The study, involving researchers Dr Vidya Panicker and Dr Elena Georgiadou from Loughborough University and Dr Saneesh Edacherian from the University of Birmingham, found that struggling family firms appeared to place greater importance on protecting their reputation and long-term legacy rather than using advertising to pursue more immediate commercial returns.
Researchers examined 1,696 companies across India between 2006 and 2019, looking at how family ownership influenced spending on advertising and corporate social responsibility (CSR).
CSR can include spending on charitable causes, community projects, environmental initiatives and employee welfare and training.
Overall, the researchers found that greater family ownership was associated with higher spending on both advertising and CSR.
However, the picture changed when businesses performed worse than comparable companies in their industry.
The researchers had expected struggling family businesses to increase advertising in an attempt to improve their financial position while reducing spending on CSR.
However, they discovered the opposite was true and family owners placed greater emphasis on CSR while reducing advertising when performance fell below expectations.
The researchers suggest this may be because the reputation of a family business can be closely connected to the reputation and social standing of the family behind it.
Dr Panicker said: “When a family business performs below expectations, there can be more at stake than the financial results.
“The family’s name, reputation and sense of legacy are often closely tied to the business.
“What surprised us in our study of Indian firms was that underperformance was associated with a greater emphasis on corporate social responsibility and less on advertising.
“This suggests that protecting the family’s reputation and standing in the community can become an even stronger priority when the business is under pressure.”
Dr Georgiadou added: “You might expect social responsibility spending to be among the first things businesses pull back on when performance disappoints.
“But our findings suggest that, for family businesses in India, it can take on greater strategic importance at precisely those moments.
“Supporting employees and communities can send a message about the business’s commitments beyond its financial results.
“We interpret this shift as an effort to protect relationships and stakeholder confidence, showing how concerns about reputation and long-term legacy can remain central even when financial performance is under pressure.”
The study, Family ownership, performance below aspiration levels and signaling strategies in emerging markets, is published in the Journal of Business Research.
ENDS