiegener (2010) argues that family business definitions should be based upon

characteristics ought to be reconciled. Also, it is not always clear in which way these components really matter. One outcome of this debate is the Essence approach.

To fully understand the Essence approach, it is important to know the involvement approach. Chua, Chrisman, & Chang (2004) developed a ‘[…] statistical procedures to maximize distinctions among observations involving variables assessing extent and quality of family ownership and management control […] to derive a dichotomous variable of family versus nonfamily business, and also, to provide a continuous measure of firm family involvement. This is the involvement approach which measures the amount of involvement a family has in a firm. The critique on this approach is that it is only a measurement of involvement and not what the family does with that involvement. Involvement vs. essence is studied by Chrisman et al. (2005) and explain involvement as a necessary, but not sufficient condition of familiness. Involvement measures the potential family influence but is not able to describe the essence of the family business. As Harms (2014) state its: ‘Only this sufficient condition ensures that a family firm behaves in a fashion different from non-family businesses’(p. 289). The observation that family firms with the same extent of involvement considered themselves family or not and that their views could change over time has strengthened the believe to incorporate an essence based point of view. Essence is theorized by Chrisman et al. (2005) as:‘(1) a family's influence over the strategic direction of a firm, (2) the intention of the family to keep control, (3) family firm behavior and (4) unique, inseparable, synergistic resources and capabilities arising from family involvement and interactions’ ( p.556).

To emphasize the difference between the involvement and essence point of view, it is understood that family involvement is not enough to make a business a family business. The essence approach is more restrictive and based on the suggestion that involvement is only a necessary condition, or as Chrisman et al. (2005) state: ‘family involvement must be directed toward behaviors that produce certain distinctiveness before it can be considered a family firm. Thus, two firms with the same extent of family involvement may not both be family businesses if either lacks the intention, vision, familiness, and/or behavior that constitute the essence of a family business’ (p. 558). The F-PEC index already helped to understand the level of family involvement as a continuous variable and has the potential to reconcile components of the family involvement approach and the essence approach. According to Chrisman et al. (2010) family essence consists of two parts: family control intention and family commitment.

Essence is thus understood as, the vision, commitment and intention across generations of family members, which according to Dawson & Mussolino (2013) can contribute to generate idiosyncratic firm-level resources of familiness in order to pursue goals that are not only economic but also aimed at socioemotional wealth preservation over time.

2.3 Conclusion literature review

According to Klein et al. (2005) the F-PEC brings ‘[...] the component-of-involvement approach closer to the essence approach when they proposed that the family character of a family business is determined by how family involvement is used to influence the business’(p.333). These mentioned influence is measure in the Culture construct of the F-PEC

index. The F-PEC index utilized in this way could not be the prime tool to disentangle the jungle but Klein et al. (2005) made recommendations to incorporate essence based point of views for further research. Soft factors, such as intention, motivation, devotion and commitment for the future are not included in current family involvement studies. This makes this present research very interesting to find out if a strong family Culture will have a negative or positive influence on the financial performances.

It would be interesting to be able to measure the Essence aspect as a own independent variable, this is never done before in any research. The author of this present paper looked into developing this variable, but did not succeed into doing this. The items which had to be measured are already in the Culture construct, and would not measure something new. However, it would be a very interesting subject for further research. More on this matter in the conclusion (6.3).

3.0 The Research Model

All these information from the literature of the last years, made the author decide to form just one hypotheses. Provided from the conclusion from the literature review, it is anticipated that the advantages of the ‘bright side’ of familiness will dominate the disadvantageous effects of the ‘darks side’ of familiness. For this reason, the hypotheses of this paper is:

H1: The Culture construct has a positive relationship with financial performance

Source: own illustration

As mentioned before, the Power and Experience constructs in the other papers follow similar research methods, the models of those other F-PEC constructs look the same. The direction of the hypotheses will probably point into another direction, which is obviously a result of their literature reviews. To indicate the direction of the Culture construct and the cohesion with the financial performance indicators, it is theorized as the independent variable of the model and the financial performance indicators as the dependent. A linear regression is made for the six financial performance indicators.

First of all, all the averages of the different indicators were calculated. After that all the results of the different Culture scores are divided to above and under average (more on this in the next chapter on the methodology).

