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European J. International Management, Vol. 11, No. 1, 2017
The impact of finance and governance on the
internationalisation modes of family firms
Markus Dick*
Department of Finance,
Johannes Kepler University of Linz,
Altenberger Straße 69, 4040 Linz, Austria
Email: [email protected]
*Corresponding author
Christine Mitter
Salzburg University of Applied Sciences,
Urstein Sued 1, 5412 Puch/Salzburg, Austria
Email: [email protected]
Birgit Feldbauer-Durstmüller
Institute of Management Control and Consulting,
Johannes Kepler University of Linz,
Altenberger Straße 69, 4040 Linz, Austria
Email: [email protected]
Helmut Pernsteiner
Department of Finance,
Johannes Kepler University of Linz,
Altenberger Straße 69, 4040 Linz, Austria
Email: [email protected]
Abstract: By drawing on the resource-based view, this study explores the
influence of a firm’s finance and governance structure on its internationalisation
mode using a sample of Austrian and German medium- and large-sized family
firms. While medium equity levels, sophisticated financial management and
external ownership foster higher levels of international activity and foreign
direct investment, they do not affect a family firm’s decision to export. This
finding suggests that the influential power of finance and governance variables
depends on the mode of internationalisation and the capital needs and
other resource requirements related to it. Moreover, our results imply that
certain finance and governance factors mitigate the risks associated with
internationalisation, particularly higher internationalisation modes, and can
therefore spur these international activities. In contrast to previous research,
however, the empirical analyses do not show any influence of non-family
Keywords: family firm; internationalisation modes; capital structure; external
ownership; non-family managers; financial sophistication; exporting; FDI.
Copyright © 2017 Inderscience Enterprises Ltd.
Impact of finance and governance on internationalisation modes
Reference to this paper should be made as follows: Dick, M., Mitter, C.,
Feldbauer-Durstmüller, B. and Pernsteiner, H. (2017) ‘The impact of finance
and governance on the internationalisation modes of family firms’, European J.
International Management, Vol. 11, No. 1, pp.42–64.
Biographical notes: Markus Dick is an Assistant Professor at the Department
of Finance of the Johannes Kepler University of Linz, Austria.
Christine Mitter is a Professor of Management Accounting and Finance at the
Business Administration Program of the University of Applied Sciences in
Salzburg, Austria, and a Lecturer of Management Accounting at the Johannes
Kepler University of Linz, Austria.
Birgit Feldbauer-Durstmüller is a Full Professor and holds the Chair of
Management Control and Consulting at the Johannes Kepler University of
Linz, Austria.
Helmut Pernsteiner is a Full Professor and holds the Chair of Corporate
Finance at the Johannes Kepler University of Linz, Austria. Currently, he
serves as President of the Academic Senate at the Johannes Kepler University
of Linz.
With intensifying globalisation, a greater number of family firms (FFs) face the question
of whether and in what manner they should internationalise their business. While there
is agreement in the literature that – compared with non-family firms (NFFs) – FFs
internationalise differently, research is still inconclusive as to whether being an FF
encourages or impedes internationalisation (Pukall and Calabrò, 2014). Consequently,
there is a need to reconcile the heterogeneous findings of previous studies (Merino et al.,
2014) and to explore in detail how the particularities of FFs precisely affect their
internationalisation (Kontinen and Ojala, 2010; Arregle et al., 2012).
Internationalisation aspirations can only be implemented if the required resources,
such as financial means, know-how or human capital, are available (Peng, 2001).
Furthermore, going abroad is related to an increase in risk exposure as a result of higher
uncertainty, complexity and foreignness (Lu and Beamish, 2001; Hitt et al., 2006).
Accessibility of resources and their management as well as the risk profile of a firm
depend, among other things, on the actors that own and head the organisation. In this
respect, FFs differ from NFFs because of the family’s involvement in ownership and
management, which results in distinct governance and finance patterns (Sirmon and Hitt,
2003). Thus, we base our paper on the resource-based view (RBV) (Wernerfeldt, 1984;
Barney, 1991) and the FF’s propensity to take risks (Gomez-Mejia et al., 2007; Hiebl,
The finance and governance structures of FFs and their impact on internationalisation
have been scarcely or insufficiently researched thus far. Although internationalisation
requires substantial capital outlays (Calabrò et al., 2013) and overcoming financial
constraints is considered to be a major determinant of a firm’s ability to internationalise
(Bellone et al., 2010), how finance influences the international activities of FFs has not
M. Dick et al.
been analysed explicitly. Concerning the family’s impact on governance, some studies
highlight a positive influence of family ownership and family management on
internationalisation (e.g. Zahra, 2003), while others have revealed that non-family owners
and/or managers enhance FF internationalisation (e.g. Claver et al., 2009; Arregle et al.,
2012; Calabrò et al., 2013). Others (e.g. Merino et al., 2014) have found no significant
influence of family ownership and family management on internationalisation.
Hence, the precise effects of FFs’ distinct financing and governance structures on
their internationalisation must still be elucidated in detail. This paper will address this
research gap. In addition to the influence of the capital structure, we also analyse the role
of financial sophistication. Regarding governance, we focus on non-family influence in
terms of external equity and non-family managers. Part of the above-mentioned
heterogeneity in findings can also be attributed to the fact that previous studies relied on
different measures for internationalisation. Most focused on export (e.g. Fernández and
Nieto, 2005; Calabrò et al., 2009; Calabrò and Mussolino, 2013), whereas few empirical
analyses have addressed specific or higher levels of internationalisation (Claver
et al., 2007; Claver et al., 2009) that might require different governance and finance
conditions. By using survey data for medium-sized and large-sized Austrian and German
FFs, we show that the impact of finance and governance on internationalisation depends
on the chosen internationalisation mode. While a medium equity ratio, sophistication in
financial management and non-family owners favour higher levels of international
activity, especially foreign direct investment (FDI), they do not influence less capitaland resource-intensive export activities. Moreover, non-family managers do not seem to
influence international activities at all.
