Family firms and ESG performance: the role of generational stage

Purpose Despite the heterogeneity of family businesses in terms of generational ownership stage, scholars have paid little attention to this relevant factor when exploring environmental, social and governance (ESG) performance of family firms. So, drawing on socioemotional wealth (SEW) perspective, the purpose of this paper is to shed light on the propensity of family firms to engage in ESG practices and how it varies due to the generational stage. Design/methodology/approach This study describes the relationship between family firms and ESG performance (measured by Refinitiv ESG scores) by using a large sample of 24,302 European listed family and nonfamily firms. Following previous literature, family firms are those where family holds 20% or more of equity stake and at least a family member seats on the board of directors. This paper used an ordinary least squares regression approach, paired with a propensity score matching to solve potential endogeneity. Findings The main results indicate that ESG performances are higher in family firms compared to nonfamily counterparts. However, this study observed relevant differences when conditioning upon generational stage, with the previous result confirmed only for later generations, while founding generation’s firms negatively influenced ESG scores. These results are clear evidence of the de-emphasis on socioemotional considerations and family-centered goals as generational stage increases, leading to a greater attention toward external stakeholders. Research limitations/implications As this paper uses a European sample of listed firms, the results may be generalized with caution, especially when trying to extend them to the Anglo-Saxon capitalism, characterized by a greater ownership dispersion. In this respect, future studies could explore the role of the family-firm status on the ESG performance by further conditioning upon different types of ownership structures. Future avenue of research could also explore the effect of other governance mechanisms (i.e. the presence of outside independent members of the board) in shaping family members’ propensity to embrace sustainable business practices. Practical implications The results have several implications for investors, managers and policymakers. In fact, in searching for socially responsible investments, investors should be aware of the different motivations of family members (according to the generational stage) in boosting ESG performance. Similarly, ESG-oriented managers should be aware of the possible divergences with founding generation family owners in the adoption of ESG practices. Finally, policymakers should implement rules and incentives to stimulate founding generation family firms’ attitude toward ESG practices. Originality/value The findings advance the ESG literature by answering to the call of previous research pointing out the importance of exploring ESG behaviors in different organizational settings. In addition, this study contributes to the literature on family firms by demonstrating the importance of generational stages, as different stages are likely to be associated with different family incentives and goals, consistent with the SEW framework.