Family Firms and their Performance

Introduction

The relationship between entrepreneurship and risk taking has long puzzled researchers. Research at the individual level has found little empirical evidence to support the idea that entrepreneurs take considerable risks. For example, on average, entrepreneurs do not take greater risks than managers (Brockhaus, 1980), and terms such as risk avoiders (Miner, 1990) or risk optimizers (McClelland, 1961) have been suggested for entrepreneurs.

One important reason for these inconclusive results is likely to be that the firm-level governance structure in which entrepreneurial behavior takes place influences managers’ risk choices (Wiseman & Gomez-Meija, 1998). More precisely, a problem with current literature on entrepreneurship and risk taking is that not enough attention has been paid to the role of the organizational context in which this risk taking takes place. Firms differ in terms of their organizational and governance structures and risk taking may be higher in some organizational contexts than in others, as agency theorists argue (Eisenhardt, 1989; Fama & Jensen, 1983;Wiseman & Gomez-Meija, 1998; Zajac & Westphal, 1994).

Corporate entrepreneurship literature also indicates that organizational context plays a role in risk taking. A growing stream in this research examines the concept of entrepreneurial orientation (EO) (Covin & Slevin, 1986, 1989; Lumpkin & Dess, 1996; Lyon, Lumpkin, & Dess, 2000; Miller, 1983). EO is a construct that addresses the mindset of firms engaged in the pursuit of venture creation and provides a useful framework for research into entrepreneurial activity.Many scholars have used EO to describe a fairly consistent set of related activities or processes (e.g.,Wiklund & Shepherd, 2003). Such processes incorporate a wide variety of activities, including a firm’s strategic decision-making styles and business practices, where EO reflects “the organizational processes, methods and styles that firms use to act entrepreneurially” (Lumpkin & Dess, 1996, p. 139).

This research has found positive associations among risk taking and other aspects of entrepreneurial behavior (e.g., Rauch,Wiklund, Freese, & Lumpkin, 2004). For instance, in organizational contexts characterized by innovation and proactiveness, risk taking appears to be substantial. Companies generating new products based on technological innovations typically take risks, as the demand for the new product is unknown. This research on EO has contributed to our understanding of some of the relationships between entrepreneurship and risk taking; that is, it has shown that innovative and proactive strategies are generally associated with risk taking. However, much more can be learned about how different organizational contexts moderate the strength of EO dimensions such as risk taking (Lumpkin & Dess, 1996; Lyon et al., 2000).

Agency theory stresses that the extent of involvement in risky activities is likely to be influenced by the ownership and governance of the firm (Fama, 1980; Fama & Jensen, 1983; Jensen & Meckling, 1976). Scholars of EO and agency theory share an interest in how risk taking affects performance (e.g., Wiklund & Shepherd, 2003; Wiseman & Catanach, 1997). A meta-analysis of the relationship between EO and performance showed that across studies, the two constructs were positively correlated (Rauch et al., 2004).

However, the analysis also showed that risk taking had a significantly smaller correlation with performance than other aspects of EO. Similarly, in their review of the relationship between risk taking and performance, Wiseman and Catanach (1997) found that arguments and results of positive as well as negative associations between risk taking and performance existed in the literature. In their empirical analyses, they found that risk taking had positive effects on performance in certain contexts, while the effect was negative in other contexts (Wiseman & Catanach, 1997). Just as the relationship between entrepreneurship and risk taking may be context specific, we argue that the relationship between risk taking and performance is better understood by taking into account the organizational context, and especially the relationship between and nature of ownership, governance, and management.

We believe that family firms constitute a relevant organizational context in which to examine this concept. As we will argue, family firms are likely to handle risk differently than other types of firms, partly because management and ownership are not separated (Fama & Jensen, 1983; Daily & Dollinger, 1992) and partly because of the family nature of ownership and management (Carney, 2005; Schulze, Lubatkin & Dino, 2003; Schulze, Lubatkin, Dino, & Buchholtz, 2001; Zahra, 2005).