3.1 The research model; validity, reliability and generalizability

Astrachan, Klein & Smyrnios (2002), could be regarded as ‘the founding fathers’ with respect to the inception of the F-PEC index. In order to give meaningfulness to the latter scale and thus the Culture construct, the authors and a team of skilled people, such as academic researchers, practitioners and family business owners developed the questions necessary to develop the F-PEC index in aggregate. Indeed, the authors proceeded with pilot testing and focus group discussions with a number of family businesses in order to validate the scale with analysis of modelling techniques.

Evidently, items that were shown to demonstrate ambiguity, lack of discriminatory power or redundancy were eliminated (Astrachan et al., 2002). Furthermore in this paper, external validity was tested on a large sample of groups (i.e. n > 500) by means of cross-cultural comparison. As Astrachan et al, (2002, p. 52) conclude: ‘The F-PEC index of family influence on the business provides researchers, for the first time, with a tested standardized instrument that allows integration of different theoretical positions as well as comparisons of different types of data’. Later on, Klein, Astrachan & Smyrnios (2005), further tested the F-PEC index in a sample of 10.000 randomly selected company CEOs through exploratory and factor analytical techniques, to prove reliability (Klein et al., 2005).

In addition, Holt, Rutherford & Kuratko (2010) further tested the measurement properties of the F-PEC index. Hence, further testing the items and making the operationalization more robust. Thereby, giving power to the generalizability, internal consistency and reliability of the construct. Exploratory and confirmatory factor analysis were conducted and provided support to the model. As Holt et al., (2010, p. 84) discuss: ‘Although we are not by any means suggesting that the F-PEC represents an end to the search for definitional clarity, our findings do suggest that the F-PEC offers family business researchers a valid and reliable scale with which to more finely classify family firms. Moreover, it measures several intangible factors that may be used as the dimensions of involvement and essence (a yet to be measured construct) are refined and converge’.

The reliably of the construct Culture in particular is tested by Rutherford (2008). They used exactly the same questions as this present research. The Coefficient (Cronbach) alpha was .87, which is considered as highly reliable.

4.0 Methodology

4.1 Sample

The sample used for testing the Culture construct of the F-PEC framework is selected by looking at the ‘Elsevier Top 100 familiebedrijven’ and the ‘FBned’ database. The Elsevier top 100 list of family businesses is a yearly recurring list and provides an overview of the top 100 largest Dutch family businesses when looking at the company's turnover. This study looks at the 2016 edition of the Elsevier Top 100 family business (Elsevier, 2016). Only companies were picked which were possible to be subdivided into one of the four sectors.

The final sample was constructed by selecting 93 companies with at least a turnover of 14 million. These sized firms are considered as bigger firms in the Netherlands. The reason for choosing bigger firms is from the limitation chapter of Rutherford et al. (2008), who quotes: ‘Chrisman et al. (2005) submit that the relationship between familiness and performance is more robust in larger firms’. Eventually 41 of these companies filled in the questionnaire, resulting in a response rate of 44%. However, three companies have been removed from the sample because there was not enough data available. Exclusion of these companies lead to a total of 38 companies which entirely filled in the questionnaire and had a complete data set. In the next paragraphs, the descriptions of the different sectors will be explained.

4.1.1 Industry

The industry sector includes companies that are involved with various types of production. In the Netherlands a total of 23.835 companies exist in the industry sector, whereof 16.740 are 54

family businesses and 7.095 non-family8. Resulting in a distribution of an overwhelming majority of family firms. Namely, seventy per cent of all Dutch companies in this respective industry sector are classified as a family business (CBS, 2017). Most of these companies are located in the southern part of the Netherlands (Boogert, 2017). The sample includes businesses ranging from maritime companies to manufacturing and finished products.

4.1.2 Construction

The construction sector in the Netherlands has been in dire straits since 2008. Because of the financial crisis, in 2012 the crisis in the construction sector hits its lowest point. Since 2008, the sector lost 17% of revenue volume. Bankruptcies are the order of the day. The

medium-sized construction companies were hit the most with a sales loss of about 25 percent (Klawer, 2013).

The companies included in the construction sector of the sample mainly focus on businesses which activities are within the construction of buildings and infrastructure. All these companies together make the second biggest sector in the Netherlands (Graydon, 2013). Furthermore, the sample contains dredging companies, companies focusing on the wholesale of construction materials and companies that focus on the architecture and development of immovables. Concerning Dutch construction companies, 22.415 are family businesses (79%) and 5.930 non-family businesses (21%) according to the CBS (2017). The construction sector is the second biggest sector in the Netherlands.

