The effect of industry characteristics on the control longevity of founding-family firms

• We examine how industry characteristics affect the family control longevity.
• Families lose control sooner in cyclical, capital intensive and growth industries.
• Non-family firms are less sensitive to those industry characteristics.
• Our findings are contrary to the “pecking order” theory of finance.
• Family firms should plan early and diversify into other industries.

This article examines the effect of industry characteristics on the control longevity of founding-family firms. Using a sample from listed firms in the United States, the article shows that founding-family firms in industries jointly characterised by cyclicality, capital intensity and growth have a shorter control span than founding-family firms in other industries. The article also reveals that the lifespan of non-founding-family firms is less sensitive to the same industry characteristics. These findings provide evidence that the “pecking order” theory of financing choice may not hold true for founding-family firms in industries with these characteristics. The article also contains implications and guidance for owners of founding-family firms in both developed and emerging market economies, concluding that it may be strategically important to plan to mitigate negative control longevity effects in advance by diversifying businesses into industries that are less cyclical or counter cyclical, less capital intensive and less affected by industry growth demands.