Research on entrepreneurship in family firms, including entrepreneurial orientation and the role of risk taking, is increasing but still scarce (Habbershon & Pistrui, 2002; Zahra, 2005; Zahra, Hayton,& Salvato, 2004). Therefore, by combining insights from the literature on entrepreneurial orientation, family firms, and agency theory, the purpose of this article is twofold. First, we set out to investigate whether risk taking is an important aspect of EO in family firms. Second, we examine the relationship between risk taking and performance in family firms. Exploratory and confirmatory factor analyses are used to investigate the former multiple regression analysis to investigate the latter. The present study makes two important contributions. First, we extend our knowledge of EO in general and risk taking in particular with regard to its applicability in one distinct organizational context. Second, we shed light on the influence that the risk-taking dimension of entrepreneurial orientation has on performance in family firms, thereby advancing our knowledge of corporate entrepreneurship in this common type of firm. In the following section we present theory and hypotheses. Thereafter, the research method is discussed, followed by the analysis and results.

We then discuss the results, offer implications, and address the most important limitations of our research, before ending with our major conclusions.

Theory and Hypotheses Defining the Family Firm

Family firms can be viewed as a contextual hybrid—a unique combination of two sets of rules, values, and expectations: the family’s and the business’s (Flemons & Cole, 1992; Gersick, Davis, McCollom, Hampton, & Lansberg, 1997; Naldi, Nordqvist, Sjöberg, Wiklund Tagiuri & Davis, 1982). Family firms share certain characteristics that render them unique in terms of patterns of ownership, governance, and succession (Chua, Chrisman, & Sharma, 1999; Steier, 2003). For instance, owner-families share the desire for ownership control and the continuity of family involvement in the firm. To fully appreciate these special characteristics, it is crucial to focus on family firms where the family is likely to have considerable impact on entrepreneurial activities.

We therefore define family firms as 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 (Westhead & Cowling, 1999).

Risk Taking and Entrepreneurial Orientation

Scholars disagree regarding to what extent family firms constitute an organizational context that supports or constrains an entrepreneurial orientation (Habbershon & Pistrui, 2002; Zahra, 2005). Family firms are often characterized as conservative (Aronoff & Ward, 1997; Kets de Vries, 1993; Sharma, Chrisman, & Chua, 1997), resistant to change and introverted (Hall,Melin, & Nordqvist, 2001), contradicting what would be considered entrepreneurial. The risk of losing family wealth created over a long period of time (Sharma et al., 1997) may also inhibit family firms from engaging in entrepreneurial activities. At the same time, family firms have been viewed as examples of entrepreneurial firms (Litz, 1995). There are several arguments supporting the view that family firms can preserve their entrepreneurial capacity and continue to engage in risky projects and ventures (Aldrich & Cliff, 2003; Rogoff & Heck, 2003; Zahra et al., 2004). Recent empirical research has shown that entrepreneurial activity is a common characteristic of many family firms (e.g., Hall et al., 2001; Steier, 2003; Zahra, 2005; Zahra et al., 2004). Indeed, in today’s rapidly changing and highly uncertain markets, entrepreneurial firms must be willing to take risks:“without risk-taking, however, the prospects for business growth wane” (Ward, 1997, p. 323). One reason for these diverging views might be related to unclear definitions in family business research of “entrepreneurial behavior.” Miller (1983, p. 771) defines an entrepreneurial firm as “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.” As mentioned above, entrepreneurial orientation (EO) is a concept that has been coined to refer to this type of strategic orientation. Miller’s (1983) original operationalization contained three dimensions: innovativeness, proactiveness, and risk taking. EO mirrors Stevenson and Jarillo’s (1990) concept of entrepreneurial management as “it reflects the organizational processes, methods and styles that firms use to act entrepreneurially” (Lumpkin & Dess, 1996, p. 139). Conceptual arguments have suggested that the dimensions of EO should be viewed as separate but related constructs, rather than as one unifying characteristic (Lumpkin & Dess, 1996; Lyon et al., 2000). That is, firms can vary in degree of innovativeness, proactiveness, and risk taking so that they are not equally entrepreneurial across all dimensions.