4.1.3 Food & Drinks

Several different companies are included in the food and drink sector of this study. It includes businesses such as supermarkets, distilleries and food producers. It also includes retail businesses and wholesaler’s focussing on food and beverage products. According to a published report of Fooddrink Europe (2016), the Netherlands accounts for 5.639 companies. Furthermore, 163.000 people are employed by the food and drinks industry (results published are from 201).

4.1.4. Consumer goods

The companies included in the consumer goods industry range from the floral industry to retail fashion brands. According to Morningstar inc. (2017) the sector consumer goods is defined as: ‘Section of the portfolio invested in food, beverages, household goods and personal care supplies, accessories, shoes, textiles, cars and auto parts, consumer electronics, luxury goods, packaging and tobacco’. A division is made, regarding the original definition, the Foods & Drinks sector (Food and beverages according to the Morningstar definition) and Consumer Goods were distinguished. The companies in the sample of Consumer goods are all brands, stores, wholesale companies or web shops which sell products to consumers. This separation is made in consultation with EY to make sure the amount of target companies in each sector were proportionally sized.

4.2 Data Collection Questionnaires

sample, a questionnaire has been sent in order to collect the information needed to fill in the modelled variables. The questionnaire has been made in Qualtrics and sent by E-mail (see the first appendix). The contact-details of each company have been obtained through the databases called Company.Info, LinkedIn and Orbis. An Excel spreadsheet was made to organize the progress of the respondents. In this spreadsheet the name of the company, the sector, if the company is a client of EY (which makes it easier to introduce), the name and function of some executive board members, phone numbers, email addresses, previous activity and the next activity, and some notes.

Before the questionnaires were sent, each company was contacted by phone in order to try to increase the response rate and to ask for email addresses to send the introduction mail together with the link to the questionnaire. The questionnaire was sent to participants of the founding family or members of the highest management or governance boards. Due to the extensive network of EY and the personal way of reaching out to the companies the eventual number of responses were satisfying.

4.2.1.Questionnaire Operationalization

Most of the variables that are to be tested in this research have been obtained through the already mentioned questionnaire. The majority of questions included in the questionnaire have been used and validated by previous academic literature. An overview of the construction of the questionnaire is provided in the appendix.

After the introduction of the research and questionnaire, the first section of the questionnaire aimed on acquiring general company information and provided control questions. Evidently, the first question regarded the company name, to be sure that the respondent filled in the right company entity. This is done because the financial data needed to be linked to the right entities. The control questions were questions about the amount of employees, the age of the firm and its sector. The last one was important to validate whether the business was rightly classified in the respective sector that has to be in line with the perception of the respondent.

After this, the questions measuring Power and Experience are asked. The majority of these questions were derived from the papers of Klein et al. (2005), Holt et al. (2010) and Astrachan et al. (2002).

disagree to strongly agree. The relevant questions were posed as follows: The family owning the business has influence on the business; The family members share similar values; the values of the family owning the company and the business are aligned, family members agree with the family business goals and policies; I understand and support the family's decisions regarding the future of the family business; Family members are proud to tell others that they are part of the family business; The family has influence on the business; and lastly, Deciding to be involved with the family business has a positive influence on my life.

The questions for the Culture construct find their roots in the ‘Family Business Commitment Questionnaire’ designed by Carlock & Ward (2001): ‘I expect that the future successor as president of the business will be a family member; Family members are willing to put in a great deal of effort beyond that normally expected to help the family business be successful; Family members really care about the fate of the family business, family members support the family business in discussions with friends; employees, and other family members feel loyalty to the family business. One extra ‘Yes/No’ questions was asked, whether the respondent believes the business will be controlled by the same family in five years.

4.3 Data collection financial ratio’s

For each company included in the sample, the annual reports of 2010, 2011, 2012, 2013, 2014 and 2015 have been collected. The year reports of 2016 have not been included in the sample as many reports of this particular year have not been available yet.

