the entrepreneurial orientation of family businesses in Germany.

The influence of family business characteristics on

the entrepreneurial orientation of family businesses in Germany.

Master Thesis

M.Sc. Business Administration Small Business & Entrepreneurship

University of Groningen, Faculty of Economic and Business January 2015

Name: Julia Bremer

Student number: S2632527

Address: Nieuwe Ebbingestraat 1k, 9712NB Groningen E-mail: j.bremer@student.rug.nl

Word Count: 14.633

First Supervisor: Dr. Olga Belousova

Second Supervisor: Dr. Andreas Rauch

Acknowledgements

First, I would like to sincerely thank my supervisor Dr. Olga Belousova for her guidance throughout the process of writing a master thesis and who was always available for constructive feedback.

Moreover, I am very grateful for all the participating family businesses in my questionnaire.

Finally, I would like to thank my fellow students, friends and my family for supporting me all on their own way during my studies.

Groningen, January 2015

Julia Bremer

Abstract

In this study we investigate factors influencing the entrepreneurial behavior of family firms in Germany. This is essential because family firms play a significant role in the German economy. Moreover, Family firms possess unique characteristics that have an impact on their strategy and behavior. However, not much has been researched on the distinct factors that influence the entrepreneurial orientation (EO) of German family firms. Therefore, we fill the gap by conducting a survey among listed and not listed companies, asking them about the amount and the nature of family involvement, their internal processes and, finally, EO. We found that the internal processes and operating in a dynamic environment influence the family firm EO. Furthermore, a hostile environment moderates the effect of a CEO's tenure on EO.

Theoretical and managerial implications are discussed.

Keywords: Entrepreneurial Orientation, Family business, Germany, listed family firms.

Table of Content

1 INTRODUCTION ... 2

2 FAMILY BUSINESSES ... 5

2.1 F

AMILY

B

USINESS

D

EFINITION

... 5

2.2 I

MPORTANCE OF

E

NTREPRENEURSHIP IN

F

AMILY

B

USINESSES AND ITS DIFFICULTIES

... 9

3 HYPOTHESIS DEVELOPMENT ... 11

3.1 E

NTREPRENEURIAL

O

RIENTATION

... 11

3.2 F

ACTORS INFLUENCING

EO

OF FAMILY BUSINESSES

... 12

3.2.1 Listed Companies ... 12

3.2.2 Family Member CEO ... 13

3.2.3 Tenure of a CEO in a family business ... 15

3.2.4 Next Generation ... 16

3.2.5 Preparedness for Entrepreneurship ... 18

3.2.6 Moderating effects of External Environments ... 20

3.3 R

ESEARCH

M

ODEL

... 22

4 RESEARCH DESIGN AND METHODOLOGY ... 24

4.1 S

AMPLE AND

D

ATA COLLECTION

... 24

4.2 M

EASURES

... 26

4.2.1 Measuring the Dependent Variable - EO ... 26

4.2.2 Measuring the Independent Variables ... 26

4.3 D

ATA

A

NALYSIS

... 30

4.4 R

ESULTS

... 33

4.5 A

DDITIONAL

A

NALYSIS

... 36

5 DISCUSSION ... 39

6 CONCLUSION ... 43

6.1 L

IMITATIONS AND

F

UTURE

R

ESEARCH

... 44

7 REFERENCES ... 45

8 APPENDIX ... 54

8.1 A

PPENDIX

: Q

UESTIONNAIRE

... 54

8.2 A

PPENDIX

: SME

AS DEFINED BY

E

UROPEAN DEFINITION

... 64

8.3 A

PPENDIX

: VIF R

ESULTS

... 65

1 INTRODUCTION

Family businesses play a significant role in any economy (PwC study, 2014), but particularly in Germany. Over 90% of all businesses in Germany can be classified as family businesses. In Germany they are accountable for >40% of all sales and are offering 53% of the jobs (Stiftung Familienunternehmen, 2014a). Although family businesses are usually small or medium sized companies, there are also slightly above 100 large family businesses listed on the stock exchange in Germany. Defining what exactly a family business is, can be quite difficult (Astrachan et al., 2002; Chua et al., 1999). However, all the definitions highlight that a family business can be characterized by its unique strategic behavior. The overlap of family, business and ownership highly influences the strategic posture and therefore also the performance of the business. Furthermore, the long-term outlook is highly advantageous for a family business since they can have a greater investment-efficiency (Anderson and Reeb, 2003). Moreover, they aim to pass down the business with its values and traditions to the next generation (Cadieux, 2007).

In today's uncertain economic environments with the fast-changing demands of customers it is crucial for family businesses to be entrepreneurial. Businesses need to be innovative, risk taking and pro-active in order to outperform their competitors and increase their performance (Covin and Slevin, 1989). This concept is known as Entrepreneurial Orientation (EO). EO in family businesses must be considered under different circumstances and is influenced by distinct factors, which may have no impact on non-family businesses. The owning family for example has a big impact on the EO of the business (Webb et al., 2010).

Previous literature revealed two different viewpoints on entrepreneurship in family businesses. One group of scholars observes family businesses as being dynamic, innovative, pro-active and risk-taking (Casillas et al., 2011). These scholars believe that the family business culture (Kellermanns and Eddlestone, 2006), the family bond and trust (Wong et al., 2010) can lead to better entrepreneurial performance and thus, also to a competitive advantage. These findings are further reinforced by Anderson and Reeb (2003), who found that if the family is in active control of the business, the business performs better.

Furthermore, the generations involved in the business can also positively influence the EO

(Kellermanns et al., 2008; Cruz and Nordqvist, 2010). Besides this, research has revealed that

public listed family firms outperform their non-family counterparts (Anderson and Reeb,

2003) and that internal entrepreneurial processes can also have an impact. Hornsby et al.

(2013) developed a concept for preparedness for entrepreneurship, which has not been studied much - to the best of our knowledge- on German family businesses.

The other group of scholars discovers family businesses as being conservative, risk-averse, non-innovative and non-pro-active (Zahra, 2005; Naldi et al., 2007). Findings show that this negative behavior increases by the length of the CEO's tenures (Zahra, 2005). Over their long tenure, CEO's become less entrepreneurial and do not invest anymore in uncertain innovative projects in order to maintain the status quo (Kellermanns and Eddlestone, 2006; Zahra 2005).

Furthermore, Naldi et al. (2007) found that risk taking in family firms has a negative impact on the firm's performance.

Therefore, we need to resolve this argument and investigate the contradicting arguments together. We are interested in how the distinct factors influence the EO of family businesses.