However, the dimensions are suggested to be positively correlated (Lumpkin & Dess, 1996), which has been validated empirically (Rauch et al., 2004). Given the lack of agreement on the extent to which family firms are entrepreneurial and the ambiguity as to whether risk taking is an important element of entrepreneurship in family firms, it is important to explore the dimensionality of the EO construct among family firms. On the basis of previous research on EO, we anticipate that risk taking forms an independent dimension of EO in family firms and that it is positively associated with the other dimensions of the construct. Thus:

Hypothesis 1a. Risk taking forms an important and independent dimension of EO in family firms.

Hypothesis 1b. Risk taking is positively associated with the other dimensions of EO in family firms.

Risk Taking in Family and Nonfamily Firms

Whether family firms take risks to the same extent as nonfamily firms is controversial. Zahra (2005) found some support that family ownership and involvement promote risk taking in general, while long CEO-founder tenures lead to the opposite. Yet, in the academic literature and popular press family firms are associated with weak risk bearing attributes that harm longevity and efficiency. In addition it has been argued that family firms suffer from strategic inertia and become risk averse (Meyer & Zucker, 1989) and that an especially high concentration of ownership may lead to risk avoiding strategic choices (Chandler, 1990).

Agency theorists propose that a firm’s risk taking is influenced by its ownership and governance structure (Fama, 1980; Fama & Jensen, 1983; Jensen & Meckling, 1976). In Fama and Jensen’s (1983) view, family firms tend to bear fewer risks and choose lower levels of investments than do more widely held firms. Agency theory also proposes that equity ownership influences managers’ risk-taking propensity (Eisenhardt, 1989; Zajac & Westphal, 1994), suggesting that managers become risk averse as their ownership in the firm increases (Beatty & Zajac, 1994; Denis, Denis, & Sarin, 1997). On this basis, there are reasons to believe that risk avoidance is stronger in family firms than in nonfamily firms. First, in family firms, the management tends to have most of its wealth invested in the firm and so bears the full financial burden of failed investments (Gedajlovic, Lubatkin, & Schulze, 2004). Consequently, necessary but risky strategic decisions, such as international expansion, the launch of a new product, or committing resources to R&D, are postponed due to concerns about the safety of the family wealth (Schulze, Lubatkin, & Dino, 2002).

Second, there is more at stake in family firms than the family’s current wealth. As opposed to other types of firms, managers’ risk taking in family firms is done with the awareness that the accumulated family wealth might be at stake and that they thereby jeopardize the financial and social wellbeing of future generations (James, 1999; Schulze et al., 2002). In addition, the family name and with it, the family reputation often built up over several generations, might be compromised (Bartholomeusz & Tanewski, 2006). This situation is not the same in other types of firms where the connection to a wider family and to previous and future generations is less clear. In light of this we expect that:

Hypothesis 2. Family firms take less risk than nonfamily firms.

Risk Taking and Performance in Family Firms

We have argued that family firms take risks but to a lesser extent than do nonfamily firms. We believe that it is also important to study the outcome of this behavior. Perhaps the most recurrent theme among those interested in EO concerns the positive implications that entrepreneurial processes have on firm growth and performance (Lumpkin & Dess, 1996; Wiklund, 1998; Zahra, Jennings, & Kuratko, 1999). EO is regarded as inevitable for firms that want to prosper in competitive business environments. Empirically, the positive impact of EO on firm performance and growth has been supported by several studies and in a meta analysis. Rauch et al. (2004) found that the risk-taking dimension is positively related to performance, even if significantly smaller than other aspects of EO. This led them to suggest that the link between risk taking and performance is less obvious than the one between proactiveness or innovation and performance (Rauch et al., 2004). Lumpkin and Dess (1996, p. 163) suggest that the positive implications of the EO dimensions on firm performance are context specific and may vary independently of each other in a given organizational context.

