An Analysis of Entrepreneurship in Family-Owned Stock Companies

Abstract Research background: Family businesses are included in the functioning of each market transaction. testing their development and dissemination can be an interesting area of research from the point of view of hierarchy and from the point of view of the owners of these companies. Purpose: The purpose of the article was to present an analysis of entrepreneurship of family-owned companies listed on the Warsaw Stock Exchange (WSE). Researcher methodology: The quantitative analysis method, including also the descriptive statistics method, ratio analysis, and inference was incorporated. The study was based on the financial data of 38 family capital groups. The data analysis on entrepreneurship in the years 2009–2018 indicates that in the case of all of the studied companies most were in a stable situation. The analysis of entrepreneurship, which takes into account the rate of income growth and efficiency indicators, indicates that the examined group of family companies was characterized by a high level of entrepreneurship throughout the analysed period, thus showing a downward trend. The results: The results of the research may form the basis for further research in the field presented in the article with an emphasis on sector diversification, the size of companies and the extension of the analysed time periods. Novelty: Entrepreneurship research in family entities can be seen from the point of view of the rate of increase of revenues and efficiency of assets and cash efficiency.


Introduction
Entrepreneurship is most often associated with undertaking economic activities (Griffin, 2002, p. 730); however, it is less often interpreted as a way enterprises use to strive for their development (Drucker, 1992). H.H. Stevenson and J.C. Jarillo (1990) were the precursors in saying that corporate entrepreneurship (CE) is not contrary to typical entrepreneurship. They claim that entrepreneurship is a process that is supposed to motivate individuals to create additional value and that entrepreneurship should be treated as an important element of strategic management (1990). Corporate entrepreneurship is also defined by P. Sharma and J.J. Chrisman (1999) as an 'entrepreneurial spirit' at an enterprise level, which is a specific combination of traits such as corporate ventures, innovations, and strategy.