Furthermore, we like to gain knowledge on which factors enhance or hinder EO in German family businesses. Germany as research focus has not gained much attention in the family business - EO context, as well as the overall EO context. Saeed et al. (2014) undertook a meta-analysis on the relationship between EO and firm performance. The authors investigated 177 studies from 41 countries, where 46 studies were obtained in the United States, 29 in China but only 6 studies in Germany (Saeed et al., 2014). Thus, we believe it is time to take a closer look at Germany and especially on the German family businesses and their entrepreneurial behavior.

In our study we investigate such questions as how do German family businesses stay entrepreneurial and what factors influence this behavior? How does a listed family business, the amount and nature of family involvement or the internal processes influence the EO? We scrutinize the mentioned factors and their relation with EO. Furthermore, the moderating effect of two environmental dimensions on theses relations will be analyzed. This leads to the following research question:

What factors influence the entrepreneurial orientation of family businesses in Germany and which environmental factor moderate these relationships?

The initial first contribution of this study is to create a review of the factors influencing the

regards to which environment has a stronger or weaker influences these relations. Our results show that internal processes have an influence on the EO of a family business, as well as operating in a dynamic environment. Besides this, environmental hostility is found to have a negative influence on the CEO's tenure relation towards EO.

From a theoretical perspective the study aims to expand the knowledge of distinct factors that influence the EO of family businesses in Germany. Finally, the study aims to provide further evidence for the EO practices in family businesses.

From a managerial perspective the study aims to provide knowledge to managers about which important factors influence the family business’s tendency to be more entrepreneurially minded and which factors have the opposite effect.

The thesis will proceed as follows: first a definition of family businesses is given, followed by introducing the concept of EO. The existing literature used in family business research will be presented and the important factors influencing the family business EO will be explained.

After, the methodology of the research is presented. For this research an online-questionnaire

was conducted. The final section consists of the results, discussion, conclusion and limitations

of the study.

2 FAMILY BUSINESSES

In the following chapter we will define what a family business is. We will also explain why it is so important for family businesses to be entrepreneurial and what unique challenges may arise in being so.

2.1 Family Business Definition

A family business is a unique kind of business, which differs significantly from a non-family business (Chua et al., 1999; Naldi et al., 2007), in that family businesses must balance family, business and ownership in order to be successful (Tagiuri and Davis, 1982). Thus, the owning-family has a great influence on the values, goals and strategy (Naldi et al., 2007). At some stage in the family business's life cycle, the business will face a distinct challenge, that of succession (Chua et al., 1999). This time can be a time of uncertainty, but also a great opportunity for the business. However, the preservation of assets and reputation of the firm, as well as the long-term planning horizon, are considered to be unique characteristics of a family business. Furthermore, through their focus on sustainability and survival, family businesses are able to maintain enduring relationships with their key stakeholders- employees and customers (Kellermanns et.al, 2008; Sharma, 2004).

Although the term "family business" is a broad term and evokes associations, a general definition of what a family business is has yet to be agreed upon among scholars (Chrisman et al., 2005; Astrachan et al., 2002). The difficulty in definition is due in large part to the different approaches used in family business research (Klein et al., 2005). Chua et al. (1999) identified three common approaches to define a family business, taking in account ownership and management: (1) family owned and family managed, (2) family owned but not family managed, (3) family managed but not family owned. Most of the scholars agree that combination (1) can be considered as a family business (Chua et al., 1999). For the other two combinations there still exists some disagreement (Chrisman et al., 2005). The following Table 1 shows the wide-ranging definitions in the literature:

Table 1 Revised Definitions of Family Business (originally Chua et al., 1999)

Author(s) Definition

Alcorn, 1982 a profit-making concern that is either a proprietorship, a partnership, or a corporation. If part of the stock is publicly owned, the family must also operate

Astrachan et al., 2002 A relevant issue, therefore, is not whether a business is family or nonfamily, but the extent and manner of family involvement in and influence on the enterprise. In our view, there are three important dimensions of family influence that should be considered: power, experience, and culture. (p. 47)

Babicky, 1987 is the kind of small business started by one or few individuals who had an idea, worked hard to develop it, and achieved, usually with limited capital, growth while maintaining majority ownership of enterprise (p.25)

Barnes and Hershon, 1976 Controlling ownership is rested in the hands of an individual or of the members of a single family (p. 106)

Bernard, 1975 an enterprise which, in practice, is controlled by the members of a single family (p.42)

Carsrud, 1994 closely-held firm's ownership and policy making are dominated by members of an

"emotional kinship group" (p.40)

Churchill and Hatten, 1993 what is usually meant by family business is ether the occurrence or the anticipation that a younger family member has or will assume control of the business from the elder (p. 52)

Davis and Taguiri, 1985 a business in which two or more extended family members influence the direction of the business (quoted in Rothstein, 1992)

Davis, 1983 are those whose policy and direction are subject to significant influence by one or more family units. This influence is exercised through ownership and sometimes through the participation of family members in management (p.47)

Donckels and Frohlich, 1991 if family members own at least 60 percent of the equity (p.152)

Donnelley, 1964 when it has been closely identified with at least two generations of a family and when this link has had a mutual influence on company policy and on the interests and objectives of the family (p.94)

Dreux, 1990 are economic enterprises that happen to be controlled by one or more families (that have) a degree of influence in organizational governance sufficient to substantially influence or compel action (p.226)

Eddlestone et al., 2008 were defined as those in which ownership lies within the family and at least two family members are employed by the business. (p.35)

Gallo and Sveen, 1991 a business where a single family owns the majority of stock and has total control (p.181)

Gómez-Meijá et al., 2010 a firm is considered ‘family-owned’ if both of the following conditions are met:

two or more directors must have a family relationship; and family members must hold a substantial block of voting stock.(p. 232)

Handle, 1989 an organization whose major operating decisions and plans for leadership succession are influenced by family members serving in management or on the board (p.262)

Holland and Oliver, 1992 any business in which decisions regarding ist ownership or management are influenced by a relationship to a family or families (p.27)

Kellermanns and Eddlestone,

2006 firms where ownership lies within the family and at least two family members are employed in the firm. (p. 816)

Klein, 2000 a company that is influenced by one or more families in a substantial way. A family is defined as a group of people who are descendants of one couple and their in-laws as well as the couple itself. Influence in a substantial way is considered if the family either owns the complete stock or, if not, the lack of influence in ownership is balanced through either influence through corporate governance (percentage of seats in the Aufsichtsrat, Beirat, or others held by family members) or influence through management (percentage of family members in the top management team). For a business to be a family business, some shares must be held within the family. (p. 158)

Lansberg, Perrow and

Rogolsky, 1988 a business in which members of a family have a legal control over ownership (p.2)

Leach et al., 1990 a company in which more than 50 percent of the voting shares are controlled by one family, and/or a single family group effectively controls the firm, and/or a significant proportion of the firm's senior management is members from the same family (quoted Astrachan, 1993, pp. 341-342)

Lyman, 1991 the ownership had to reside completely with family members, at least one owner had to be employed in the business, and one other family member had either to be employed in the business or to help out on a regular basis even if not officially employed (p.304)

Naldi et al., 2007 firms where one family group controls the company through a clear majority of the ordinary voting shares, the family is represented on the management team, and the leading representative of the family perceives the business to be a family firm.