The relationship between risk taking and performance, in particular, appears to vary with context. As argued above, we can expect from agency theory (Fama, 1980; Fama & Jensen, 1983; Jensen & Meckling, 1976) that there are specific features of risk taking in family firms. In family firms, the overlap between ownership and management means that owners and managers are the Naldi, Nordqvist, Sjöberg, Wiklund same individuals or represent the same owner family.

Traditionally, this lack of separation from ownership and management has led researchers to suggest that agency costs are low in family firms (Fama & Jensen, 1983) because of a lesser need of formal monitoring and control systems (Daily & Dollinger, 1992; Geeraerts, 1984; Randøy & Goel, 2003).Agency theorists’ prediction about the lack of formal information and control systems has been supported by scholars observing that family firms are less likely to have active boards with external board members (Brunninge & Nordqvist, 2004; Schulze et al., 2001) and strategic planning processes (Ward, 1988). Moreover, Carney (2005) argues that the “personalism” and the overlap of ownership and management in family firms mean that organizational authority is incorporated in one person or family. Hence, family firms where ownership and management is held within a definable family operate under less pressure from external constituents, such as minority shareholders, market analysts, and institutional monitors, that demand accountability, disclosure, and transparency (Carney, 2005) than, for instance, publicly traded firms or other firms with external owners or managers. This, in turn, renders family firms more vulnerable to self-control problems. Indeed, family managers have the authority and legitimacy to pursue what they perceive as being the “best option” (Gedajlovic et al., 2004).

As argued above, entrepreneurial activities in family firms do involve taking risks, but to a lesser extent than in nonfamily firms. If family firms generally are characterized by less internal and external formal monitoring, risk taking in family firms is likely to mean that these firms make decisions that are less based on closely calculated risks; less grounded in a systematic unbiased way; and with less incorporation of outsiders’ perspectives and opinions (Schulze et al., 2001, 2003). The lack of more formal monitoring and control systems and practices for systematic collection and analysis of information can result in family firms investing in projects without thoroughly considering the pros and cons in terms of risk.

This logic suggests that managers in family firms have less control and understanding of the risk that they are taking. Moreover, they have less pressure to analyze and motivate different alternatives for both internal and external stakeholders. In other words, family firms “have greater latitude to allocate resources on the basis of ‘animal spirits’ or ‘gut feel’ and to pursue opportunities that can only be rationalized by particularistic or intuitive criteria” (Carney, 2005. p. 23). Thus, we expect that:

Hypothesis 3. Risk taking is negatively related to performance in family firms.

Analysis and Results

Exploratory and confirmatory factor analyses were used to test Hypostheses 1a and 1b. Principal component analysis with varimax rotation was used for the exploratory analysis. One item pertaining to innovativeness (Item a in the Appendix), and one item pertaining to proactiveness (Item f in the Appendix) turned out to be problematic, leading to unclear factor structure. Once these items were dropped and the remaining seven items were reanalyzed, three clean factors with loadings above 0.69 and cross-loadings below 0.30 appeared. It is important to note that all three items were retained for risk taking—the central variable in our study. The total variance accounted for by the factors was 71.2% for family firms (72.9% for nonfamily firms).When summed to indices, the alpha values of the three variables were 0.62 (0.72 for nonfamily firms) for risk taking, 0.83 (0.76 for nonfamily firms) for innovativeness, and 0.67 (0.67 for nonfamily firms) for proactiveness.

