Do family control and financial condition matter?

Manisha Singal
Manisha Singal

Do family firms invest more in corporate social responsibility because they are family firms or because they are financially stronger?

Research by Manisha Singal shows that financial condition is the primary determinant of such investments, not family control.

Family owned or controlled firms in the hospitality and tourism industry tend to be in better financial condition than nonfamily firms and therefore invest more in corporate social responsibility programs than nonfamily firms, Singal says.

“When controlled for financial condition, however — comparing firms with similar financial conditions — there is no difference between family and nonfamily firms in investment in corporate social responsibility,” Singal says.

Effects of ownership

Singal, an assistant professor of hospitality and tourism management, says various studies have found that publicly traded family firms generally demonstrate stronger financial performance than nonfamily firms, and that firms that do well are better able to incur discretionary expenditures such as those related to corporate social responsibility.

Her research, evaluating the effects of ownership (family vs. nonfamily firms) and financial condition (as measured by credit rating) on performance in corporate social responsibility. is based on a sample of publicly traded hospitality and tourism firms during the 1990–2011 period.

Companies in the industry that are controlled or owned by the founding family include Marriott, Hilton, Carnival Cruises, Panera, and Starbucks, Singal says. Nonfamily firms include McDonalds and Ryan’s.

Reputation versus profit

In their socially responsible activities, family firms do invest more in “mitigating concerns that might sully their reputation or result in legal claims or penalties than in taking positive initiatives to strengthen corporate social responsibility performance,” Singal says.

“Overall and surprisingly, family firms do not participate in corporate social responsibility in a manner that is significantly different from nonfamily firms.”

As for whether better financial performance leads to better social performance or vice versa, Singal says her findings support both theories.

“There’s a strong correlation between financial condition and investment in corporate social responsibility — both family and nonfamily firms invest significantly more in corporate social responsibility when they do well financially. We also find that strategic investment by family firms in corporate social responsibility positively affects their future financial performance.”

Singal’s article, “Corporate Social Responsibility in the Hospitality and Tourism Industry: Do Family Control and Financial Condition Matter?” was published in the International Journal of Hospitality Management, 2014.

Virginia Tech Pamplin College of Business Virginia Tech Pamplin College of Business Magazine Spring 14

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