(p. 35)

Pratt and Davis, 1986 one in which two or more extended family members influence the direction of the business through the exercise the kinship ties, management roles, or ownership rights (chap 3, p.2)

Rosenblatt, deMik, Anderson and Johnson, 1985

any business in which majority ownership or control lies within a single family and in which two or more family members are or at some time were directly involved in the business (pp.4-5)

Sirmon and Hitt, 2003 a business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve and/or maintain intra-organizational family- based relatedness (p. 341; by Litz (1995))

Stern, 1986 owned and run by the members of one or two families (p.XXI)

Welsch, 1993 one in which ownership is concentrated, and owners or relatives of owners are involved in the management process (p.40)

Zahra et al., 2004 are defined as those businesses that report some identifiable share of ownership by at least one family member and having multiple generations in leadership positions within that firm. (p. 369)

Zahra, 2003 those businesses that reported some identifiable ownership share by at least one family and had multiple generations in leadership positions within those firms (p.

501)

Astrachan et al. (2002) state that "it is not relevant whether a business is family or nonfamily, but the extent and manner of family involvement in and influence on the enterprise" (p. 47). In order to generate a consistent definition how to define a business as being a family business, the authors developed a validated scale to measure the family influence on an organization.

The scale involves three subscales, which measure power, experience and culture (F-PEC Scale).

As shown and demonstrated in Table 1, there does not exist a generally accepted definition in

the literature (Chua et al., 1999; Chrisman et.al, 2005). Definitions range from family

influence over having the most decision-making rights to being family owned and but not

managed. The general consensus however, is that "family business" must be defined in a

transparent and unambiguous way (Klein et al., 2005). For this reason we will use the

European Commission (2007) definition for family businesses for the purpose of this study.

The expert group adopted a common European definition, according to which a firm, of any size, is a family business, if:

• "The majority of decision-making rights is in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child or children’s direct heirs.

• The majority of decision-making rights are indirect or direct.

• At least one representative of the family or kin is formally involved in the governance of the firm.

• Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 per cent of the decision-making rights mandated by their share capital."

A solid definition is important in order to gain reliable and valid results (Klein et al., 2005).

Hence, for further research on family business this is a crucial step. Recently, the entrepreneurial behavior of family businesses has become a focused research topic (Kellermanns and Eddlestone, 2006; Naldi et al., 2007; Casillas et al., 2011). Scholars are interested in the entrepreneurial strategies of family businesses. For example, Anderson and Reeb (2003) found that the unique characteristics of family businesses tend to foster entrepreneurship.

Very little research has been conducted on German family businesses in this context (Saeed et

al., 2014), although about 90% of all the businesses in Germany are family owned and/or

managed (Stiftung Familienunternehmen, 2014b). Most of the family businesses are

independent of external investors and exhibit a high ratio of owner’s equity, which shows that

German business owners believe in their company and have high personal ties (Stiftung

Familienunternehmen, 2014b). But how entrepreneurial can we consider these businesses,

when the owners are consistently risking their own capital? German family businesses show

tight bonds to their heritage and region, which gives them a great advantage, as regional

stakeholders value these bonds, and therefore, are loyal to the businesses. However, this could

also indicate a conservative strategy to maintain the status quo (Stiftung

Familienunternehmen, 2014b). Looking at innovative and thus, also entrepreneurial behavior

reveals that family businesses in Germany are overall less innovative than non-family

businesses (Stiftung Familienunternehmen, 2014b). Even though the internal environment and

be more stable (Stiftung Familienunternehmen, 2014b). Therefore, this stable relation ought to trigger innovative behavior, as employees should feel safe in their job and valued by their employer.

2.2 Importance of Entrepreneurship in Family Businesses and its difficulties Entrepreneurship fosters growth, employment and wealth for the family (Kellermanns and Eddlestone, 2006; Naldi et al., 2007), thus being entrepreneurial is crucial for a family business in times of dynamic and uncertain economic environments (Kellermanns and Eddelstone, 2006).

Entrepreneurship can be defined as "acts of organizational creation, renewal or innovation that occur within or outside an existing organization" (Sharma and Chrisman, 1999, p. 17). In family businesses the interest of the owning family plays a significant role in managerial tasks like establishing the goals and strategies of the company, thus also affecting entrepreneurship (Kellermanns and Eddelstone, 2006; Kellermanns et al., 2008). One could argue that the long- term outlook of family businesses allows them to allocate resources towards entrepreneurial activities (Zahra et al., 2004). Moreover, investments designed to be profitable in the far future are possible, as the founder/CEO most likely holds this position for years (Zahra et al., 2004). Besides this, leadership is an important attribute of entrepreneurship in family businesses. The CEO has the difficult task of coordinating and organizing the balance of business, ownership and family. Combining technical and organizational skills as well as understanding market demands is vital in order to be entrepreneurially minded in a family business (Zahra, 2005). However, family firms possess unique resources, which need to be managed in such a way as to gain a competitive advantage (Sirmon and Hitt, 2003).

Therefore, to be an entrepreneurial firm, these resources need to be innovative and pro-active throughout the whole organization. Besides, the process of being or becoming entrepreneurial is a continuous process, which shapes the family firms identity and mission (Zahra, 2005).

Managers are unable to foresee if an opportunity will be successful or not, however, they

often commit to ventures or projects designed to increase the family firm’s success even when

it may have a detrimental effect on them personally (Wong et al., 2010). Moreover, the

external influences of customers, suppliers and competitors must be acknowledged and

developed into new capabilities (Zahra et al., 2004). Also, the long-standing relationship with

its stakeholders is as well a great advantage for family firms in this case (Zahra, 2005).

However, entrepreneurship can also harm the family business as existing processes and systems may need to be reorganized (Zahra, 2005), this can be a difficult task that has to be communicated and accepted by the whole organization. Traditions and an unwillingness to add external investors also hinder entrepreneurship (Sirmon and Hitt, 2003), as family firms usually have the desire to stay independent. Moreover, entrepreneurship is encouraged by a culture that values innovations and new knowledge, the CEO becomes less entrepreneurial over the course of its tenure, thus, threatening entrepreneurship (Zahra et al., 2004). Besides, at the later stages of a CEO's tenure, succession takes place. This unstable event in a family business can also be a hazard to entrepreneurship (Wong et al., 2010). During this time the focus shifts towards handing over the business as opposed to exploring new ideas.