We kept these seven items for confirmatory factor analysis (Figure 1) and compared fit indices of this factor structure with those of two alternative factor structures suggested in the literature (Kreiser, Marino, & Weaver, 2002; Yoo, 2001). According to standard fit indices (e.g., Hair, Naldi, Nordqvist, Sjöberg, Wiklund Anderson, Tatham, & Black, 1998), the analyses showed good fit for our model, superior to those of the alternative models.The correlation between risk taking and the two other dimensions of EO is positive and statistically significant for family firms (0.37 and 0.42; p < 0.001). Based on these analyses, we conclude that risk taking forms one distinct and independent dimension of EO and that it is positively associated with the other dimensions of EO (innovativeness, proactiveness) in family firms. Thus, Hypotheses 1a and 1b both receive support from our analyses. Means comparison and Student’s t test were used for testing Hypothesis 2 concerning the extent of risk taking in family and nonfamily firms. We found that family firms take statistically significantly less risk than do nonfamily firms (mean difference = 0.15 on a seven-point scale; t = 2.04, p < 0.05), supporting Hypothesis 2. The next step was to investigate what impact risk taking in family firms has on their performance. Hierarchical multiple regression analysis was used for testing Hypotheses 3. The hypothesis anticipates a negative relation between risk taking and performance in family firms. Multicollinearity was not a problem in our data according to correlation and variance inflation factor analysis.

The base model shows that past performance is a strong predictor of performance and that being independent of a company group has a negative influence on performance. Adding the three dimensions of EO, displayed in the right column of Table 1, significantly increases explained variance. A statistically significant negative impact can be noted for risk taking. This result supports Hypothesis 3. Stated differently: our findings suggest that risk taking in family firms is negatively related to perceived performance.

Discussion

There is reason to believe that the relationship between risk taking, entrepreneurship, and performance may depend on organizational context. In this article, we have analyzed family firms. Family firms represent a relatively distinct category in terms of ownership and governance. To examine these issues, we relied on the entrepreneurial orientation construct and focused on the risk-taking dimension of this construct. The key findings of this study are now discussed.

Risk Taking and Entrepreneurial Orientation

Consistent with our hypotheses, we found that risk taking was a distinct dimension of entrepreneurial orientation and that it was positively associated with proactiveness and innovation. This finding means that the EO construct seems to have great generality across organizational types. Kreiser et al. (2002) found that the EO construct was valid across different national contexts. Similarly, our findings suggest that the construct is also valid and relevant in the important organizational context of family firms. Hence, this finding adds to the growing body of research that teases out fine-grained aspects of the EO construct (e.g., Lumpkin & Dess, 1996; Rauch et al., 2004), adding further to its validity and usefulness in research practice.

The results also suggest that in family firms the processes and practices related to entrepreneurial activities involve an element of risk taking. Furthermore, risk taking is not an isolated phenomenon. Processes and practices related to risk taking are correlated with innovative and proactive behaviors. This is an important result. In recent years firms, and not excluding family firms, have needed to be innovative and acquire new skills to act proactively and strengthen their competitive position (Habbershon & Pistrui, 2002).

Level of Risk Taking in Family Firms

We also hypothesized, and found, that even if family firms do take risks as part of their entrepreneurial activities, they do it to a lesser extent than do nonfamily firms. These results are some explanation of previous ambiguous findings regarding the role of risk taking in entrepreneurship and family firms (Zahra, 2005). Risk taking may be higher in some type of firms than in others, supporting the argument that organizational and governance contexts need to be taken into account in order to gain a deeper understanding of the relationship between risk taking and entrepreneurship in established firms (Lumpkin & Dess, 1996; Lyon et al., 2000). Singling out family firms appears to be relevant in order to understand some of the context specificity of these relationships.