This study is based on cross-sectional data, and we are therefore unable to rule out
potential reverse causality issues completely. However, our results are highly relevant for
both academia and practice. First, our study is the first that comprehensively analyses the
effect of finance on the internationalisation mode of FFs. By demonstrating the
importance of an FF’s capital structure choices and its financial sophistication for
internationalisation, new evidence is provided on the link between financial resources
and internationalisation to international business research in general and family business
research in particular. Second, by explicitly taking into account different modes of
internationalisation, we complement previous studies and can explain some of their
mixed findings concerning the impact of FF governance. We thus shed light on how the
family’s involvement in various governance dimensions influences different modes of
international activity. Third, we add to the empirical literature by focusing on two
countries (Austria and Germany) that both show distinct finance and governance
structures, such as a high prevalence of FFs (Neubauer, 2003), a two-tier board model
and a bank-based financial system (e.g. Demirgüç-Kunt and Levine, 1999). Furthermore,
the findings offer recommendations to managers and owners of FFs on how certain
financing and governance structures can be more or less helpful in developing their
internationalisation strategy.
The paper is organised as follows. An overview of the theoretical background is
provided in the next section, after which hypotheses are developed. Section 4 outlines the
methodology and describes the sample and the variables used. The results of our
empirical study are presented in Section 5 and discussed in Section 6. We conclude with
the implications of our findings and their limitations.
Impact of finance and governance on internationalisation modes
Theoretical background
2.1 Internationalisation
‘Internationalisation’ refers to a process through which firms expand to other countries
and increase international involvement. Going international and expanding abroad
requires specific resources (Peng, 2001), such as financial, managerial and logistic
resources as well as knowledge (Calabrò et al., 2013). According to the RBV,
resources are thus the drivers of internationalisation (Andersen and Kheam, 1998).
Internationalisation and especially higher levels of internationalisation increase
complexity and uncertainty because firms are confronted with a greater diversity of
cultures, competitors, customers and regulations, as well as localised and specific
knowledge (Sanders and Carpenter, 1998; Gomez-Mejia et al., 2010). Thus, an increase
in risk exposure will follow.
Starting business in a foreign market, the so-called foreign market entry, can take
several forms, ranging from exporting to the establishment of partially or wholly
owned subsidiaries (FDI). The entry modes differ in terms of the resources required, the
risk involved and the degree of control (Claver et al., 2007). Higher stages of
foreign market entry require more human and financial resources. At the same time,
they are associated with higher levels of control, risk and complexity. A firm’s
internationalisation strategies can change over time so that the current mode of market
cultivation does not necessarily coincide with the initial foreign market entry. Moreover,
companies can simultaneously employ different strategies on their various international
2.2 Characteristics and governance of family firms
Although the literature does not agree on a generally accepted definition of the term
‘family firm’, there is broad agreement that the family’s involvement – interpreted
mostly as family involvement in ownership and management – makes an FF unique
(Chua et al., 1999). This involvement leads to distinct structures, goals and behaviours
that culminate in unique resources and capabilities called ‘familiness’ (Habbershon and
Williams, 1999) and can thus serve to delineate FFs and NFFs (Pearson et al., 2008).
Compared with NFFs, FFs exhibit unique human and social capital characterised by close
and trusting relationships within the family and with employees, customers and other
stakeholders (Miller et al., 2008). This can lead to an unusual commitment to the firm
and high levels of loyalty (Sirmon and Hitt, 2003). As a result of their concern for
continuity and subsequent generations, FFs are oriented towards the long term (Claver
et al., 2009). They exhibit not only more patience but also more caution and risk aversion
when making investments. Owing to a certain degree of overlap in ownership and
management, FFs display specific governance structures. When trust and family bonds
are high, mutually shared objectives reduce governance costs. However, internal conflicts
might be exacerbated because of altruism or inefficient management practices as well as
diverging goals and preferences of various owner groups (Sirmon and Hitt, 2003;
Schulze et al., 2003; Singla et al., 2014).
M. Dick et al.
2.3 Financial characteristics of family firms
FFs show distinct financial characteristics. Family owners, for example, face excessive
risk (Shleifer and Vishny, 1997) as they tend to hold undiversified portfolios owing to
large investments in their business (e.g. Dreux, 1990; Anderson et al., 2003). Furthermore,
they derive several benefits from family control and stress continuity (Mishra and
McConaughy, 1999). Thus, FFs might pursue (financial) strategies focusing on long-term
firm survival instead of strictly adhering to shareholder wealth maximisation (Anderson
et al., 2003).
These characteristics are supposed to influence their decision-making, including
capital structure choices. On the one hand, trade-off theory suggests that firms choose an
optimal capital structure by balancing the benefits of debt (tax shields) against its
negative effects (costs of financial distress) (e.g. Bradley et al., 1984; Myers, 1984).
Because of their undiversified wealth and the benefits they enjoy from family control,
family members seem to be especially endangered by financial distress (Andres, 2008;
Mishra and McConaughy, 1999). Since leverage increases the probability of financial
distress, FFs can reduce their risk exposure by maintaining lower debt levels.