Furthermore, nepotism must also be considered, as the successor does not have to be the best or most entrepreneurially minded candidate to lead the company only by belonging to the family (Wong et al., 2010).

Overall, it can be said that entrepreneurship in a family business seems to be of utmost

importance and is carried out under primarily special or unique circumstances and influenced

by unique factors specific to that businesses. One must always consider family members'

attitudes and values as well as benefits for the company as a whole (Kellermann and

Eddlestone, 2006). The following sections will elaborate on the most important factors

influencing the EO of family businesses.

3 HYPOTHESIS DEVELOPMENT

3.1 Entrepreneurial Orientation

EO is a well-researched concept (Rauch et al., 2009; Saeed et al., 2014). Firms that adopt EO gain competitive advantages and are able to convert their first-mover advantage into dominant performance (Lumpkin and Dess, 1996; Rauch et al. 2009; Zahra, 1991; Zahra and Covin, 1995; Rauch et al., 2009; Saeed et al., 2014). EO can be seen as the strategic orientation of a company, as it shows how the company operates and the actions necessary to take in order to achieve competitive advantage. It can be seen as a firm-level phenomenon for SME's (Covin and Slevin, 1991).

Miller (1983) conceptualized three dimensions, which determine EO in firms: innovativeness, pro-activeness and risk taking (Zahra and Covin, 1995). The author underpins this by stating that an “entrepreneurial firm is one that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with "proactive" innovations, beating competitors to the punch” (p. 771).

Following, a firm is considered to be innovative when it engages in new and innovative ideas and departs from existing technologies or products and instead ventures into new ones (Lumpkin and Dess, 1996). A firm is risk-taking, when it is willing to commit to a project not knowing what the outcome will be and where the cost of failure may be high (Lumpkin and Dess, 1996; Wiklund and Shepherd, 2005). A firm, which is pro-active, seeks for opportunities in new markets and is more active than its competitors (Lumpkin and Dess, 1996; Covin and Slevin, 1991).

Besides Miller's concept, there exist different conceptualizations of EO (Lumpkin and Dess, 1996; Hughes and Morgan, 2007; Covin and Slevin, 1989). Lumpkin and Dess (1996) introduced two further dimensions and also adapted a different view on EO. These two authors measure EO as the tendency towards being entrepreneurial rather than actually taking an action.

Initially, the concept of EO was introduced as unidimensional concept (Miller, 1983; Covin

and Slevin 1989). The majority of studies on EO are in cohesion with this view (Rauch et al.,

2009; Saeed et al., 2014). Saeed et al. (2014) state in their study that research has shown

strong positive correlations among the three original dimensions, thus, supporting a unidimensional concept. A few other scholars see the concept of EO as a multidimensional concept, in which each dimension has a single effect on the performance of the company (Lumpkin and Dess, 2001; Wales et al., 2013), hence a firm can be entrepreneurial without necessarily reaching high levels of all dimensions. As such it is clear that scholars don't agree on one single view, therefore there exists, no consistent definition of how to construct the dimensions of EO.

That being the case, in this study we employ an understanding of EO as the actual behavior of firms and not the attitude or tendency towards being entrepreneurial. To maintain consistency, we choose the most used 3-component definition of EO (innovativeness, pro-activeness and risk-taking) and treat them as unidimensional construct (Rauch et al., 2009).

3.2 Factors influencing EO of family businesses

The following section will explain the distinct factors that have an influence on EO of a family business. We will as well take a closer look at: whether or not the family business is a listed company, if the CEO is a family member, the CEO's tenure, the next generation of the business and the level of preparedness for entrepreneurship. Based on academic literature, we will develop hypothesizes by discussing the aforementioned antecedents of family business EO and their influence. Also the moderation effect of environmental dimensions will be elaborated upon. The section ends with a conceptual model.

3.2.1 Listed Companies

In general, family firms are mostly recognized as being small or medium sized companies and

public listed companies as large anonymous groups, which are only chasing profits. However,

public listed companies can also be family firms and can hold the same values as their non-

listed counterparts. Scholars found that listed and non-listed family businesses alike seem to

have the same spirit driving them - family ownership (Anderson and Reeb, 2003; Wright and

Kellermanns, 2011). Habbershon and Williamson (1999) defined this spirit as "familieness",

the interaction between family and business that creates idiosyncratic resources and

capabilities. Additionally, it seems that EO differs in listed and non-listed family firms. The

difference between listed and non-listed family businesses has mainly been studied in Asian

countries and Australia (Filatotchev et al., 2005; Chen et al., 2005; Mroczkowski and

Tanewski, 2007). Listed family businesses tend to be confronted with more agency costs between managers and shareholders, than non-listed family businesses (Wong et al., 2010). In addition, listed family businesses seem to have more financial resources to invest in new and hazardous projects (Wong et al., 2010), if a project fails it does not affect them as much as smaller non-listed companies. Hence, they seem to be more entrepreneurial. The intangible assets of family businesses, like values and traditions, have an influence on the strategy of the company, as well as the ownership (Zahra, 2003). These assets seem to also influence even the listed family firms and encourage them to invest efficiently, as their goal is sustainability (La Porta et al., 1999). The success of the family firm depends heavily on maintaining the balance between family, ownership and business and not only managing one of the factors (Sharma, 2004).

Thus, we found strong arguments for listed family companies being more entrepreneurial than non-listed family firms, more than likely due to their size as they have access to more resources allowing them to engage in uncertain projects. Although there is some evidence for a negative effect, we can neglect it or assume insignificant in this case.

Hypothesis 1: Family businesses listed on a stock exchange will have a higher EO compared to non-listed family businesses.

3.2.2 Family Member CEO A family member is CEO

Family firms have special characteristics, which differ from non-family businesses as previously stated. Naturally, most of the family firms are managed by the owning family or by the founder of the firm. Furthermore, researchers have found that the interplay between the family system and business system is a unique one (Chua et al., 1999; Kellermanns et al., 2008). The stability of performance of the family business can be attributed to the family member in the management. The long-term view creates long-lasting relationships with critical organizational stakeholders (Bertrand and Schoar, 2006; Kellermanns et al., 2008).

Additionally, the unique characteristics of the family member may enhance the

entrepreneurial behavior (Chua et al., 1999). A family member is mostly very involved and

dedicated to long-time goals of the family business (Chua et al, 1999; Kellermanns et al.,

2008; Webb et al., 2010). Moreover, the family's reputation, values and external relationships

of the business play a big role in the decision making process (Webb et al., 2010). Therefore,

a family member CEO makes decisions that keep the business running, but always considers the long-term objectives (Sharma, 2004). It is common that family member CEO's tend to personally sacrifice themselves in order to pursue the goals of the organization (Wong et al., 2010). However, a family member CEO is likely to be less entrepreneurial when investments become too risky and may damage the family control or wealth (Gómez-Meijá et al., 2007).