The net profit, short and long term debts, liabilities, equity and assets of these same years were manually derived from the in total 366 reports. The year reports have mainly been used to collect the financial performance figures, which are one of the key variables in this study’s model. The main source that was used to obtain these year reports was the database Company.Info, which the researchers were granted access to by Ernst & Young (EY). The data provided has been double checked by peer reviewing the variables. In the Company.info account of each company was an annual summary of the years 2010 till 2015 with all the general financial indicators, like the net profit, revenue etc. To be sure, this document was checked with the actual annual reports, and a lot discrepancies were found. For solid completion these summary documents were not used. According to Company.info these combined statements were retrieved from the annual reports with Optical Character Recognition (OCR) software. OCR is able to automatically read and recognize a character (revenue for example) in a report.

also known as a function which is not completely developed without errors. This is probably the reason why there were many mistakes in the combined reports and the reason why all the data from the actual annual reports was manually derived.

It was decided to look at the year reports of 2010 until 2015 to be able to get an average image of the performances of the businesses, thus minimizing the chance of bias and outliers. Lastly, the year reports of 2016 have not been included in the sample as many reports of this particular year have not been available yet.

4.3.1 Financial Indicators used

For the financial data collection, the 38 companies provided 1.248 results and with these 1.248 results 1.094 financial ratios were calculated. The six financial indicators used to measure financial performance were chosen in consultation with EY and are as follows:

• Revenue growth rate, which is calculated by dividing revenue 2010 by revenue 2011 in a percentage. This is a general indicator of a company's growth over the particular year. • Solvency, is equity divided by total assets in a percentage. This will show the ratio

between equity and liabilities on the balance sheet. This gives an indication if the company is able to pay its debts (Heaton, 2007).

• Net profit margin, is calculated by dividing the net profit with the revenue multiplied by 100%. This will show an indication of the profitability of the business. By the changes in this rate the company can analyses their business models and if they are working (Blaine, 1994).

• Return on assets (ROA), which is the net profit divided by the assets in a percentage. It is a key figure indicating the profitability of the average total assets before interest deduction.

• Return on equity (ROE), is the net profit divided by the equity in a percentage. It is a key figure indicating the profitability of equity before interest deduction. This is like the ROA an accounting-based indicator to capture a firm’s internal efficiency (Cochran & Wood, 1984).

• Return on capital (ROC) is the net profit, divided by the equity and the long-term debts. The ROC attempts to measure the return earned on capital invested in an investment (Damodaran, 2007).

4.4 Data Analytics Procedure

In short, all the data is analyzed according to the following steps. The data collected from the questionnaires and the financial data from the annual reports have been processed and analyzed in such a manner that is was possible to get reliable and interesting results. As explained the financial performance indicators have been hypothesized as the dependent variables and the Culture variable as the independent variable. An clear overview was created to gather all the financial rates of the companies of the sample. The linear regression was the first thing which was performed to prove if the construct Culture was able to have a influencing effect on those financial performance indicators. For every year, from 2010 till 2015, all the sample companies were added with the financial ratio for each specific year but with the same Culture score. This is done to extend the amount of observations and make the linear regression more robust. The tests for the other financial indicators are performed the same way and thus this example formula is the same for the other F-PEC constructs and all the other financial indicators:

ROA

=

∝ + β

Culture

+

∈

After the linear regression and when it was decided which directions were most likely, the group was divided into two groups with companies having an above average score on Culture and a below average score on Culture. This is done to investigate if the place on the index has influence on the financial performance.

These two groups have been tested with non-parametric Mann Whitney U-tests and has enabled the author to identify possible differences between the two groups. The Grouping variable is again Culture and the testing variable is respectively the financial performance ratio. This method puts the scores of the Culture construct more in perspective. For this test the average of the six respective years is taken in consideration. The relatively small sample size and non-normal distribution made the use of the Mann Whitney U-test the best choice. After having assessed this another Mann Whitney U-test is performed between the companies with the highest levels of Culture and the five companies with the lowest levels of Culture.

After these tests distinctions have been made between the four different sectors. The next section will step by step explain the results in greater detail.

The last comparison this paper will talk about is between the difference industries in the sample. With comparing the means and the Mann Whitney U-tests, it may be possible to find differences on the Culture construct and the financial indicators between the industries.

5.0 Results

The first table is the table with all the companies from the sample and their Culture scores. The N is the company number and the sectors 1-4 stand for the Food & Drinks (1), Construction (2), Industry (3) and Consumer Goods (4). The companies were referred to with numbers to anonymize them. The average Culture score is 0,81.