Family business
Family businesses, according to various estimates, are said to account for 70-90% of global GDP. In emerging economies, family businesses are vitally important because they exhibit greater dynamism and versatility (Whyte, 1996), perform unique tasks like protecting wealth (Carney, 2007), and are responsible for a higher percentage of national economic growth (Claessens, Djankov, Lang, 2000). In China, for instance, there are almost eight million private businesses, and more than eighty per cent of which are family businesses (Steen, Baldwin, 2015).
However, family businesses remain the most difficult to define, as the formulation of the definition arouses controversy among researchers and affects the estimation of the number of these entities in the economy (Casillas, 2007, 18-20). Most definitions cover the concept of family ownership, control or management, and family involvement and/or intention to transfer a family business (Heck, Trent, 1999). Some definitions are narrow and limited by the inclusion criteria of involving two generations in business activities, while others include all businesses owned by one or more family members (Henry, 2016). Family involvement in family businesses is defined in the literature as family ownership (e.g. Chu, 2011;De Massis, Kotlar, Campopiano, Cassia, 2015;Tsao, Chen, Lin, Hyde, 2009;Yammeesri, Lodh, 2004); family control (e.g. Barontini, Caprio, 2006;Silva, Majluf, 2008); and family management (e.g. Chang, Shim, 2016;DeMassis et al., 2015;Ensley, Pearson, 2005).
The level of involvement of family ownership has a proven impact on a company's performance Sciascia, Mazzola, 2008). Family businesses in emerging markets have different characteristics from the same type of business in developed marketsfor instance, a greater incidence of nepotism (Khwaja, Mian, 2005). In family businesses, it is common to fill middle-level managerial positions with family members because business owners have more freedom in personnel matters, and nepotism (employing family members) is tolerated or understood (Birley, 2001). In these companies, the participation of family members in managerial activities directly affects how the company is managed in-house. While family involvement in senior and mid-level management has a significant impact on the functioning and performance of the company, the mechanisms through which these two management levels influence the performance of the company can vary greatly.
In Asian countries, but also in Italy and Spain, individuals or families control several companies concurrently as family business groups. The family organizes the ownership of the companies belonging to the group either in horizontal or pyramidal structures. A pyramid structure is defined as a network of companies that are connected in cascade fashion on many levels (Aluchna, 2014). The de-facto owner exercises control over businesses indirectly, through other entities. The owner holds a majority share in the main company at the top of the pyramid and is thus able to control another company, which in turn enables him/her to control companies at a lower level (Almeida, Wolfenzon, 2006;Aluchna, Kuszewski, Zatoń, 2017).
H. Qiongjing, Z. Yanlong, Y. Jingjing (2018), in their analysis of Chinese private family businesses, found that family involvement in mid-level management was negatively correlated to the work productivity of family businesses, which means there is a negative impact of family involvement in mid-level management on the productivity of family businesses; especially when the CEO is a family member or when the family businesses are big, or when the family businesses are located in regions with low labor mobility.
The results of these studies show that mid-level managers and senior decision-makers have different roles in family businesses. Having studied the impact of the percentage of family members among mid-level managers, they gained a deeper understanding of the impact of family involvement. By integrating the perspective of organizational justice with the agency dilemma, they suggested a new perspective on understanding the phenomenon of family involvement. They revealed that nepotism is detrimental when choosing mid-level managers, but persists only under certain conditions. S.H. Tahir and H.M. Sabir (2014) investigated the impact of family control on investments -cash flow sensitivity. They analysed whether there is a dominant shareholder in a family ownership structure, and whether there is information about asymmetry and agency dilemmas over the company's investment decisions. They showed that family businesses show lower sensitivity to investments and cash flows, asymmetric information and agency problems. They recommended employing a professional financial director (CFO) since they create more value and bring professionalism to the company, which thus prolongs the life of the company. They also stated that companies relieve the financially constrained capital markets and should therefore not have a high leverage ratio. The managers of family businesses should adjust their capital accordingly.
S.M. Fazzari, R.G. Hubbard and B.C. Petersen (1988) concluded there was a strong positive relationship between investment sensitivity and cash flow. They considered that the role of large institutional investors in the investment decision-making process to be inversely proportional to the sensitivity between investments and cash flows in the United Kingdom.
Unlike Fazzari et al. (1988), S. Kaplan and L. Zingales (1997) showed a higher level of sensitivity, which cannot be interpreted by financial constraints. According to S.M. Fazzari et al. (1988), A. Marhfor, K. Bouslahi and B. M`Zali (2012), there is a significant relationship between investment sensitivity and cash flows. A family business has some potential benefits that contribute to reducing the sensitivity of investment cash flows for the following reasons: firstly, according to the arguments of various authors, including M. Galeotti, F. Schiantarelli and F. Jaramillo (1994), the benefits of family ownership help reduce financial market shortcomings; secondly, W.S. Schulze, M.H. Lubatkin and R.N. Dino (2003) state that family corporations can better evaluate strategic investment projects by virtue of their deep knowledge and longterm commitment of family members to their businesses, which allows them to reduce the deviation from optimal new investments. This optimal level helps control the sensitivity of investment cash flow (Morgado, Pindado, 2003); thirdly, family ownership helps reduce the cost of intermediation between shareholders and bondholders, leading to a lesser difference between the cost of external and internal funds (Jensen, Meckling, 1976) -these lower financial constraints lead to the choice of the optimal investment, which ultimately reduces the sensitivity of the investment to cash flow; fourthly, the available literature on family businesses indicates that family owners are more concerned about the reputation of the company, which leads to higher earnings, thus helping reduce conflicts between agencies -lower agency conflicts reduce the sensitivity to cash flow from investments in a family business.
R. La Porta, F. Lopez-de-Silanes and A. Shleifer (1999) found that in companies with concentrated ownership, large shareholders monitor each other and provide potential benefits that have a disciplining effect on the family business. is also a less classical owner-manager conflict in which a family member holds the position of the chief executive officer (James, 1999). The founder or successors have easy access to an external debt due to their reputation and long-term family ties with financial institutions or bondholders, thus leading to less reliance on internal funds. R.C. Anderson, S.A. Mansi and D.M. Reeb (2004) claim that the family's long-standing presence in the management process guarantees the strength of a relationship with external sources of funding through commitment and trust. In effect, compared to their counterparts, family businesses incur lower debt costs for external financing to undertake new investments. Long-term family managers offer extensive industry knowledge and experience that can be used to effectively make investment decisions.
The presented literature review concerning the financial management of a family business indicates their specific type of activity, which has many advantages and as many drawbacks; certainly, there are entities distinguished by their financing structure, managerial structure, work efficiency, level of innovation, and reputation or other factors that have a significant impact on the growth rate of companies and their financial results.