In this way they protect the family reputation and traditions by avoiding entrepreneurial actions and keeping the status quo.

A non- family member is CEO

To increase performance and the chances of survival some family businesses hire an external manager to lead their company (PwC Study, 2014). As long as the family holds ≥ 25% of the shares it is still considered a family business (European Definition, 2007). This happens more often and the agency costs, which were non-existent in family firms due to the overlap of management and ownership, gain more attention and recognition in the literature (Chrisman et al., 2004; de Lema and Duréndez, 2007; Kellermanns et al., 2008; Wright and Kellermanns, 2011; Wong et al., 2010). However, there is very little research on non-family member management (Wright and Kellermanns, 2011). Employing an external CEO is a large and significant step for a family firm. It can imply a loss of control, an increase of informational asymmetries and goal conflicts (Gómez-Meijá et al., 2007). Also the dynamism in a firm changes rapidly when another set of stakeholders enter the firm (PwC Study, 2014). The non- family member CEO may have different views and values than the owning family of firm, however this need not always be the case, family values and influence can also remain in the forefront of all decision making (PwC Study, 2014). The non-family CEO is inclined to be more entrepreneurial and open minded, as he is not emotionally attached to the firm (Sharma, 2004). Family members can get stuck in their perception and fail to recognize when a firm needs to change its direction or be more entrepreneurial (Zahra, 2005).

Additionally, in financial matters a family CEO can face restrictions, which a non-family

CEO may not face due to their varied and greater social networks. These social networks may

help gain access to greater external financial resources, which in turn, can enhance the

innovativeness of the firm (Carney, 2005; Casillas et al., 2011). A non-family member is able

to make a distinction between the emotional attachments towards the family business and the

business performance or goals (Casillas et al., 2011), therefore, being able to make more

reasonable decisions, which may increase EO.

On the other hand, agency costs can increase, if the non-family CEO does not share the views of the owning family. As a result, it can harm the entrepreneurial behavior of the firm (Sharma, 2004). However, the family's wealth is tied to the company and as such, the family will seek to maintain this wealth, even if a professional manager is leading the company.

Therefore, the family most likely will monitor the non-Family CEO closely (Sharma, 2004) and possibly intervene when the company is not going in the aimed direction. Additionally, if a non-family member manages the business, it does not mean that the family has no influence.

Family members can be on an advisory or supervisory board (Klein et al., 2005).

It follows that there are implications for both cases. One set of arguments, though, appears more appealing than the other as being an external manager leading a family business seems to be at an advantage as he is not emotionally tied to the company and is able to make rational and entrepreneurial decisions. Thus, although there is some evidence for a negative effect for this argument, we can neglect it or assume it to be insignificant in this case.

Hypothesis 2: If the CEO is a family member it will have a negative effect on the EO of the family business.

3.2.3 Tenure of a CEO in a family business

The tenure of CEO's in family businesses is usually longer than that of non-family businesses, due to their ownership and influence on the business (Kellermanns et al., 2008; Miller and Breton-Miller, 2006; Wong et al., 2010). The tenure usually exceeds 15 years, which is 3 times as long as non- family business CEO's (PwC Study, 2014). Over this long time periods one person is leading a family business there are mostly negative effects on the EO of the family business.

Through a lengthy tenure a CEO is able to gain both knowledge and experience of the

industry and market. Therefore, he is more confident to judge a risky, uncertain action and

also able to recognize a profitable opportunity (Kellermanns et al., 2008; Miller and Breton-

Miller, 2006). A long tenure can also enhance investment in long-term projects, which would

otherwise not be possible if the CEO were to change more often (Miller and Breton-Miller,

2006). Also employees might be less likely to question actions or ideas taken by the CEO,

which can have a positive influence on the EO of the company as they support the direction of

the CEO (Zahra et al., 2004).

On the contrary, Zahra (2005) found in his study looking at U.S. firms that a long tenure has a negative influence on the innovativeness of the company. This seems to be due to the resistance to change, fear of loosing wealth and the feeling of obligation towards maintaining the status quo in the later stages of the tenure (Kellermanns et al., 2008). But also, CEO's hesitate to engage in projects, which might harm them later on in their tenure, such as unrelated diversifications or hazardous acquisitions (Miller and Breton-Miller, 2006). Over time, sources of information can become increasingly smaller and restricted for the CEO, as his entrepreneurial horizon becomes more narrowed (Zahra, 2005). In most cases it is the goal of the family business CEO to stay in power until the next generation is ready to take over the company (Miller and Breton-Miller, 2006). Thus, it may lead to a lower entrepreneurial mindset overall as the CEO performs its duties in a risk-averse manner (Kellermanns et al., 2008). A family firm CEO cares about the long-term survival of the company without regard to quarterly earnings or stock prices (Wong et al., 2010). Furthermore, the family founder for example can have a great influence on the culture and performance of the company during and after his tenure (Sharma, 2004), this influence can also harm the EO, if the founder was very traditional and conservative.

As outlined the negative effects are pervasive, although scholars remain indifferent about the influence of a long tenure on EO. As such, we stay in line with Zahra's finding (2005) and therefore propose the following:

Hypothesis 3: The long tenure of the CEO will have a negative effect on the EO of the family business.

3.2.4 Next Generation

Including the next generation in the business is a unique characteristic of a family business.

To successfully complete a succession process is a critical factor in a family business life

cycle (Cadieux, 2007). This phase differs from non-family business successions, as in family

businesses the next generation is most likely a family member and thus, numerous issues can

arise. Especially for the predecessor this phase can be difficult, as he has most likely spent his

whole life managing the family business. Hence, it represents a big part of his personal,

professional and social live (Cadieux, 2007). Although some studies look at the influence of

different generational levels (Zahra, 2005; Aldrich and Cliff, 2003), it seems more significant

to differentiate the phases in which only one generation is presently leading the company and

successive phases of the next generation entering the company, thus two generations work simultaneously until the predecessor has left the company (Casillas et al., 2011).

Founders or predecessors tend to loose their entrepreneurial mindset in the later stages of their tenures (Cadieux, 2007; Kellermanns and Eddlestone, 2006). At this later stage they only take actions that ensure the survival of the firm and do not harm the family wealth (Kellermanns and Eddlestone, 2006). At the time the next generation becomes involved, the next generation must push the company forward with innovative ideas and becomes obliged to seek new entrepreneurial opportunities (Zahra, 2005).

Research has found that there may be a difference in the EO of a family firm during different stages of family involvement (Cadieux, 2007; Cassilas et al., 2011). For example, with involvement of the next generation in the company the EO may decrease before and during the time of succession (Cruz and Nordqvist, 2010; Kellermanns et al., 2008; Salvato, 2004).