N Sector Culture N Sector Culture

22 2 0,66 1 4 0,82 18 1 0,68 20 3 0,82 26 3 0,68 2 3 0,84 32 2 0,68 25 1 0,84 15 2 0,70 37 4 0,84 6 3 0,71 13 3 0,86 10 2 0,71 16 3 0,86 12 4 0,71 34 3 0,86 21 2 0,71 14 1 0,88 4 1 0,73 29 3 0,88 35 2 0,73 7 3 0,89 9 1 0,75 8 3 0,89 38 1 0,75 3 3 0,93 5 3 0,77 11 4 0,95 23 3 0,77 19 2 0,95 30 3 0,77 28 2 0,96 31 3 0,77 17 3 0,98 24 4 0,79 27 4 0,98 36 3 0,80 33 2 1,00 Table 1

Table 2 is a combined table with the p-values and the beta’s of the financial indicators. Most of them are positive, but not significant. There are two significant P-values. The Solvency rate is highly, negatively significant. The Net Profit Margin is positively significant. H1 predicted a positive relationship with Culture. 4 indicators are positive, but not significant. 1 is positive significant and 1 is negative significant.

ROA ROE ROC Solvency Turnover

Growth

Net Profit Marging

P-Value 0,41 0,038 0,028 0,000 0,707 0,019 Beta

Coefficient

0,061 0,152 0,161 -0,239 0,031 0,182

Table 2

After these results it is tested if these companies in table 1 with a score above the average (N>0,81), are scoring a higher score on Culture than the companies below the average (n<0,81). The test used to test this difference is called the non-parametric Mann Whitney U-test. Companies with a score below average are labeled as ‘low’ and companies with a score above average are labeled as ‘high’.

N Mean

rank

N Mean

rank

Solv Low 19 22,5 NPM Low 17 12,97

High 19 16,5 High 11 16,86

Total 38 Total 28

Turn. G

Low 19 17,66 ROA Low 19 17,5

High 14 16,11 High 14 16,32

Total 33 Total 33

ROC Low 19 16,61 ROE Low 19 16,55

High 14 17,54 High 14 17,61

Total 33 Total 33

Table 3

Table 3 shows that for the ROC, the Net Profit Margin and the ROE, the companies with a higher score better on the financial performances. For the Solvency, Turnover Growth and the ROA, the companies with a high score are scoring less on the financial performance indicators. This test and the test of table 2 does not seem to match for ROA, Turnover Growth and Net Profit Margin. These mixed results tested with a 95% confidence interval (table4) see not to be significant. The Solvency is significant at a confidence interval of 90%, which makes sense looking at table 2 and 3. All the figures and rates of this test can be found in figure 10.

SOLV TG NPM ROA ROE ROC

Sig. (2-tailed) 0,096 0,649 0,221 0,729 0,757 0,785 Table 4

The last test which is executed in the sample (table 5) with no distinctions between the different sectors is similar to the previous one. The difference is instead of take all the companies, only the extreme scores were used. The five highest and the five lowest scores comparing to the average were used. The net profit margin only has four below and above average scores, that is because of some missing values in the annual reports. All the figures and rates of this test can be found in figure 11.

N Mean

rank

N Mean

rank

Solv Low 5 6,2 NPM Low 4 4,25

High 5 4,8 High 4 4,75

Total 10 Total 8

Turn. G

Low 5 5,4 ROA Low 5 5,6

High 5 5,6 High 5 5,4

Total 10 Total 10

ROC Low 5 5,4 ROE Low 5 5,4

High 5 5,6 High 5 5,6

Total 10 Total 10

Table 5

The Turnover growth is the only indicator where the direction is different from the bigger sample of table 3. That differences are that small, and not significant (table 6), that it is not worth concluding a definite direction of the relation.

SOLV TG NPM ROA ROE ROC

Sig. (2-tailed)

0,465 0,917 0,773 0,917 0,917 0,917 Tabel 6

5.1 Comparing the four sectors

After looking for significant results in the total sample, this chapter shows the results between the four sectors. Table 7 shows the scores per company in the sector and the average (AVA) score per sector. Again, . the N is the company number and the sectors 1-4 stand for the Food

& Drinks (1) with an average of 0,77, Construction (2) with an average of 0,79, Industry (3) with an average of 0,83 and Consumer Goods (4) with an average of 0,84.