Entrepreneurship
The amount of research on entrepreneurship has grown exponentially in recent years as a result of increased economic globalization that boosts entrepreneurship worldwide.
Entrepreneurial activity takes place and can be researched at individual, organisational and national levels (Luke, Verreynne, Kearins, 2007). However, while the collapse of communism and the rise of economic opportunities have transformed emerging economies into appealing investment destinations in recent years, little research has been done on entrepreneurial activity in post-communist countries, especially at an organisational level.
The aim of this study is to investigate the relationship between corporate entrepreneurship and corporate governance of entities listed on the Romanian market using a theoretical framework rooted in agency and signalling theories. Romania and some other former communist countries are considered 'modest innovators' in the European Union (Business 24, 2014); therefore, research on corporate entrepreneurship is useful in understanding its mechanisms.
While the concept of entrepreneurship is widely used, it still remains hard to define. P. Sharma and J.J. Chrisman (1999) indicate that this concept was first used in 1734 by Richard Cantillon, who defined entrepreneurship as self-employment of any sort. The relevance of this concept has evolved and entrepreneurship is now analysed at individual, organisational or national levels (Luke, Verreynne and Kearins, 2007); and is seen through features like innovation, or growth etc. or results, e.g. value creation (Gartner, 1990). P. Sharma and J.J. Chrisman (1999) attempt to reconcile existing definitions and approaches, and define entrepreneurship as follows: 'Entrepreneurship encompasses acts of organisational creation, renewal, or innovation that occur within or outside an existing organisation.' The entrepreneurship of enterprises is one of the most important areas of research in the field of entrepreneurship from the viewpoint of an operating company (Hagen, Emmanuel, Alshare, 2005). N. Albu and R.A. Matescu (2015) define entrepreneurship as the sum of its innovative activities and ventures that help a company gain new opportunities expand its business, enter a new business, increase revenue and productivity. This article will consider this type of entrepreneurship. All the companies operating on the Warsaw Stock Exchange were analysed using the Substantial Family Influence ratio (Klein, 2000) to select family businesses for the analysis. In the SFI ratio, family control is understood as family share in the ownership of a company and its management, and family supervision over the entity (Stradomski, 2010). The interpretation of this ratio implies that a weak family influence on the functioning of an entity occurs when the result is between 0.5 and 1.0; a result of up to 1.5 indicates average family influence, while a value above 1.5 will indicate companies with strong family influence upon the enterprise.

Data and the variable measurements
A family business is one in which at least one family member participates in the management and/or supervision of the company, and the family members hold at least 25% of the company assets. This definition allowed the authors to identify family capital groups listed on the WSE, and then analyse their financial standing (Mioduchowska-Jaroszewicz, Szczepkowska, 2018). In the case of 60 family capital groups listed on the WSE, a family had a significant impact on their decisions, both through ownership, supervision, and management. The remaining 38 analysed entities can be described as those in which a family has a weak influence on the functioning of the entity. The value of the SFI may be underestimated because the family members have a common name, which is not applicable when classifying an enterprise passed on to a daughter who has a different name from the parents. Also, persons from outside the family and those delegated to the supervisory authorities on behalf of the family are not included. Both of these factors could further increase the influence of the family on the functioning of the entity.