The focus of the predecessor shifts to long-term continuity and survival (Casillas et al., 2011), by acting as a mentor to the new generation and leading the way towards a new stage in the company's life (Cadieux, 2007). During this time, transfer of knowledge, values, passion and social networks are the key factors (Cadieux, 2007). Besides, the way these attributes are transferred to the next generation and the relationship of the two generations has a significant influence on the performance and success of the successor (Sharma, 2004). Moreover, the author states in her research that it is of high importance to successfully complete the transfer of the aforementioned factors in order for the family firm to gain competitive advantage (Sharma, 2004).

On the contrary, the next generation seems to have a positive influence on a family business, since the predecessor loses his entrepreneurial mindset over time and the new generation brings new, innovative ideas and fresh spirit into the company, which fosters the EO of the firm (Salvato, 2004). A new generation seems to be more risk-taking, innovative and proactive. This generation wants to drive the company forward to maintain growth and success (Kellermanns and Eddlestone, 2006).

Nevertheless, following the first line of reasoning that the next generation involvement most

likely will decrease EO of a family business, as the focus shifts towards handing over the

business and the next generation can mainly start to act entrepreneurial after the succession,

we hypothesize:

Hypothesis 4: When the next generation gets involved in the business it will have a negative effect on the EO of the family business.

3.2.5 Preparedness for Entrepreneurship

Internal environmental factors of a company have an influence on the innovativeness of the company and therefore also on EO (Burgelmann, 1983a,b). In family businesses, these internal factors (e.g. organizational structure, culture and systems) are highly influenced by the family CEO or other family members working in the company (Sirmon and Hitt, 2003;

Wong et al., 2010). Researchers state that the long-term view, and/or the distinctive

"familiness" can have an influence on the entrepreneurial behavior (Hall et al., 2001;

Sanchez-Famoso et al., 2014).

Internal communication and knowledge sharing can foster new ideas and innovation among employees, which then increases the competitive advantage of the firm (Durán-Encalada et al., 2012). If the family is open to new ideas and innovation it will support a creative environment. The relationship among the employees and their relationships with their superiors, which may be a family or non-family member, is of great importance as well (Barnett and Kellermanns, 2006).

To asses a company's readiness to stimulate entrepreneurial behavior, Hornsby et al. (2002) have developed a model consisting of four major factors (Hornsby et al., 2013): work discretion/autonomy, time availability (and other resources), management support, and rewards/reinforcement. Together these four dimensions form the concept of "preparedness for entrepreneurship".

The level of work discretion/autonomy within a family business might be of great

consequence. When the management board is only run by family members, non-family

members may have the feeling of not being involved in decision making or development of

new ideas, thus adapting an indifferent posture (Martin and Lumpkin, 2003; Wiklund and

Shepherd, 2005; Zahra, 2005; Zellweger et al., 2012). Employees should gain a minimum

level of autonomy and freedom allowing them to make decisions regarding new ideas (Saeed

et al., 2014). They must, however, also be allowed to fail, as well hold positions of authority

to delegate tasks to lower level employees (Hornsby et al., 2013), hence the employees can

learn to develop an entrepreneurial attitude instead of being indifferent.

Time availability seems to be of importance as well, as the employees need time and an evenly allocated workload to develop innovative thoughts (Hornsby et al., 2002; Wiklund and Shepherd, 2005; Zahra 1991). Furthermore, the business needs to structure the jobs in a way that supports efforts to achieve short- and long-time goals (Hornsby et al., 2013). Employees that have enough time for their work are more able to produce entrepreneurial ideas, such as what processes could be changed to be more time and cost efficient.

Management support may be the most crucial factor, because if the management does not encourage its employees to engage in the creation of new ideas or seeking new opportunities, the company cannot establish a culture that promotes entrepreneurial behavior (Hornsby et al., 2013; Larsen and Lewis, 2007). This is especially important for family businesses, as the management can be the main driver for EO or the main barrier. The mangers attitude affects the internal culture and the EO of a business adapts accordingly (Hornsby et al., 2013).

Additionally, the management needs to be able to set aside financial resources for new ideas and projects (Cruz and Nordqvist, 2010; Larsen and Lewis, 2007; Wiklund and Shepherd, 2005).

Rewards or reinforcement systems are a trigger to support the entrepreneurial mindset of the employees and stimulate a creative and entrepreneurial environment (Hornsby et al., 2002).

Rewarding and reinforcing employees for good ideas will encourage them to keep thinking innovative and to come up with new ideas (Hornsby et al., 2002). It has been shown, that rewards encourage to take risk or to be innovative, thus, having a strong effect on the individual attitude to engage in entrepreneurship (Hornsby et al., 2002). Following, rewards will stimulate an internal entrepreneurial environment.

Consequently it is clear, that there are implications for all four dimensions. The arguments of the four dimensions: work discretion, time availability, management support and rewards/

reinforcement all indicate strong effects on the EO of a family business, therefore we assume a positive effect of preparedness for entrepreneurship. While there is some evidence for a negative effect for the dimensions, we can neglect it or assume insignificant in this case.

Hypothesis 5: Preparedness for entrepreneurship will have a positive effect on the EO of the

family business.

3.2.6 Moderating effects of External Environments

Research sets a high level of importance on two external influences: hostility and dynamism (Lumpkin and Dess, 2001; Rauch et al., 2009; Wiklund and Shepherd, 2005; Zahra and Garvis, 2000). These two factors have also been studied on family firms (Casillas et al., 2011;

Cruz and Nordqvist, 2010). This research looks at the moderating role of hostility and dynamism on the relationship between factors influencing EO and EO.

Covin and Slevin (1989, pg. 75) characterize a hostile environment by "precarious industry settings, intense competition, harsh, overwhelming business climates, and the relative lack of exploitable opportunities." Under a hostile environment, companies must redefine themselves often, be careful to observe the actions of competitors and reestablish industry boundaries (Zahra and Covin, 1995). Family businesses tend to react with a conservative and less entrepreneurial posture to a hostile environment, as they perceive such an environment as threat to survival of the business (Gómez-Meijá et al., 2007).

In a dynamic environment, managers perceive the market as very instable due to continuous changes (Sirmon et al.; 2007; Zahra, 1991). Quick changes in market demand, customer preferences and technologies characterize this environment. Dynamic environments make current products and services obsolete and demand new ones (Jansen et al., 2006). New opportunities often emerge in these environments, which companies can then explore through their entrepreneurial behavior (Zahra, 1991).