N Sector Culture N Sector Culture

18 1 0,68 22 2 0,66 4 1 0,73 32 2 0,68 9 1 0,75 15 2 0,7 38 1 0,75 10 2 0,71 25 1 0,84 21 2 0,71 14 1 0,88 35 2 0,73 AVA 0,77 19 2 0,95 28 2 0,96 26 3 0,68 33 2 1 6 3 0,71 AVA 0,79 5 3 0,77 23 3 0,77 30 3 0,77 31 3 0,77 36 3 0,8 20 3 0,82 2 3 0,84 13 3 0,86 16 3 0,86 34 3 0,86 12 4 0,71 29 3 0,88 24 4 0,79 7 3 0,89 1 4 0,82 8 3 0,89 37 4 0,84 3 3 0,93 11 4 0,95 17 3 0,98 27 4 0,98 AVA 0,83 AVA 0,85 Table 7

To evaluate if the differences per sector, if they score different in Culture or financial performance, a comparison analysis is done between the sectors. To give one elaborate example, the difference in the Food & Drink sector and the Construction sector are compared in table 8 below. On the Culture construct, the Food and Drinks sector scored better than the Construction sample. The final score on the financial indicators is 4-2 in favor Food & Drinks. All the figures and rates of this test can be found in figures 12 till 17.

Food & Drinks V.S.

Construction

N Mean

Culture Food & Drinks 6 8,67

Construction 9 7,56

Total 15

Solvability Food & Drinks 6 7,5

Construction 9 8,33

Total 15

Turnover Growth Food & Drinks 5 5,8

Construction 9 8,44

Total 14

Net Profit Margin Food & Drinks 5 7,6

Construction 7 5,71

Total 12

ROA Food & Drinks 5 9,4

Construction 9 6,44

Total 14

ROE Food & Drinks 5 10

Construction 9 6,11

Total 14

ROC Food & Drinks 5 9,6

Construction 9 6,33

Total 14

Table 8

Looking at table 9 shows that there is not a significant difference between these two sectors. Because the way of working with the different sectors is now clear, the other sectors will be elaborated on with text, not in tables.

Sig. (2-tailed)

0,636 0,724 0,257 0,372 0,205 0,096 0,162 Table 9

In the Food & Drinks versus the Industry braches comparison, there is not significance anywhere to find. The industry scores higher on Culture, on the financial performances it resulted in a 3-3 draw.

In the Food & Drinks V.S. Consumer Goods comparison, the Consumer goods score higher on Culture than the Foods & Drinks. And on five financial indicators they also score higher, and on the Solvability they score equal. So the Consumer goods score better but with no significant result.

Companies in the construction sector are scoring lower on financial performances than the in the Industry sector 1-5, also the Culture score on the industry is higher. All these differences are without significance.

Construction V.S. Consumer Goods is the fourth comparison and results on a score of 6-1 on financial indicators for the Consumer goods. This is the first comparison between sectors with a, or multiple significances. ROC and ROE are significant for Consumer goods, and ROA would be significant if a 90% confidence interval is used. The Culture score for Consumer Goods is also higher, but not significant.

Industry V.S. Consumer Goods is the last comparison. Consumer Goods is just a little bit higher on Culture than the Industry companies. On the financial indicators is a clear victory for the Consumer Goods, with a 5-1 win and the ROC, ROA and the ROE with significant differences.

The most important findings of the section is that the only 5 times that something is significant, it is in favor of the Consumer Goods. Another notable result is that if there is a winner on the financial indicators, that sector also has a higher Culture score.

6.0 Discussion and Conclusion

The author endeavored to apply the F-PEC index in total, and the Culture construct in particular, for the first time for Family Businesses in the Netherlands, and made an effort to examine its relationship with financial performance. Initially, the respective index was operationalized due to the definitional disparity across studies that has been demonstrated. Therefore, it prompted the need for a revolutionary scale that has the potential to elevate the confusing state of the family business theory jungle (Rutherford & Kuratko, 2008). By utilizing the F-PEC and relating it to six different financial indicators, the authors sought to answer the research question: Which effect does the Culture construct have on financial firm performance for Family Businesses in the Netherlands? Furthermore, this question was tested not only on the total sample of companies, but also between the different industries. The literature and corresponding theories that have been analyzed and testes that were performed herewith, resulted in a mix of outcomes. To answer the question whether the F-PEC index and the Culture construct suffices as the proverbial machete to cut through the theory jungle, the answer is: for Family Businesses in the Netherlands, not really. This paper adds valuable data to get closer to an answer on the question which Rutherford & Kuratko (2008) asked at the end of their research: does the F-PEC Scale measure the actual family influence or only the ‘potential’ for such influence?, but it does not answer it completely.

