The impact of family business professionalization on financial performance: a multidimensional approach

Keywords Family business, Professionalization, Dimensions of family business professionalization, Financial performance, Employee professionalism, Organizational culture, Work environment
Paper type Research paper

Family businesses are the most prevalent form of business organization worldwide. They play a vital role in job creation and economic growth. However, these firms are usually considered less professional than their nonfamily counterparts, owing to challenges

associated with the intertwining of family and business systems (Howorth et al., 2007). It is argued that professionalization will help family businesses solve their specific problems, enable them to be more successful, and perform better (Dekker et al., 2015; Fang et al., 2012; Gimeno and Parada, 2013; Lin and Hu, 2007; Waldkirch et al., 2017). So, how can a family firm professionalize, and how does professionalization impact the financial performance of family firms? These questions have increasingly intrigued both academicians and practitioners over the last 15 years, leading to research investigating professionalization and its effects (Chittoor and Das, 2007; Dekker et al., 2015; Hall and Nordqvist, 2008; Howorth et al., 2016), but have yet to be fully answered. The relationship between professionalization and firm performance remains an unresolved issue requiring further investigation.

Despite growing interest in family business professionalization, relatively little is known about its impacts on firm performance. While there is a predominant consensus on the positive effects of professionalization on family businesses, only a few empirical studies have provided insight into these effects (Chang and Shim, 2015; Chittoor and Das, 2007; Dekker et al., 2015; Lien and Li, 2014; Songini, 2006). On the other hand, some studies report adverse effects of professionalization on firm performance (Anderson and Reeb, 2003), while some point to nonsignificant effects (Lin and Hu, 2007). Inconsistent results might partly relate to the narrow conceptualization of professionalization (Dekker et al., 2015), and a broader conceptualization might enhance our understanding of how professionalization relates to performance.

Professionalization was defined as the recruitment of nonfamily professional managers in most early studies (Chang and Shim, 2015; Chittoor and Das, 2007; Chua et al., 2009; Gedajlovic et al., 2004; Lin and Hu, 2007; Zhang and Ma, 2009). Nevertheless, it has been increasingly accepted that family business professionalization has a multidimensional and processual nature, that goes beyond the presence of nonfamily managers (Dekker et al., 2013; Flamholtz and Randle, 2007; Howorth et al., 2016; Polat, 2021; Songini, 2006; Stewart and Hitt, 2012). Notwithstanding this, empirical research on professionalization as a multidimensional construct is rather scarce and its emphasis is more on the structure, practices or family managers while ignoring the other family and nonfamily employees and the organizational culture (Dekker et al., 2013; Songini, 2006).

This study advances the understanding of family business professionalization by responding to the calls of Dekker et al. (2015) for validating and extending the multidimensional construct of family business professionalization. It primarily addresses the question of how professionalization influences performance in family firms. Revealing the performance effect of family business professionalization’s various dimensions and subdimensions, the study contributes to the debate regarding the performance effect of professionalization within the family business literature.

The rest of the article is structured as follows. The next section discusses the theoretical dimensions of professionalization and presents the study’s hypotheses. The following section outlines the methodology. Then, the results of hypothesis testing are presented. The subsequent section discusses the research findings. This is followed by the study’s limitations and contributions. Finally, the article concludes by summarizing key findings and contributions of the research and possible future research directions.

Professionalization of a family business is a transformational process that embraces multifaceted organizational changes. Dekker et al. (2013) reveal that professionalization is a multidimensional construct consisting of financial control systems, nonfamily involvement in governance systems, human resource control systems, decentralization of authority, top-
level activeness. Polat (2021) takes a broader approach by including the professionalization of employees and the professionalization of the work environment and organizational culture as integral components of family business professionalization. In this study, professionalization has been elaborated as a construct consisting of five central dimensions that reflects this multidimensional conceptualization: (1) professionalization of management; (2) professionalization of organizational structure, processes and operations; (3) professionalization of family’s relationship with business; (4) professionalization of employees; and (5) professionalization of work environment and organizational culture (Polat, 2021).