Using a different conceptualization of both family firms and risk taking, Zahra (2005) found some support that family ownership and involvement promote risk taking. Our study shows that risk taking is an important dimension of entrepreneurial behavior in family firms but that family firms tend to take less risk than do nonfamily firms. This gives empirical support to the notion that family firms tend to be more conservative and risk averse in their strategy making (Carney, 2005; Chandler, 1990; Meyer & Zucker, 1989; Schulze et al., 2002).One explanation for this behavior can be that managers’ propensity to take risk is related to their equity ownership (Eisenhardt, 1989; Zajac &Westphal, 1994) and is consistent with predictions based on agency theory. When managers’ ownership in the firm is high, they tend to be more risk averse, as Beatty and Zajac (1994) and Denis et al. (1997) have argued. Moreover, in family firms, the risk of losing accumulated family wealth and jeopardizing the financial and social well-being of future generations is likely to further accentuate this tendency (James, 1999; Schulze et al., 2002).

Risk Taking and Performance

Next we tested the link between risk taking and performance. Earlier research has found that the risk-taking dimension is positively related to performance, even if significantly smaller than other aspects of EO (Rauch et al., 2004). In this study, taking into account the organizational and governance context, we found some interesting results. Agency theory and previous empirical and conceptual research on family firms led us to hypothesize a negative relationship in family firms. This was supported by our data and is an interesting finding that advances our understanding of entrepreneurial orientation and risk taking in family firms. First, it is in conflict with previous research that addresses the link between EO and performance, without taking into account the specific organizational and governance context of family firms. Research has not before addressed the link between EO and performance in samples of family firms only and disentangled the aspects of risk taking, innovation, and proactiveness empirically.

Our result suggests that family firms take on risks but with negative implications for their performance. In line with our argumentation above, one explanation, albeit tentative, for this finding can be the following: family firms with the same individuals or individuals from the same family dominating both ownership and management of the firm and who perceive the firm to be a family firm expect the firm to stay within the family over generations (James, 1999) and let key business decisions be influenced by the family (Chua et al., 1999). This type of firm is often characterized by little use of formal control systems (Daily & Dollinger, 1992; Geeraerts, 1984; Randøy & Goel, 2003), few outside board members (Cowling, 2003; Schulze et al., 2001), and weak pressure from external monitors demanding accountability and transparency (Carney, 2005). At least partly as a result of this, it is plausible to argue that these firms make decisions, invest in projects, and pursue new venture in a more informal, intuitive, and less calculated way. Put differently, risk taking in family firms might not be firmly grounded in systematic and formal procedures and not have enough inclusion of outsiders’ perspectives and opinions (Schulze et al., 2001, 2003). Therefore, risk taking in entrepreneurial activities in family firms might be less understood and possible outcomes more difficult to predict.

If this explanation is correct, it seems to support recent arguments for family firms to install formal Entrepreneurial Orientation, Risk Taking, and Performance in Family Firms control and monitoring systems, such as active boards, financial controls, and strategic planning, in order to improve performance, despite higher agency costs and risk of losing flexibility (Schulze et al., 2001, 2003). Better control, evaluation, and external monitoring can support a more calculated risk taking that is guided toward projects that are better evaluated and scrutinized and, thus, whose outcome is better understood. However, this implies an important act of balancing, since the informality, flexibility, and entrepreneurial orientation that characterize risk taking in family firms can be harmed by increased formalization. Some authors even argue that the intuition and flexibility with which many family firms pursue opportunities may be the source of a unique competitive advantage compared to nonfamily firms (e.g., Carney, 2005; Miller & LeBreton-Miller 2005).

This seems to reveal an interesting paradox of risk taking in family firms: increased formalization and external monitoring may lead to a risk taking behavior that leads to better outcomes in terms of financial performance, but at the same time, this formalization and external monitoring may stifle the entrepreneurial activities that give rise to these opportunities and risky projects to begin with. Unfortunately, our data do not allow us a more detailed test of this possible explanation for risk taking in family firms leading to negative performance. We encourage future research to look further into this.

Limitations

This article has several limitations that should be kept in mind. An increasing number of scholars have argued that family firms do not constitute a homogenous population of firms (Salvato, 2002; Sharma, 2004). Rather, family firms differ on a range of dimensions (Klein, Astrachan, & Smyrnios, 2005) and it is possible that different types of family firms show different patterns in terms of entrepreneurial orientation and risk taking. Our data consisted of Swedish SMEs and inference to other countries should be made with caution. National culture and tradition may influence risk taking and entrepreneurial orientation, which has implications for the generalizability of our findings.

