In recent years, the literature has increasingly focused on the internationalization of family-owned small and medium-sized enterprises (SMEs) (Fernandez and Nieto 2014; Kontinen and Ojala 2010, 2012; Zahra 2003), given the large diffusion of these firms and the specificities that characterize their governance and management. Scholars have suggested that the characteristics of these firms may influence their internationalization strategies. However, there is no consensus on the precise effect of family involvement on internationalization, and empirical research findings are inconsistent (Reuber 2016). One factor that may help to explain these inconsistencies is the heterogeneity of family firms. It may therefore be better to move from studies comparing family and non-family firms to more in-depth analyses of differences among family firms (Sharma et al. 2014). The heterogeneity of family firms is reflected in both their ownership and governance structures and their approaches to internationalization (De Massis et al. 2018). In particular, it has been shown that most family-owned SMEs tend to have low levels of commitment to internationalization (Graves and Thomas 2008; Segaro et al. 2014), but some adopt high commitment modes, such as foreign direct investments (Laufs and Schwens 2014). This study focuses on internationalized family-owned SMEs and, in particular, firms that own subsidiaries abroad. The study aims to investigate the foreign ownership mode chosen by family SMEs, or how they control their investments abroad--through full ownership (a wholly owned subsidiary) or sharing the ownership with other partners (a joint venture)--and to study how this choice is influenced by the role played by the owning family in the governance of the firm. Studying this aspect appears to be particularly important if we consider that existing literature on the internationalization of family SMEs has more frequently focused on export activity and on the decision to enter foreign markets, mainly investigating whether family firms internationalize to a greater or lesser extent compared to non-family firms (De Massis et al. 2018; Fernandez and Nieto 2014; Pukall and Calabro 2014). Moreover, the choice of foreign ownership mode is critical, because each ownership mode choice implies different pros and cons, exposing the parent firm to different risks and benefits (Kao and Kuo 2017); we argue that this choice may be influenced by family firms' specificities and attitudes, as well as by the role played by the owning family in the governance of the firm.
In the international business literature, the foreign ownership mode choice has been widely studied with particular focus on the initial decision when the firm first enters a foreign market (Brouthers and Hennart 2007; Canabal and White 2008; Harzing 2003; Morschett et al. 2010; Tihanyi et al. 2005; Zhao et al. 2004). Previous studies have highlighted the importance of distance between home and foreign countries in influencing choices regarding internationalization and foreign ownership modes (e.g., Ghemawat 2001; Strange et al. 2009). Considerable attention has been paid to the effect of cultural and psychic distance (Beugelsdijk et al. 2018; Laufs and Schwens 2014). However, the results of studies on the impact of distance on entry mode choice are still equivocal, and scholars who have reviewed this stream of literature have called for research that (1) examines different dimensions of distance, and (2) takes account of the importance of the characteristics of the main owners and decision-makers (Canabal and White 2008; Laufs and Schwens 2014).
This paper answers this call by studying foreign ownership mode choice among family-owned SMEs, and investigating the role played by family control (CEO or/and board chair from the owning family) in choices regarding foreign investment control. Moreover, we analyze the impact of three dimensions of distance (cultural, geographic, and institutional) to understand whether and how each of these dimensions affects the choice between full and shared ownership of the foreign investment, and whether their effect differs in family SMEs characterized by different levels of owning-family involvement. We propose a socioemotional wealth (SEW) perspective, a key aspect of which is that risk attitudes of decision-makers change based on the reference point adopted when comparing anticipated outcomes (Gomez-Mejia et al. 2007, 2011; Wiseman and Gomez-Mejia 1998). We argue that in assessments related to subsidiaries' ownership modes, for family leaders the reference point refers to maintaining and nurturing SEW.
Our findings show that cultural, geographic, and institutional distance are related in different ways to the likelihood of choosing a wholly owned subsidiary versus a joint venture. In addition, our findings highlight that the involvement of the owning family in key governance positions affects the relationship between distance and foreign ownership mode (as regards cultural and institutional distance, but not in the case of geographic distance).
