“Whatever It Takes”: Socioemotional Wealth and Endowment Preservation in Failing Family Firms

Abstract

Prior research has repeatedly highlighted the influence of socioemotional wealth (SEW) on decision-making processes in family firms, given that owner-managers seek to protect their SEW endowments and identity. Yet, little is known about how this influence unfolds in situations of firm failure and how far owner-managers will go to preserve their SEW and identity. Hence, this paper investigates the role of SEW in driving escalation of commitment to a failing family firm and the likelihood of reentering entrepreneurship after the firm’s failure. Furthermore, the role of fear of failure and attribution as moderators in the interplays are investigated. Two vignette studies leveraging 314 observations from owner-managers of family-owned craft businesses in Germany provide evidence for a positive impact of SEW on the degree of commitment escalation to a failing firm and the intention to reenter entrepreneurship after failure. Moreover, the results of the analysis suggest that fear of failure plays a moderating role in the interplay between SEW and escalation of commitment, reducing the extent of commitment escalation by owner-managers. Hence, fear of failure dispositions might either help fuel rationality in decision-making or trigger a “freeze” or “flight” coping strategy rather than direct failure avoidance via additional investments. The findings of this paper hold informative value for owner-managers seeking to reduce adverse or impulsive decision-making and governmental bodies trying to understand how economic wealth might be adversely influenced by a SEW-induced urge to protect failing family businesses. Furthermore, the underlying results enrich the current theoretical understanding of the dark side of SEW while clarifying manifestations of grief, attribution, and fear of failure in the family firm context. At last, this paper outlines various avenues for future research.