On the other hand, FFs seem to follow a pecking order (Myers, 1984; Myers and
Majluf, 1984) when issuing securities. They prefer internal sources of finance to risky
debt, as they fear constraints in their freedom of action due to accountability vis-á-vis
lenders (Matthews et al., 1994; Gallo et al., 2004). This could imply higher equity ratios.
Once internal capital is exhausted, they rely on debt instead of external equity, because
external investors would bring about a greater loss of independence and control
(Poutziouris, 2001; Tappeiner et al., 2012). This could induce higher leverage.
2.4 Internationalisation of family firms
Despite the heterogeneity of extant studies on FF internationalisation, they can be
clustered grossly in two strands depending on the main perspectives used to capture and
explain the influence of the family on the firm’s internationalisation (Merino et al.,
2014): one stream bases its research efforts on the unique resources resulting from the
family’s involvement in governance and therefore the RBV, whereas the other research
line stresses the risk aversion of FFs. Hence, we also apply these two argumentation lines
to explain the particularities of FF internationalisation in the following and to develop
our hypotheses in the next section.
From the perspective of the RBV, FFs might not possess the necessary financial and
personnel resources to implement internationalisation strategies (Fernández and Nieto,
2005; Graves and Thomas, 2008; Claver et al., 2009). However, certain characteristics of
FFs might spur their internationalisation. Their specific governance structures, which are
characterised by a certain degree of overlap in ownership and management and mutually
shared objectives (Sirmon and Hitt, 2003), enable more informal and faster decisionmaking (Segaro, 2012) and allow them to react quickly to new international opportunities
(Kontinen and Ojala, 2011; Mitter and Emprechtinger, forthcoming). This leads to more
strategic flexibility to pursue international activities (Sirmon et al., 2008; Sciascia et al.,
2012; Segaro, 2012). Moreover, the owners’ dedication and their long-term orientation
result in stronger commitment to chosen strategies and allow their internationalisation
more time to pay off (Zahra, 2003; Mitter and Emprechtinger, forthcoming).
Impact of finance and governance on internationalisation modes
Concerning the risk profile of FFs, one of the main consequences of family
involvement in the business is risk aversion and conservatism (Fernández and Nieto,
2005; Claver et al., 2009; Merino et al., 2014). In particular, at high levels of family
ownership and involvement in management and governance, family utility will be
maximised when international activities are at low levels or forgone, as going abroad
means taking risks with predominantly their own money and losing control (Sciascia
et al., 2012; Mitter et al., 2014a). This can make international strategies less appealing,
make them rely on lower levels of market entry strategies and/or internationalise more
slowly (e.g. Okoroafo, 1999; Graves and Thomas, 2008; Cesinger et al., 2014). However,
some FFs were also found to internationalise rapidly (Graves and Thomas, 2008;
Kontinen and Ojala, 2012) and may thus quickly draw on higher internationalisation
modes, particularly when they consider internationalisation essential for firm survival
(Sirmon et al., 2008) or go for wholly owned subsidiaries to maintain high ownership
levels (Chang et al., 2014). Consequently, FFs can be more prone to risk and be riskaverse at the same time depending on several contingency factors (Zahra, 2003; Pukall
and Calabrò, 2014). The impact of such contingency factors must still be explored to
shed more light on the specifics of FF internationalisation. Two such particularities are
an FF’s financing and governance structures, whose influence on internationalisation will
be analysed more thoroughly in the following section.
Hypotheses development
3.1 Capital structure
Internationalisation forms vary with respect to their associated risk and capital needs and
thus the required resources. While export activities neither depend upon large
investments nor are especially risky, FDI demands larger financial resources and implies
a higher level of risk. Two important capital structure theories, the trade-off theory
(e.g. Bradley et al., 1984) and the pecking order theory (e.g. Fama and French, 2002),
suggest that the volatility of earnings and thus risk is positively related to the equity ratio.
Consequently, higher (and therefore riskier) levels of internationalisation might be
connected with a higher equity ratio than exporting. Moreover, Myers (1977) describes
the ‘underinvestment’ problem, in which (highly) leveraged firms forego investments.
Hence, leverage, particularly high leverage, is expected to have a negative effect on
(international) investments (e.g. Aivazian et al., 2005; Doukas and Pantzalis, 2003; Park
et al., 2013).
Finally, the more conservative a family is, the more likely it will avoid external
sources of finance that endanger its decision-making autonomy. Additionally, the more
risk-averse the family, the more it will fear the risk of financial distress associated with
leverage. Thus, the wish to maintain control and to protect the undiversified investment
in the FF might lead to capital constraints, endangering future investment opportunities
(Fama and Jensen, 1985; Mishra and McConaughy, 1999; Thomsen and Pedersen,
2000), including internationalisation. In particular, FFs controlled by risk-averse
and conservative owners might thus rely on internal financing and accordingly show
M. Dick et al.
high equity ratios. Nevertheless, they possess little capital that can be used for
international activities, indicating a negative impact of a (very) high equity ratio on
internationalisation in general and capital-intensive internationalisation modes such as
FDI in particular.
In summary, whereas the trade-off theory and the pecking order theory as well as
the underinvestment problem indicate a positive effect of the equity ratio on
internationalisation, the reliance on internal finance resulting from risk-aversion and
conservatism suggests the opposite. Furthermore, the influence of the equity ratio on a
particular internationalisation mode depends on the associated risks and capital needs.