Our study contributes to both international business literature and family business literature. First, it contributes to the international business literature by furnishing a more in-depth understanding of the effect of distance on foreign ownership mode choice (Dow and Larimo 2009; Hutzschenreuter et al. 2016). It sheds light on the different ways in which the three dimensions of distance analyzed affect decisions about foreign investment ownership. Moreover, the finding that the involvement of the owning family in key governance positions affects the relationship between distance and foreign ownership mode contributes to the debate on distance effects (Dow and Karunaratna 2006; Dow and Larimo 2009) by highlighting the importance of the characteristics of main decision makers. The paper contributes to the literature on family business by offering a more nuanced and in-depth analysis of the role of family control in internationalization processes of family SMEs and, in particular, on foreign ownership mode choice. We join the academic conversation on this topic (De Massis et al. 2018; Gomez-Mejia et al. 2011) by showing that because family SME leaders' preferences are based on a reference point that is substantiated in the preservation of SEW, they have different preferences (compared to non-family leaders) in terms of foreign subsidiaries' ownership modes in light of different dimensions of distance.
2 Family Business and Internationalization
2.1 A Socio Emotional Wealth Perspective on Family Business Internationalization
The choice of foreign ownership mode is one of the most important strategic decisions in internationalization (Andersen 1997; Brouthers and Brouthers 2001; Luo 2001), and is significantly related to firm performance (Lu and Beamish 2001). Small and medium-sized family firms investing abroad, like all other firms, must choose the type of ownership mode that is most likely to succeed. There is agreement in the literature that this choice should follow specific patterns in family firms (Arregle et al. 2017) and depend on the extent of family involvement in the ownership and/or management of the firm (De Massis et al. 2018). Following this assumption, we explore how the presence of family leadership (vs. non-family leadership)--i.e., a CEO or board chair who belongs to the owning family--affects family firms' decisions about foreign ownership mode.
In response to calls to dig deeper into the role of decision makers in internationalization choices of family firms, the literature has started to consider a SEW perspective. Because it enables description of various aspects that are typical of family firms, SEW has been defined as "a concept of great reach and explanatory power which is reflected in its application to multiple phenomena" (Prugl 2019, p. 463), and in particular to family firms' internationalization (Gomez-Mejia et al. 2011; Pukall and Calabro 2014). SEW can be defined as "the stock of affect-related value that a family derives from its controlling position in a particular firm" (Berrone et al. 2012, p. 259). This concept is grounded in the behavioral agency model, originally developed by Wiseman and Gomez-Mejia (1998), and draws from prospect theory (Kahneman and Tversky 1979) and the behavioral theory of the firm (Cyert and March 1963). According to the behavioral agency model, risk attitudes of decision-makers change based on the reference point that is adopted in order to compare anticipated outcomes (Wiseman and Gomez-Mejia 1998). In family firms, the gain or loss of SEW is considered as the predominant reference point (Berrone et al. 2012; Gomez-Mejia et al. 2007, 2010) and leads to a situation in which decision-makers (especially if they are family members) can accept taking significant business risks in order to preserve SEW. While there have been various attempts to identify the components of SEW (for a recent review, see Prugl 2019), there is agreement on the fact that SEW can be seen as comprising the following dimensions: family control and influence; family members' identification with the firm; binding social ties; emotional attachment; and renewal of family bonds to the firm through dynastic succession (Berrone et al. 2012). Among these factors, the literature is relatively consistent in recognizing that the first factor--family control and influence--is one of the most salient components of SEW in terms of shedding light on the uniqueness of family firms and explaining their behaviors (Prugl 2019).
2.2 Effects of Having a Family CEO or Chair on Family Firms' Ownership Mode Choice
One of the most direct ways of observing the exercise of family control is through cases in which a member of the owning family is in a leading position (e.g., Finkelstein and D'Aveni 1994; Miller et al. 2014; Minichilli et al. 2010). Two key leadership...