Family management and profitability in private family-owned firms: Introducing generational stage and the socioemotional wealth perspective

• We study the relationship between family management and profitability.
• We introduce generational stage and the socioemotional wealth perspective.
• We argue that family management positively affects profitability at later generational stages.
• We confirm our hypothesis on data drawn from 233 Italian firms.

Prior research has not fully explained whether the relationship between family management and profitability is positive or negative in private family firms. This issue is critical for further theoretical development in the field and holds high practical relevance, given that the appointment or exclusion of family managers is a decision virtually any family firm is faced with. To explain inconsistencies in the literature, we build on the socioemotional wealth perspective to argue that family management is positively related to profitability at later generational stages, when a decreased need for socioemotional wealth preservation induces family managers to focus more on increasing financial wealth. We tested and confirmed our hypothesis via OLS regression on a data set of 233 Italian family-owned firms utilizing lagged data on profitability.