Thus, the impact of leverage on internationalisation in general and the chosen
internationalisation mode in particular seems to be ambiguous. However, a firm’s capital
structure appears to have an effect on its internationalisation mode. Therefore, we
Hypothesis 1: The equity ratio influences the internationalisation mode of FFs.
3.2 External influence
External influence in terms of non-family ownership and management can enrich
the resource pool of FFs. Often the family’s capital will not suffice to promote
internationalisation, especially capital-intensive steps. Empirical studies (Fernández and
Nieto, 2005; George et al., 2005; Cerrato and Piva, 2012; Calabrò et al., 2015) suggest
that non-family ownership makes internationalisation more likely. Such external
investors not only contribute capital but also provide the FF with technologies, expertise
or distribution channels that enable internationalisation (Fernández and Nieto, 2005). In
the case of foreign shareholders in particular, their knowledge of foreign markets,
international experience and business contacts can spur a firm’s international activities
(Cerrato and Piva, 2012; Calabrò et al., 2015). Moreover, external owners can supply the
FF with a network that provides easier access to resources (Di Giuli et al., 2011).
The better and more diverse the resources available to a company are, the more likely
it is to seize opportunities on international markets (Federico et al., 2009). Next to
external equity investors, the management team represents an essential share of a firm’s
resource pool. In contrast to family managers, who might not hold these positions owing
to their qualifications (Schulze et al., 2003) and provide homogeneous skills (Corbetta
and Salvato, 2004), non-family executives can provide the FF with access to valuable
resources and thus drive internationalisation (Claver et al., 2009). Additionally, external
managers seem to be more receptive to innovations and new strategies (Di Giuli et al.,
2011; Calabrò and Mussolino, 2013), which can also facilitate internationalisation.
Internationalisation, especially higher internationalisation modes, demands
professional organisational structures (Muñoz-Bullón and Sánchez-Bueno, 2012; Calabrò
and Mussolino, 2013) to better handle the increased levels of risk. External managers and
shareholders seem to support such professionalisation (e.g. Di Giuli et al., 2011; Mitter
et al., 2012; Tappeiner et al., 2012). Additionally, the risks related to internationalisation
seem less severe for the FF because non-family owners’ capital investments are also
at stake (Sciascia et al., 2012). Moreover, outside investors, particularly foreign
Impact of finance and governance on internationalisation modes
shareholders, bring expertise about foreign markets and internationalisation (Calabrò
et al., 2013) and can thus lower the perceived risk of internationalisation.
Based on these arguments, FFs with non-family shareholders and/or managers should
be more inclined to internationalisation. Both can be seen as additional resources that
spur the FF’s international endeavours as they bring expertise, knowledge, networks and
technologies for internationalisation to the company and thus reduce the related risk.
Since higher levels of internationalisation require more resources and carry more risk,
non-family influence in ownership and management seems especially relevant for these
higher internationalisation modes. Accordingly, we propose the following:
Hypothesis 2: External ownership favours higher internationalisation modes of FFs.
Hypothesis 3: External management favours higher internationalisation modes of FFs.
3.3 Sophisticated financial management
Financial resources and financial sophistication are crucial for internationalisation.
Cross-border activities impose higher requirements not only on financial reporting (Lee
and Kwok, 1988) but also on capital budgeting, cash flow and working capital
management (Czinkota et al., 2011). Even less resource-intensive exporting requires
working capital to finance export operations (Griffith, 2011). Thus, the shortage of
working capital has been identified as one central barrier to exporting (Leonidou, 2000;
Leonidou, 2004). Optimising working capital should hence be even more important
for higher internationalisation modes. Moreover, value-based management is considered
a key concept for evaluating investment projects regarding their potential for shareholder
value creation, and it provides management with the respective tools and techniques to
implement value-creating strategies (Oxelheim and Wihlborg, 2003; Bausch et al., 2009).
Consequently, it helps to professionalise the decision process for international
investments, especially for higher and therefore both riskier and more capital-intensive
internationalisation modes.
FFs therefore also need to professionalise their financial management. However,
most empirical evidence suggests a negative impact of family influence on a firm’s
financial sophistication (e.g. Schmid et al., 2009; Di Giuli et al., 2011; Dick and
Pernsteiner, 2015). Given that financial resources play a decisive role for
internationalisation, financial sophistication should be highly important for FFs. By
professionalising and thus optimising the capital employed through sophistication, FFs
can improve their financial situation even if the financial endowment stays the same.
Furthermore, sophisticated financial management allows FFs to better handle the risks
associated with internationalisation. This should facilitate internationalisation, especially
higher modes of internationalisation such as FDI, which are capital-intensive, riskier and
impose particular requirements on a firm’s financial management. Thus, we hypothesise:
Hypothesis 4: Sophistication in financial management leads to higher internationalisation
modes of FFs.
M. Dick et al.
Research design
4.1 Sample
We conducted a cross-sectional survey among the CEOs of Austrian and Southern
German companies with at least 50 employees using a standardised questionnaire. In
2009, we contacted 5406 Austrian companies and, in 2010, 5000 German companies in
the states of Bavaria and Baden Württemberg.1 A total of 962 firms returned the
Given that we aimed to understand the particularities of FF internationalisation better
and to explore in depth the impact of various context factors on internationalisation,
especially concerning finance and governance aspects, we confined our research to an FF
sample. Since a family’s involvement in a business is most often interpreted as
involvement in ownership and management (Chua et al., 1999; see Section 2.2), FFs
were identified as companies where a family owns at least 50% of the shares and holds
at least one management position. This definition is also in line with other studies
on FF internationalisation (e.g. Graves and Thomas, 2006; Calabrò et al., 2009). After
excluding incomplete questionnaires, NFFs, companies with fewer than 50 employees
and those with less than EUR 2 m in sales, a total of 160 medium- and large-sized FFs
(108 Austrian, 52 German) remained to form the sample of this study.