In a hostile and dynamic environment, listed companies seem to be more capable of acting entrepreneurial, as the CEO is more than likely not a family member, and as such, is better able to evaluate the opportunities (Filatotchev et al., 2005). As Covin and Slevin (1989) suggested, companies tend to be more entrepreneurial as a response to an aggressive environment, therefore in this way, listed companies may have an advantage. They have larger resources, both financially and non-financially, than non-listed businesses, enabling them to act more entrepreneurially. However, non-listed family businesses can be more flexible, as they may be able to adapt to uncertain environment more quickly (Sharma, 2004), as they do not have to deal with many different shareholders. Thus, in a dynamic environment family businesses in general tend to be more entrepreneurial, reducing the positive influence of being a listed family business.

Hypothesis 6a: Environmental hostility and dynamism will have a negative moderating effect

on the relation between a listed family business and EO.

Owner-CEO's or family board members tend to adopt a conservative behavior if the company operates in a hostile and dynamic environment (Gómez-Meijá et al., 2007). They are for the most part, unwilling to make uncertain and unsafe decisions as this could harm the company and therefore also the family wealth (Gómez-Meijá et al., 2007). Thus, lowering the EO of the company. Those CEO's rather aim on survival than on growth (Sharma, 2004). Non-family CEO's tend to have a better understanding of the environment and are not emotionally attached to the company, hence they are more inclined to realize that the company has to increase its entrepreneurial behavior in a hostile and dynamic environment in order to stay competitive (Casillas et al., 2011). Non-family CEO's are viewed as experts as they tend to have greater and more diverse social networks (Carney, 2005). Research has found that a dynamic environment is best for family-managed firms, as they tend to be more flexible (Cruz and Nordqvist, 2010).

Hypothesis 6b: Environmental hostility and dynamism will have a positive moderating effect on the relation between family member CEO and EO.

The environment may have an influence on the actions of a CEO with a long tenure as well.

At the latter stages of the tenure, the CEO seems to be more risk averse, non-proactive and non-innovative, as he wants to sustain the company's performance for the next generation (Cadieux, 2007; Kellermanns et al., 2008; Miller and Breton-Miller, 2006). Hence, he is more focused on maintaining the status quo rather than seeking for new opportunities (Kellermanns et al., 2008; Zahra, 2005). Furthermore, a hostile and dynamic environment might add to the negative behavior towards risk-encumbered decisions and seizure opportunities. The quickly changing circumstances are so immense that the knowledge of yesterday becomes useless today (Henderson et al., 2006). Additionally, if mistakes are made, the consequences for the company are enormous (Henderson et al., 2006).

Hypothesis 6c: Environmental hostility and dynamism will have a negative moderating effect on the relation between the long tenure of the CEO and EO.

When the next generation gets involved in the company, the entrepreneurial behavior seems

to be low. Since at the time of succession passing down of values and views, as well as

developing a shared vision for the company are considered to be more important (Cruz and

Nordqvist, 2010). Moreover, the succession process can become dangerous supposing it

occurs in a hostile and dynamic environment. As many changes emerge the company is urged

family wealth (Gómez-Meijá et al., 2007). These consequences can lead to conflicts within the family and between the predecessor and successor (Breton-Miller et al., 2004), hence resulting in a negative impact on the EO.

Hypothesis 6d: Environmental hostility and dynamism will have a negative moderating effect on the relation between the next generation involvement and EO.

Dynamic and hostile environments are meant to foster internal entrepreneurship since only throughout internal development can the company manage to stay competitive (Covin and Slevin, 1989). Therefore, sticking to a conservative and static behavior will more than likely result in the family businesses losing its advantages (Zahra, 2005). Thus, the company is required to adopt a strategy towards EO in response to the changing demands, threats and opportunities (Zahra, 1991). The connection of organizational resources to the external environment is a fundamental issue in strategic management research (Wiklund and Shepherd, 2005). Hence, EO is needed in these environments (Wiklund and Shepherd, 2005).

Management support, autonomy and the availability of resources as well as rewards and reinforcement may be of fundamental importance in fostering EO while operating in a hostile and dynamic environment.

Hypothesis 6e: Environmental hostility and dynamism will have a positive moderating effect on the relation between the prepared internal strategy for EO and EO.

3.3 Research Model

Building on the literature review, we propose the following conceptual model for our research

(Figure 1):

Figure 1 Conceptual Model

4 RESEARCH DESIGN AND METHODOLOGY

4.1 Sample and Data collection Research setting: Germany

This research is based on a survey of a sample of family businesses in Germany. Germany is an interesting country to study, as 90% of all businesses are family businesses. In addition, most of the studies researching on EO were conducted in the U.S. (Kellermanns and Eddlestone, 2006; Zahra, 2005; Zahra et al., 2004), Spain (Casillas et al., 2011; Cruz and Nordqvist, 2010) or Asia (Wong et al., 2010).

Data collection. The data were collected via an online-questionnaire using the online software Qualtrics in the time between the 28th November 2014 and the 04th January 2015. The questionnaire was sent to the businesses via e-mail. In total, 395 non-listed family businesses in Germany and 103 listed family businesses were contacted. The non-listed companies were found through 82 Chambers of Commerce and 5 Family Networks. The listed companies were found using the GEX (German Entrepreneurial Index)

¹

and the DAXPlus Family Index

²

of the Frankfurter Stock Exchange.

The questionnaire (Appendix 8.1) was designed in such a way that it could be answered by top-/ middle-/ or lower-management. This was done to ensure there would be no bias if top- management were unable to participate in the questionnaire. In addition, the questionnaire was translated into German, to gain a higher response rate. We used the method suggested by Douglas and Craig (1983), which involved translating, back translating and refinement until they were context equivalent. Furthermore, the questionnaire was tested on a German family firm, which is not included in the sample and was further refined afterwards.

1 "The GEX is defined as followed: GEX member companies must be “owner-dominated”. In other words, the management and supervisory board members or their families must hold between 25 and 75 percent of the voting rights. Even if the company has a long-standing tradition, it must have first gone public less than ten years ago. GEX includes German companies listed in the Prime Standard segment of Frankfurter

Wertpapierbörse (FWB®, the Frankfurt Stock Exchange)" (Stiftung Familienunternehmen, 2014c)

2 "The DAXplus family index tracks the performance of listed family businesses and comprises German and international companies from the Frankfurt Stock Exchange’s Prime Standard in which the founding families hold at least a 25 percent share of the voting rights or sit on the management or supervisory board and hold at least a 5 percent share of the voting rights. 113 businesses currently qualify for the index. The DAXplus Family 30 index comprises the 30 largest and most liquid shares of the DAXplus Family index and is also intended to serve as an indicator for medium-sized family businesses preparing for an IPO. (© Deutsche Börse AG)"

Sample. We received 164 questionnaires, of which 64 had to be rejected, as they were not completely answered. Further, 3 companies had to be deleted as they were not in Germany and another 2 indicated that they are not a family business. Hence, for the Analysis 95 questionnaires could be used. Response rate is therefore 19.1%.

