Family business, transgenerational succession and diversification strategy

Purpose: The purpose of this paper is to enhance the existing socioemotional wealth (SEW) theory. Particularly, the current research proposes a dynamic SEW model using insights from prospect theory. The application of the proposed dynamic SEW model leads to several propositions that will reveal the relationship amongst family business, transgenerational succession, business risks and diversification strategy. Design/methodology/approach: This study is mainly a theoretical research. A dynamic SEW model is proposed in which the SEW is not static and can be increasing or decreasing. SEW is framed as a gain or loss under different scenarios, and the shift in reference point will change the framing or value of SEW. Findings: The current research presents several interesting propositions based on the dynamic SEW model. Generally, family firms are less likely to diversify than non-family firms. However, when family firms face business risks, they are more likely to diversify than those that do not face business risks. Family firms with second generation involvement in management are more likely to diversify than those without second generation involvement. The dynamic SEW model can also be applied to analyse R&D and IPO underpricing for family firms. Originality/value: This study builds a dynamic SEW model, which is totally new to the literature. The conceptual framework that reveals the relationships amongst family business, transgenerational succession, business risks and diversification strategy also contributes to the literature and has empirical implications to researchers, policy makers and family business owners.