Since we were unable to detect significant differences between the first third and the
last third of the data set (Leslie, 1972; Fowler, 2009), a non-response bias was not an
issue in our sample and the representativeness of the study was confirmed.
4.2 Variables
4.2.1 Dependent variables
To capture the heterogeneity of international activities, we relied on a measure that
allowed us to take into account different internationalisation modes. The level of
internationalisation (INTLEVEL) is measured using an ordinal scale, the order of
which indicates the increase in risk and resource requirements associated with the
internationalisation mode: 0 stands for companies without internationalisation (or only
import activity), 1 for exporting businesses, 2 for other international activities such as
licensing, franchising or foreign distribution facilities that do not involve FDI and 3 for
FDI (stake of ≥10% in a foreign firm). If a company simultaneously pursued different
strategies of international market cultivation, it was assigned to the internationalisation
mode that reflected its highest level of international activities.
4.2.2 Independent variables
Equity ratio (EQUITY): This variable is operationalised by the percentage of equity over
total capital drawing on the following categories: <0%, ≥0% and <10%, ≥10% and
<20%, ≥20% and <30%, ≥30% and <40%, ≥40% and <50%, ≥50%. For the regression
analyses, we created the variable EQUITY using the mid-points of each respective
category, i.e. for the category ‘EQUITY ≥20% and <30%’, the mid-point 25% was used
(e.g. Powers and Xie, 2008).
Impact of finance and governance on internationalisation modes
External ownership is measured by the percentage of the firm’s shares not held by
family members. For our base regression models, we coded it into a dummy variable
(EXTSHARE) with a value of 1 if the firm has external (non-family) shareholders and a
value of 0 if it does not. For further analyses, we replaced EXTSHARE with the
percentage of external ownership (PERCEXTSHARE).
External managers (EXTMAN): A dummy variable is used, which is assigned a
value of 1 if the firm has non-family executives or a value of 0 if it does not.
Sophisticated financial management (SOPHFM) is operationalised as a dummy
variable assigned a value of 1 if the FF focuses on both systematic working capital and
value-based management and 0 otherwise.
4.2.3 Control variables
Generation (GEN): Companies were asked which generation was currently leading the
firm (‘first generation (founder)’, ‘second’, ‘third’ and ‘fourth generation’ and ‘fifth and
subsequent generations’). We used the generation number as a metric variable, which is
reasonable for ordinal variables consisting of at least five categories (Torra et al., 2006).
Firm size was measured in terms of the firm’s sales turnover and labelled SALES.
We used two binary dummy variables (‘sales ≥EUR 2 m and <EUR 10 m’ and ‘sales
≥EUR 10 m and <EUR 50 m’). Sales levels of EUR 50 m and above served as reference
Industry: We used dummy variables representing the industry sectors ‘manufacturing
industry’ (MANUF), ‘trade industry’ (TRADE), ‘service industry’ (SERVICE) and
‘other industries’ (OTHER). The ‘manufacturing industry’ served as reference class.
4.3 Methodology
To test our hypotheses we ran ordered logit and logit models with robust standard errors.
Model 1 is an ordered logit model that analyses the effect of finance and governance on
the level of internationalisation. To investigate the single internationalisation modes in
detail, we use logit models to compare FFs with and without FDI (Model 2), FFs
undertaking FDI with only exporting FFs (Model 3) and finally FFs with exports as
their highest mode of internationalisation with FFs without any international activity
(Model 4). To analyse the effect of external ownership on internationalisation further,
additional models were run. Significant Wald tests and – for the logit models –
insignificant Hosmer–Lemeshow tests (see Tables 2 and 3) confirm the fit of our models.
5.1 Descriptives and statistics
Table 1 shows the mean values and standard deviations for our metric variables. For the
dummy variables the respective numbers of cases are shown. Finally, the table also lists
the correlations between the variables. There are no signs of (severe) multicollinearity, as
all correlation coefficients are lower than 0.8 (e.g. Argyrous, 2011).
–0.05 0.33**
–0.07 –0.29* –0.34**
SD = standard deviation; Ca. = number of cases per dummy variable.
#p < 0.10; *p < 0.05; **p < 0.01; ***p < 0.001.
13. SALES  50 m
12. SALES  10 m
& < 50 m
47 –0.40*** –0.46***
3.06 10.27
54 –0.44***
SD Ca.
37.06 23.85
11. SALES  2 m
& < 10 m
10. GEN
–0.33** –0.60***
–0.11 –0.10
–0.11 –0.52*** –0.19
Table 1
M. Dick et al.
Descriptive statistics and correlations
Impact of finance and governance on internationalisation modes
5.2 Regression results
Table 2 reports our regression results. Model 1 shows that the equity ratio (EQUITY)
exhibits a positive effect on the level of internationalisation, whereas the quadratic
term EQUITY² has a negative effect. These results support an inverted U-shaped
influence with the highest level of internationalisation at medium equity ratios. To
investigate the single internationalisation modes further, we compare FFs with and
without FDI (Model 2) and FFs undertaking FDI with those with exports as their highest
internationalisation mode (Model 3). Both models also yield comparable results.
