Opportunities and Resources in Latin America
Chapter 9: Transgenerational Issues in the Financing of Entrepreneurial Family Firms
Arkangel Cordero, Eduardo Montiel, Luis J. Sanz and Iluminada Severino 9.1 INTRODUCTION In this chapter we touch upon some financial issues that arise in the lifespan of family firms, alternative solutions for these problems and the impact of the potential solutions on familiness, entrepreneurial performance and transgenerational wealth creation. An unfolding stream of literature seeks to explain how entrepreneurship is preserved and transmitted across generations in family firms. At the same time, the family business literature documents a well-established set of dilemmas faced by family firms as they evolve over time (Habbershon and Pistrui, 2002; Habbershon et al., 2010; Zahra, 2005). In this chapter we use corporate finance and agency theory to shed light on how the issues faced by a family ownership group as it evolves over time can impact transgenerational entrepreneurship. Our overall purpose in the following sections is to extrapolate from corporate finance and agency and real options theory in order to develop some guidelines on how to create positive familiness, and in the process, build a bridge between the theories of corporate finance and family entrepreneurship. We extend the Habbershon and Pistrui (2002) model in two directions. First we propose that the enterprising family domain requires two conditions: profit reinvestment and a separation of ownership and management. Second, we explore the effect on entrepreneurial strategies of considering the family as a fragmented group in which the members can have different objectives depending on their own individual circumstances. To our knowledge there has been no attempt to...
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