Moreover, we relied on a single respondent, the CEO, from each firm. Responses from more individuals within the firms would have given a more complete picture of the firm’s situation and behavior. Finally we used self-assessment and perceived measures for entrepreneurial orientation and performance. Even though this is an often practice method in this field of research (Lyon et al., 2000), our data could be biased and reflect wishful thinking rather than a factual state. However, the longitudinal nature of our data makes this problem less pronounced.

Implications for Managerial Practice

Our findings point to the danger of giving general advice on the benefits of EO without considering context-specific issues. Family firms distinguish themselves as an organizational context in important ways. Often, family firms are characterized by dominant ownership and the presence of family members at different levels of the firm’s operations, but also in regard to goals for and attitudes toward business activities. Advice with regard to entrepreneurial processes must take this into account. For instance, family firms are an organizational context in which entrepreneurship can flourish in the form of new products, ventures, and process ideas. However, our research suggests that it is important to secure systems and routines for careful evaluation of risky investments in order to better understand the possible amount and outcome of the risk that is taken without hampering the creative and entrepreneurial milieu of the organization.

Implications for Theory and Future Research

This article argues and finds empirical support for the notion that risk taking and its relationship with performance is context specific. Among our family firms, there was a negative relationship between risk taking and future performance. This Naldi, Nordqvist, Sjöberg, Wiklund is an important finding and contribution to both corporate entrepreneurship and family firm literature. In addition to rejecting or supporting theories and models, research needs to establish the boundary conditions of theories. Entrepreneurial orientation (EO) is an established construct that has attracted substantial research.

Generally, this research finds support for positive relationships between all dimensions of EO (including risk taking) and performance. Our findings suggest that such statements may need to be qualified. In some contexts, the relationship may actually be the opposite. This suggests that future EO research would benefit from paying closer attention to organizational context. Further, many EO studies use a one-dimensional summated construct rather than a multidimensional one. Our findings suggest that EO may better be viewed as a multidimensional measure where the impact of the dimensions may vary across different organizational contexts.

Also our contributions to family business research open up possibilities for future research. We did not distinguish between different types of family firms. Family firms constitute a heterogeneous group and, therefore, future research investigating the link between risk taking and performance in family firms will benefit from a more fine-grained distinction between different types of family firms. For example, the role of risk taking and its relationship with performance may differ depending on whether the firm is a first-, second-, or third-generation family firm. More research is also clearly needed to investigate more directly the role of formal control and external monitoring systems for the performance implications of risk taking in family firms. One way of doing this is to investigate what impact active boards with nonfamily members and the use of formal strategic planning practices have on the relationship between risk taking and performance. Such research should however, also consider the important act of balancing noted above: too much formal control, planning, and monitoring may inhibit the overall entrepreneurial orientation of the family firm.

Conclusions

Research on corporate entrepreneurship and entrepreneurial orientation will advance by paying greater attention to the role of organizational context for different dimensions of entrepreneurship. In this article, we have focused on risk taking as one important dimension of entrepreneurial orientation and its impact in family firms. We conclude that risk taking is a distinct dimension of entrepreneurial orientation and that it is positively associated with proactiveness and innovation. This is a contribution to the literature on entrepreneurial orientation and risk taking since it shows that the EO construct seems to have great generality across organizational types.

Further, we conclude that even if family firms do take risks while they are engaged in entrepreneurial activities, they take risk to a lesser extent than do nonfamily firms. Moreover, and most importantly for our understanding of corporate entrepreneurship in family firms, we conclude that risk taking in family firms is negatively related to performance. This is a contribution to the literature on family firms, which so far has not paid enough attention to the specifics of corporate entrepreneurship in this very important type of firm worldwide.