Finally, for Model 4, which compares FFs with exports as their highest mode of
internationalisation with FFs without any international activity, we could find neither
significant effects for the equity ratio nor its quadratic term.2 Thus, Hypothesis 1
receives only partial support. While a firm’s capital structure is important for higher
internationalisation modes, it does not impact export activities.
Concerning external ownership, Hypothesis 2 is confirmed in Models 1, 2 and 3.
The presence of external (non-family) shareholders leads to higher levels of
internationalisation and a higher probability of FDI in general and compared with
exporting. However, once again, we do not find a significant impact for exporting in
Model 4.
Table 2
Regression results for Models 1–4
Model 1
SALES ≥ 2 m & < 10 m
SALES ≥ 10 m & < 50 m
Model 2
Model 3
Model 4
M. Dick et al.
Table 2
Regression results for Models 1–4 (continued)
McKelvey & Zavoina’s R²
Wald χ²
Model 1
Model 2
Model 3
Model 4
Hosmer–Lemeshow χ²
Regression coefficients (standard errors in parentheses).
#p < 0.10; *p < 0.05; **p < 0.01; ***p < 0.001.
To analyse the effect of external ownership further, we replace the dummy EXTSHARE
with the percentage of external ownership (PERCEXTSHARE) and its quadratic
term (PERCEXTSHARE²) to cover for a potential non-linear effect (see Table 3).
Models 2a and 3a show a significant positive effect of PERCEXTSHARE on FDI,
whereas PERCEXTSHARE² exhibits a negative effect. These results support a non-linear
influence of the percentage of external ownership on FDI, whereas we could not find a
significant influence on the level of internationalisation (Model 1a) and exporting
(Model 4a). The results for the other variables are largely similar to our base results. We
also ran the models with PERCEXTSHARE only and omitted the quadratic term. These
models do not show a significant effect of PERCEXTSHARE, except for Model 1b,
where it affects the level of internationalisation positively. Although the results are
ambiguous and should be considered with care, as there are only a limited number of
companies with non-family ownership in our sample, they indicate that the highest stages
of internationalisation tend to be related to a moderate involvement of non-family
Table 3
Regression results for Models 1a, 1b, 2a–4a
Model 1a
Model 1b
Model 2a
Model 3a
Model 4a
Impact of finance and governance on internationalisation modes
Table 3
Regression results for Models 1a, 1b, 2a–4a (continued)
Model 1a
Model 1b
Model 2a
Model 3a
Model 4a
SALES ≥ 2 m &
< 10 m
SALES ≥ 10 m &
< 50 m
McKelvey &
Zavoina’s R²
Wald χ²
Hosmer–Lemeshow χ²
Regression coefficients (standard errors in parentheses).
#p < 0.10; *p < 0.05; **p < 0.01; ***p < 0.001.
Returning to Models 1–4, the effect of external managers is not significant in any model.
Consequently, Hypothesis 3 is rejected.
Financial sophistication is associated with higher modes of internationalisation. It has
a significant positive effect on the level of internationalisation (Model 1) and on FDI
(Model 2). However, no significant influence of sophisticated financial management
could be identified for FDI in Model 3 and exporting (Model 4). Consequently,
Hypothesis 4 can only partly be confirmed. The results of Model 4 once again suggest
that (especially financial) resources are of minor relevance for exporting, whereas
sophistication in working capital management and value-based management improves a
company’s financial resources and therefore favours higher internationalisation modes.
Contradicting most previous studies (e.g. Fernández and Nieto, 2005; Calabrò and
Mussolino, 2013; Calabrò et al., 2015), a subsequent generation is associated with lower
internationalisation modes in Models 1 and 2. Moreover, smaller (sales between EUR
2 m and EUR 10 m) and medium-sized FFs (sales between EUR 10 m and EUR 50 m)
show a significantly lower level of internationalisation (Model 1) as well as a lower
probability of FDI (Model 2) than large enterprises (sales of EUR 50 m and above).
Models 3 and 4 yield comparable results, although a medium firm size is no longer
M. Dick et al.
significant. Concerning industry effects, belonging to the trade industry (TRADE)
compared with the manufacturing industry influences internationalisation negatively in
Models 1, 2 and 4, whereas the coefficient is not significant in Model 3.
5.3 Marginal effects
To evaluate the magnitude of the impact of our finance and governance variables on the
internationalisation mode, we calculated average marginal effects for the ordered logit
Model 1 (see Table 4). Whereas a 1% increase in the equity ratio has only a negligible
impact on exports as the highest internationalisation mode (Column 2) and other
international activities that do not involve FDI (Column 3), it increases the probability
of FDI (Column 4) by 0.2 percentage points and decreases the probability of no
internationalisation (Column 1) by 0.3 percentage points. Nevertheless, both of these
effects are below one percentage point. Although the marginal effect of a 1% increase
can hardly be compared with the effect of dummy variables, we notice that both the
presence of external shareholders and sophisticated financial management increase the
probability of undertaking FDI by approximately 20 percentage points (and decrease the
probability of no internationalisation by roughly the same value). The effects on exports
and international activities without FDI are again comparatively small. Once again, the
effects of non-family managers are not significant at all.
Table 4
Average marginal effects for Model 1
Results for control variables are omitted.
#p < 0.10; *p < 0.05; **p < 0.01; ***p < 0.001.