This number of respondents is in line with Harris's (1985) formula for the minimal sample size. Harris states that the number of participants should exceed the number of predictors by at least 50 (VanVoorhis and Morgan, 2007). In our study the number of predictors in the largest model is 10, which is less than 45 (95-50).

The characteristics of the family businesses in this sample (Table 2) show that the majority of the businesses can be classified as large businesses (53.7% companies have more than 500 employees) and that 25 (26.3%) of the family businesses are older than 100 years. From a sectorial point of view 54 of the companies belong in the manufacturing industry (56.7%) and 41 in the service industry (43.3%). The questionnaire was mainly answered by individuals in top-management positions (52.6%).

Table 2 Characteristics of the Sample

Characteristics Mean/ Frequency Percentage

Company Characteristics Listed company 29 30.5%

Non-listed company 66 69.5%

Age of company (average) 64.8 years Size of company (average) 368.4 employees

Performance Turnover (average) 76.3 million €

Financial (over past 5 years) Increased 80%

Market share (over past 5 years) Increased 65.3%

Industry Manufacturing 54 56.7%

Service 41 43.3%

CEO Characteristics Family Member 71 74.7%

Tenure (average) 20,3 years

N = 95

4.2 Measures

In the following subsection, we will present the measurements for the different variables in our analysis. We used five independent variables and looked at their direct effect on EO.

Furthermore, we controlled for company age, size and the industry a company operates in.

4.2.1 Measuring the Dependent Variable - EO

As described in the theory section, EO measures the tendency towards being entrepreneurial (Dess and Lumpkin, 2005). Although, Lumpkin and Dess (1996) introduced two additional dimensions, autonomy and competitive advantage, we choose to only consider the original three dimensions: innovativeness, pro-activeness and risk-taking (Covin and Slevin, 1989;

Miller, 1983). There are two main reasons for this decision, first of all there has been very little research on the five dimensions and family businesses, so a complete understanding is missing (Casillas et al., 2011) and second of all, Rauch et al. (2009) found in their meta- analysis that the unidimensional construct of Covin and Slevin (1989) is the most applied one in EO research (Casillas et al., 2011; Lumpkin and Dess, 2001; Kellermanns and Eddlestone, 2006; Wiklund and Shepherd, 2005; Naldi et al., 2007). Consequently, for this study we also used the widely accepted EO scale, which was developed by Miller (1983) and modified by Covin and Slevin (1989). This scale has proven reliability and validity (Covin and Slevin, 1989; Wiklund and Shepherd, 2005). The respondents were presented with nine bipolar statements using a 7-point Likert-Scale, ranging from 1 (strongly disagree) to 7 (strongly agree). As we want to investigate the general effect on the entrepreneurial behavior of a family business and not on individual dimensions, we are using a unidimensional construct (Rauch et al., 2009; Saeed et al., 2014). Finally, we averaged the nine items, to form a final variable.

4.2.2 Measuring the Independent Variables

Listed/ unlisted company

This variable was measured with one direct question inquiring whether or not the business is listed on a stock exchange. The item was presented as a question with two possible answers:

(1) yes and (0) no.

(Non-) Family Member CEO

This variable was measured using one item, asking whether the CEO is a family member.

This item was presented as question with two possible answers (1) yes or (0) no.

Tenure of the CEO

The tenure of the CEO was measured with one direct question, inquiring as how long the CEO has already been working for the company. The respondent was presented with a scale of 1 to above 30 years.

Next Generation Involvement

To measure the next generation involvement, we used two items. The questionnaire contained two questions, asking (1) if the next generation already works in the company, and (2) whether a succession process is foreseeable in the near future. The two questions were presented as statements with two possible answers: (1) yes or (0) no. To form a final variable, we created a dummy variable which presents a (1) when both questions were answered with

"yes" or at least one of the question was answered with "yes" and (0) when both questions were answered with no. This indicates how the next generations involvement influences EO, since either the next generation is already working within the company or the company has considered the involvement about the next generation, which is also an indication for a decrease in the EO (Cadieux, 2007).

Preparedness for Entrepreneurship

It is also interesting to see how the internal strategy is prepared for entrepreneurship and how

this affects the EO of a family business; hence, we choose to investigate this in our study. The

preparedness for entrepreneurship concept is divided into four major factors: work discretion,

time availability, management support and rewards/reinforcement. These factors were

measured using an 18-item scale introduced by Hornsby et al. (2013), which is a modified and

shorter version of the original 48-item scale (Hornsby et al., 2002). We further modified the

scale to adapt it to our study. Initially, the scale had been designed to be answered by the

middle management, however, we re-phrased the items in a way that also non-middle

managers could answer them. The items were presented as statements with a 7-point Likert-

scale ranging from 1 (strongly disagree) to 7 (strongly agree). Similar to the EO concept, we aimed to take into account the overall effect of the preparedness for entrepreneurship concept on EO. We believe that the four dimensions are related to each other, if management does not support its employees they won't be motivated to be innovative and management support also indicates rewarding the employees. Hence, the four dimensions should have a unidimensional effect on the EO of a family business. Finally, we grouped and averaged the 15 items, to obtain the final variable.

Environment - Hostility and dynamism

The two moderators, environmental hostility and dynamism, were measured using highly reliable scales, which have been used in previous studies (Casillas et al., 2011; Lumpkin and Dess, 2001). These studies looked at the moderating effect on the EO - performance relationship. Our study focuses on researching on the direct influence of factors on EO.

Following, the variables are moderating the relation between antecedents of EO and EO.

To measure dynamism, Miller and Friesen (1982) originally developed a 5-item scale. For

hostility, Khandwalla (1977) developed a 3-item scale. Both scales are presented as

statements using a 7-point Likert-scale. We had the goal to identify which of the items were

related to the two factors: hostility and dynamism. The exploratory factor analysis provided us

with a 3-factor solution, as shown in Table 3. Based on our sample size of 95, a factor loading

of 0.6 and above was considered significant (Hair et al., 1998). Hostility obtained the highest

percentage of explained variance with 38.84%. Dynamism obtained an explained variance of

23.11%, resulting in an overall explained variance of 61.95%. Dynamism consists of 2 items

(Dynamism 2 and 5) resulting in a Cronbach's alpha of 0.71. Hostility consists of 4 items

(Hostility 1-3 and Dynamism 3). We decided to add dynamism 3 to hostility as it states, "It is

difficult to predict the actions of our competitors", which is also true for a hostile

environment. The resulting scale has a Cronbach's alpha of 0.69, which is close to the classic

cut-off criteria of 0.7.