An analysis of entrepreneurship based on the dynamics of changes in revenues
The data published on the website of the Warsaw Stock Exchange were used to analyze the Polish family capital groups. Out of 448 listed companies, 38 family companies operating in the form of a capital group were identified. Table 2  showing in a three-year period an average annual increase in revenues of 20% and more, which means that the total revenue growth rate in this period was 72.8% and more; b) growth enterprises -entities whose revenue growth rate ranged from 10 to 72.8% in the three analysed years; c) stable enterprises -entities obtaining similar income values in the studied three-year periods, which means that in the last year their value accounted for 90 to 110% of the beginning value; d) declining enterprises -entities for which revenues earned in the last year of the studied period constituted from 51.2 to 90% of revenues yielded at the beginning; e) rapid decline enterprises -characterized by an average annual decrease in revenues by 20% and more, which means that at the end of the analysed three-year period their revenues accounted for 51.2% and less compared to revenues yielded at the beginning of this period.

An analysis of the financial standing of family-owned companies based on ROOA and CCPA
The second part of the research on entrepreneurship deals with the assessment of the financial situation of family-owned listed companies using two indicators, which examine efficiency from accrual (ROOA) and cash (CCPA) perspectives. Both indicators measure the efficiency of the entire capital group with the data from consolidated financial statements.
The return on operating assets (ROOA) determines the operating efficiency of the capital group's assets. The analysis of the value of the ratio indicates the course of action to help improve the efficiency of the assets held, adjust the size of the assets to the size of the business, and eliminate unnecessary and excessive assets (Gabrusewicz, 2019). The desirable trend of the indicator is its growth over time; higher than the average value in the sector and higher compared to competitors. The ratio takes the following form: consolidated operating profit ROOA = average total assets of the capital group (1) Cash productivity of operating assets of the capital group (CCPA) is the relation of cash flows from operating activities to average assets. The value of the ratio informs of the cash efficiency of the capital group`s assets used. Its value reflects the ability of a capital group's assets to generate positive operating cash flows; it is also the ability to finance the assets of a company in question with cash. The higher the value of the ratio, the better. A satisfactory value of the indicator is 30% (Śnieżek, Wiatr, 2011). The formula of this ratio is the following: consolidated cash flows from operating activities CCPA = average total assets of the capital group (2)  In an appendix (Table 1) shows dynamics indicators calculated and based on the value of revenues from sales. The analysis of data contained in the table indicates the lack of possibility to show the general revenue growth rate for the studied group of enterprises as each of the company is characterized by an individual dynamics of changes in sales depending on many specific macroeconomic and microeconomic factors. Based on the appendix (Table 1), to draw conclusions on entrepreneurship in family capital groups, the companies were compiled according to the directions and dynamics of change and thus classifying them into five groups of entrepreneurship in Table 1.

The analysis of entrepreneurship
RG -rapid growth; G -growth; S -stable; D -declining; RD -rapid decline; nda -no data available.
Analysis of the data contained in (Table 1)

Results of the financial performance of family-owned stock companies
The analysis of the financial results of family-owned capital groups with indicators of operational profitability and cash performance of assets indicates that the studied group of companies is evolving in terms of revenue dynamics and financial results. The variability of results is dictated by changes in the micro-environment, but mainly in the macro-environment, which significantly influenced the functioning of Polish publicly-owned companies in the last three research periods. Since 2016, the Polish stock exchange market has ceased to fulfil its function of a capital provider, and it has become inefficient, for not being able to support companies. The changes on the WSE, and the withdrawal of fifty entities from the public market (from 2016 to 2020), is an important indication of the reason for the weakening of entrepreneurship and financial performance of the studied group of companies.