Taken together, our regression results highlight the importance of resources, particularly
finance and governance structures, for the internationalisation of FFs. However, these
resources impact the various internationalisation modes differently. While they do
not significantly influence exporting, they seem to be crucial for higher levels of
international activity and FDI. This is also reflected in the analysis of the marginal
effects, which confirms the importance of the finance and governance variables,
especially the presence of external shareholders and financial sophistication, for FDI,
whereas their influence on lower internationalisation modes is substantially smaller.
Concerning the impact of a firm’s capital structure, it seems that exporting, which
involves minimal business risk and capital needs compared with higher stages of
internationalisation, might be possible for FFs irrespective of their equity base.
Regarding higher stages of internationalisation, however, we notice a non-linear
influence of leverage: FFs with a low equity ratio tend to internationalise less than
businesses with a medium equity base, which supports the proposition that (high)
Impact of finance and governance on internationalisation modes
leverage causes underinvestment and consequently reduces (foreign) investments.
To some extent, however, companies with high equity ratios also show lower
internationalisation. This could concern very risk-averse and/or conservative FFs that
only have limited financial resources despite their high equity ratios. Such firms rely on
internal financing and might avoid not only risky international activities but also risky
debt, not least because of the tight credit monitoring exerted by lenders in the bank-based
economies of Austria and Germany (Ampenberger et al., 2013). Therefore, medium
equity levels seem to drive internationalisation, with the exception of exporting. Previous
studies on FF internationalisation rarely analysed the influence of the capital structure.
When they did so, they only inserted the leverage ratio as a control variable (e.g.
Fernández and Nieto, 2005; Gomez-Mejia et al., 2010; Muñoz-Bullón and SánchezBueno, 2012) and reached inconclusive results, as they applied different measures for
internationalisation ranging from export propensity to an entropy index of international
activities. By focusing on different modes of international activities, we add new
empirical evidence on the different capital needs of various internationalisation strategies
and can therefore explain some of the heterogeneous findings in past research.
Investigating the impact of non-family owners, our results confirm their
importance in FF internationalisation. They provide FFs with valuable resources for
internationalisation and can change attitudes concerning the risk of expanding abroad.
However, their influence was only significant for higher internationalisation modes and
not for export activities. Given that exporting is also possible from a strong home base,
while an FF’s local orientation can constrain higher levels of internationalisation,
especially FDI (Pukall and Calabrò, 2014), our findings suggest that an external owner is
important for overcoming this local orientation by providing financial and other
resources for higher levels of international commitment, while his resources seem less
valuable and necessary in the context of exporting. Thus, our results corroborate previous
findings of a positive influence of non-family ownership on internationalisation
(see Section 3.2) but only in the context of resource-intensive internationalisation modes.
In this way, we can also partly reconcile the inconclusiveness of extant research
concerning the impact of external owners, as these studies predominantly considered
exports as a measure of internationalisation (e.g. Fernández and Nieto, 2005; Arregle
et al., 2012; Merino et al., 2014). Since the highest stages of internationalisation are
related to moderate non-family ownership, our study adds further empirical evidence to
the prevalence of non-linear relationships between family ownership and FF
internationalisation (Sirmon et al., 2008; Sciascia et al., 2012). This indicates that mixed
ownership structures seem best suited for internationalisation, particularly higher
internationalisation modes.
In contrast to previous findings that report a predominantly positive impact of nonfamily involvement in management (Pukall and Calabrò, 2014), our results indicate that
non-family managers do not influence any of the analysed internationalisation modes. It
seems that non-family shareholders possess more power and assertiveness than external
managers. Non-family managers, on the contrary, might feel less inclined to follow the
riskier and resource-demanding international strategies given that they are held more
accountable for a firm’s performance than family members (Gomez-Mejia et al., 2001).
In addition, Di Giuli et al. (2011) suggest that external owners have more influence
on an FF’s financial sophistication than an external CEO, which is explained by the
networking role of external shareholders being of higher relevance for gaining access to
resources than a non-family CEO. Our findings seem to confirm this in regard to
M. Dick et al.
internationalisation modes. Moreover, external shareholders not only provide access to
resources but – in contrast to non-family managers – also broaden an FF’s capital base.
Since financial resources matter, especially for higher internationalisation modes, our
results may also be related to the positive influence of external investors on the capital
base. Finally, the divergent findings concerning external involvement add to past
research that found mixed roles of external board members and owners concerning
internationalisation (Arregle et al., 2012).
Moreover, we provide empirical evidence that financial sophistication is an essential
condition for internationalisation, especially higher internationalisation modes. First,
working capital management helps to optimise working capital and thus reduces the
external financial resources required for internationalisation. While previous studies
(Leonidou, 2000; Leonidou, 2004) identified working capital as one central barrier to
exporting, working capital management in our research (as part of sophisticated financial
management) has no significantly positive effect on exporting, but only on higher
internationalisation modes. Hence, our findings imply that optimising working capital is
even more important for these higher internationalisation modes than for exporting.
Second, as value-based management allows to control for investment projects’
contribution to shareholder value creation (Oxelheim and Wihlborg, 2003; Bausch et al.,
2009), our results might also suggest that this financial management concept is more
crucial in evaluating higher internationalisation modes, which are both riskier and more
capital-intensive, whereas it is (once again) less essential for lower internationalisation
modes such as exporting. Taken together, our results prove the importance of
professionalisation for coping with the increased complexity and risk resulting from
internationalisation (Calabrò et al., 2009; Calabrò and Mussolino, 2013). Consequently,
our findings imply that professional structures – one of which is financial sophistication –
can help master the challenges of going international and can thus pave the way to
intensify an FF’s internationalisation. Our study thus complements previous research that
found a positive relationship between internationalisation and sophistication in
management accounting (Mitter et al., 2014b), another form of professionalisation.
