Family firm employment behavior during a financial crisis: Does generational stage matter?

Abstract

Family firms are claimed to be long-term oriented and aim at preserving their non-financial business family objectives, which is also reflected in their employment behavior. While family firms’ behavioral and strategic responses to declining performance have received some academic attention, studies acknowledging family firm generational stage are rarer. In this article, we assess the “employment smoothing” hypothesis, according to which both first- and later-generation family firms restrain from laying off their employees despite financial pressure. We use statistical data from over 4000 Finnish companies to examine the differences in employment behavior between family and non-family SMEs and address the family firm’s generational stage. By differentiating between various phases of the financial crisis that peaked during 2008–2009, we explore several dimensions of employment variability, such as changes in the number of employees, within-firm time variation, and standard deviation in employment to test our hypothesis. We find that first-generation family firms are agile—they introduce changes swiftly by cutting their personnel at the start of financial pressure and restrain from doing so during later years. On the other hand, later-generation family businesses are more stable in their employment behavior than first-generation family businesses and non-family businesses—they introduce employment changes only after their profitability has remained at a lower level for a prolonged period following the start of the crisis.