The conclusion for Dutch companies, if the ‘good’ or ‘bad’ side of familiar companies has the upper hand, is not a very solid conclusion to make. It is possible to give it the benefit of the doubt for the family business optimists among us, if five financial indicators are positive, and one of them is significant (net profit margin), and one is negative and significant (Solvency). Another reason to hesitate on concluding on the Culture part is the one negatively significant indicator, which is the solvency, this disrupts the assumption that businesses with a high ‘family’ score, use less debt than businesses with a low ‘family’ score (Olson et al., 2003,

Broccardo et al., 2015). These results are comparable with the results of Rutherford (2008)

were Culture was negatively related to debt to percent equity and was positively related to perceived financial performance. Were the debt to percent equity has the same meaning as the Solvency of this present paper.

The most important findings of the comparison between the four industries, is that the only five times that something is significant, it is in favor of the Consumer Goods sector. This means that if a company in the Consumer Goods sector has a familiness culture, it will probably perform better than other companies. Another notable result is that if there is a sector which scores higher on the financial indicators, that sector also always has a higher Culture score.

6.1 Conclusion total F-PEC

The last conclusion which has to be made is about the total F-PEC. Familiness measured with the F-PEC shows a positive significant relationship with Net Profit Margin and indicates that companies with high levels of familiness perform significantly better then family businesses with lower levels of familiness for this financial indicator. The unique bundles and resources of the family firm could be the explanation for these higher Net Profit Margins. Concluding the separate construct of Power was not able to show convincing the combination of Power, Experience & Culture shows more compelling results. The findings for familiness in relation to Net Profit Margin could be interpreted with means of shared family values, reciprocal altruism, shared family language, loyalty, trust and strong relationships translating in efficiency and effectiveness. All the figures and rates of this conclusion can be found in figures 2 till 7.

6.2 Limitations

As can be derived from the discussion section, it is evident that there are some limitations to the study. For example, the sample group (the N) is not that big. The reason of having a low N is intelligible for this research, because the group of large family firms is limited. Nevertheless, looking at the population of large family firms, the response rate is relatively high. Besides that, the person who had to fill in the survey ought to be from the board of directors, who often have a tight schedule and therefore little time available. That makes it still difficult to give reliable conclusions for the entire population of Family Businesses in the Netherlands. Another possible bias in case of the respondents is a well-known problem with questionnaires. People always tend to give answers which are positive for themselves, which is called an overconfidence effect. Especially family business owners and entrepreneurs, who are proud of their heritage, could be overconfident or overestimating themselves in their responses (Forbes, 2005).

The sample of this research consist of the biggest Family businesses in the Netherlands. That means that a lot of companies have difficult entity structures with different groups and holdings. This could have been a limitation in this study: if the respondent fills in the information of a different BV or Holding, the survey could potentially be linked to the wrong business entity (although this bias is minimized through a control question).

The last limitation of this research is the perception of Culture. As a family culture can be perceived different trough different layer in an organization. This research only asked to the perception of the CEO or CFO, which can be different from people lower in de hierarchy, which can result in an incomplete score. Moreover, this is not only a different between layers in an organization, also between companies or geographical regions.

6.3 Theoretical Contributions

This paper contributes to the existing literature on a few different levels. At first, this is the first time the F-PEC framework is used in this manner in a research in the Netherlands. There are no studies available which investigate the influence of familiness, executed with the F-PEC index, on financial performance for Family Businesses in the Netherlands.

The second contribution is the method of researching, which is comprehensive in many aspects. Six financial ratios are used to calculate the financial performance of the sample group, in this way the performance of a firm is not based on only a few financial indicators. The majority of previous studies only based their conclusion on two or three ratios. The size of the profit as a percentage of the revenue is very different in case of a company with low product cost price than for example a construction company with high production costs, this means that it is best to use as many different ratios as possible.

Another comprehensive aspect of the research method is the sample group. Out of the 93 companies approached, almost half of them eventually participated in the research. The target group is very representative for the population (the biggest family firms and listed firms) in the Netherlands, and the participating group is then again representative for our target group. The target group of other papers like Flören et al. (2010) included mostly small family firms (2-9 employees) which makes it questionable whether these companies encounter the same family dynamics as their bigger counterparts. This present paper only included the biggest firms in the Netherlands. As according to Rutherford et al. (2008), there is more robustness in the