7.1 Concluding remarks and implications
This study analysed the impact of finance and governance on FF internationalisation.
While capital structure, non-family ownership and financial sophistication drive
resource-demanding international activities, they do not affect the less resource-intensive
activity of exporting. Hence, our findings lend support to the importance of finance and
governance resources in FF internationalisation and thus the RBV in the FF context, but
only in the case of higher internationalisation modes. In contrast to most previous studies
that measured internationalisation in terms of exports, we provide new evidence on the
resource requirements of different internationalisation modes. Thus, our study is not only
the first that comprehensively analyses the impact of finance on FF internationalisation,
but it also sheds light on why there have been inconclusive results in previous studies
concerning the influence of governance.
Furthermore, our results highlight the significance of finance and governance factors
in altering FFs’ risk perception towards higher levels of international activity and FDI.
Impact of finance and governance on internationalisation modes
Financial sophistication helps master the challenges of (risky) internationalisation
projects, and external ownership appears to reduce the perceived risk related to
internationalisation. Therefore, they both foster higher levels of internationalisation.
Additionally, our results indicate that very risk-averse and/or conservative FFs rely on
internal financing and might avoid not only risky debt but also risky international
activities. Moreover, we add to the literature by focusing on FFs’ internationalisation
modes in two countries with distinct governance and finance structures that have been
investigated relatively scarcely so far.
Our findings are also highly relevant for managerial practice, as they can aid FFs to
better understand the impact of financing and governance choices on internationalisation.
Since medium equity levels seem to drive internationalisation (except exporting), FFs
should be more aware of the benefits of higher (but not too high) leverage. This is
reinforced by the fact that sophistication in financial management drives higher modes of
internationalisation. Hence, FFs should pay more attention to their financing structures as
this can facilitate their strategic activities, including internationalisation. Moreover, our
findings suggest that the type of external involvement matters. While external investors
and non-family managers might broaden the firm’s resource pool and networks, only
external owners have the power and will to foster higher modes of international
activities. Thus, FFs planning to intensify their internationalisation or to establish foreign
subsidiaries should consider opening ownership to external investors. Above all, they
will not only help FFs overcome their limited capital resources but will also trigger
internationalisation by calling for sophistication in management and (value-creating)
investments. Finally, since decisions on capital structure, financial sophistication and
non-family involvement do not impact all types of international activities equally, FFs
must be aware that certain financing and governance structures can be more or less
helpful depending on the targeted internationalisation mode.
7.2 Limitations and outlook
This study is not without limitations, which might encourage further research. First, we
did not analyse the internationalisation process of FFs. We also did not perform a
detailed investigation of the resources that result from the unique finance and governance
structures of FFs and their impact on internationalisation. By applying a qualitative
research design, both of these aspects could be addressed.
Second, our results may suffer from a reverse causality issue. We cannot rule out that
an FF decides to go international first and then organises its capital structure, ownership
structure, management team and financial management, accordingly, to implement the
internationalisation decision. Several studies (e.g. Calabrò et al., 2009; Arregle et al.,
2012; Calabrò et al., 2013) therefore collected data for the independent variables first and
data for the dependent variable later to overcome this reverse causality issue. Given that
our study is cross-sectional, we were not able to test a time lag. Although Cerrato and
Piva’s (2012) findings remained consistent regardless of whether they used crosssectional data or a one- or two-year lag pointing to persistence over time, future
longitudinal studies can overcome this shortcoming.
Although Austria and Germany are known as ‘exporting countries’ with exports as a
percentage of GDP above the OECD- and EU-27-average (OECD, 2013) and Austrian
FFs in a qualitative study indicated that internationalisation was crucial for their growth
and sometimes even their survival (Mitter and Emprechtinger, forthcoming), it must be
M. Dick et al.
noted that some FFs in certain niches might be unwilling to internationalise and therefore
prefer to stay in the domestic market, even if they possess the resources that would
enable them to expand across borders.
Another limitation can be found in the missing linkage to performance measures,
meaning that we were not able to control for the influence of performance on
internationalisation. Furthermore, our data set is representative of the two bank-based
economies of Austria and Southern Germany, which are very close concerning culture
and institutional contexts. Our findings, however, may not be transferable to other
economies and cultures. Thus, future research may address this shortcoming with a crosscountry analysis. Although our empirical evidence seemed to indicate a non-linear
relationship between non-family owners and internationalisation, we could not
investigate this relationship in detail, as most of our FFs were completely family-owned.
Future studies with larger sample sizes might therefore explore this non-linear effect
more in-depth and analyse the impact of different types of external owners (e.g. strategic
investors, other FFs, institutional investors, foreign shareholders etc.).
The authors are grateful to Wolfgang Becker and Patrick Ulrich of the University of
Bamberg, Germany, for the provision of the German survey data. We would also like to
thank participants of the IFERA (International Family Enterprise Research Academy)
Annual Conference 2013 in St. Gallen, Switzerland, where an earlier version of the
manuscript was presented, and three anonymous reviewers for their helpful comments.
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The study was carried out within the framework of a larger research project; thus, the survey
data used in this study have also formed the basis of other research with different focuses
and/or (sub)samples.
We also ran the models with the linear term only and omitted the quadratic term. These
models show no significant effect of the linear term, which supports the inverted U-shaped
influence of the equity ratio.
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