How the level of family involvement alters firm infrastructure spending in response to negative performance feedback

Purpose Managers allocate resources to support their firm's strategies via infrastructure spending, which is sensitive to firm performance. We hypothesize that when firm performance falls below expectations, socioemotional wealth (SEW) motives matter to the continuation of infrastructure spending. While firms will generally reduce commitment to poorly performing strategies, firms with greater levels of family involvement will be more likely to “stay the course” to preserve the family's interest in SEW objectives. Design/methodology/approach We test the hypotheses using a sample of 1,535 firm-year observations from the US public manufacturing sector over a 10-year period (2007–2016). Findings We find that average firms in the panel will respond to performance below aspirations (i.e., poor performance) with a subsequent reduction in the level of infrastructure spending, but that the level of family involvement will moderate these reductions, such that higher levels of involvement are associated with less reduction in infrastructure spending. Originality/value This paper improves upon the modeling of SEW with a continuous variable derived from archival sources to capture different levels of SEW commitment by a family, rather than traditional dichotomized measures based on ownership cut-offs. Additionally, infrastructure spending as multi-dimensional is more nuanced than single categories, like R&D spending, to reflect firm heterogeneity and overall spending options available to firm management.