Certain conditions can create a need for organizational restructuring and management improvement in family businesses, such as growth (Dekker et al., 2013; Dyer, 1989; Flamholtz and Randle, 2007; Gedajlovic et al., 2004; Howorth et al., 2007; Lin and Hu, 2007), high competition and environmental complexity (Chua et al., 2009; Dyer, 1989; Fang et al., 2012; Galvis, 2011; Zhang and Ma, 2009; Flamholtz and Randle, 2007) or institutional pressures (Fang et al., 2012; Parada et al., 2010; Yıldırım-Oktem and Usdiken, 2010; Zhang and Ma, 2009). Business consultants may also encourage family firms to professionalize (Mahto et al., 2021). Family firms that avoid this critical transformation might face multiple issues detrimental to organizational survival and success.

The literature suggests that professionalization brings substantial benefits to family firms, such as the ability to adapt to the environment, competitive advantage, and efficient and effective management (Dekker et al., 2015; Dyer, 2006; Fang et al., 2012; Stewart and Hitt, 2012). Professionalization is also thought to mitigate certain agency costs in family firms, through the board of directors, strategic planning and management control mechanisms (Songini and Gnan, 2015, p. 750). Accordingly, it can be argued that these positive outcomes eventually pave the way to better financial performance. Therefore, it was hypothesized that:

H1. Professionalization of a family business will positively affect its financial performance.

Professionalization of management might be a point of departure in the process of family business professionalization. It involves the effective presence of either nonfamily professional managers and/or family managers who have professional management education and experience (Dyer, 1989), the delegation decision-making authority and control (Chua et al., 2009; Hofer and Charan, 1984; Stewart and Hitt, 2012), professionalization of the board (Flamholtz and Randle, 2007; Songini, 2006; Stewart and Hitt, 2012; YıldırımOktem and Usdiken, 2010), as well as the adoption of the idea of professionalization and professional norms by the managers and the firm owners for more efficient and effective management (Galvis, 2011; Hiebl and Li, 2018; Hofer and Charan, 1984; Stewart and Hitt, 2012).

Considering the crucial roles of CEOs and top-level managers in shaping the strategic direction of the firm (Mahto et al., 2021) and their impact on firm performance (Santulli et al., 2021), family involvement in management deserves particular attention. The effective presence of family or nonfamily professional managers is considered as the basis for professionalizing management (Dyer, 1989). Professional managers are expected to be more rational and objective (Hall and Nordqvist, 2008; Hwang and Powel, 2009) and bring management skills and a wider perspective to family firms (Bauweraerts et al., 2021; Dekker et al., 2013; Galvis, 2011; Hiebl and Li, 2018; Hofer and Charan, 1984; Madison et al., 2018; Songini, 2006; Stewart and Hitt, 2012), thus helping family firms to make more feasible strategic decisions (Madison et al., 2018). On the other hand, delegation and decentralization

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of authority allow managers to deploy their skills efficiently and effectively while reducing dependence on the founder (Chua et al., 2009; Hofer and Charan, 1984; Galvis, 2011; Gedajlovic et al., 2004; Lin and Hu, 2007; Songini, 2006; Stewart and Hitt, 2012), and positively influence firm performance (Dekker et al., 2015).

The board of directors, a highly recommended governance mechanism in the family business literature (Blumentritt et al., 2007; Gersick and Feliu, 2014; Hofer and Charan, 1984; Voordeckers et al., 2007; Dekker et al., 2013; Flamholtz and Randle, 2007; Songini, 2006; Stewart and Hitt, 2012), might provide family firms with diverse perspectives, vital resources, strategic direction and required advice and guidance, as well as helping them to reduce agency costs (Bauweraerts et al., 2021; Corbetta and Salvato, 2004; Voordeckers et al., 2007; Yıldırım-Oktem and Usdiken, 2010). The composition and size of the boards may influence their strength and the functional utility (Blumentritt et al., 2007; Stewart and Hitt, 2012; Basco and Voordeckers, 2015; Yıldırım-Oktem and Üsdiken, 2010), thereby impacting the family firm’s financial performance (Basco and Voordeckers, 2015; Howorth et al., 2007; Songini, 2006).

Based on these arguments, it was assumed that professionalization of management impacts the performance positively and the following hypothesis was developed:

H1a. Professionalization of management will positively affect the financial performance of a family business.

Professionalization of a family business requires establishing a system to ensure the effective functioning of the organization without depending on the founder or the owning family (Howorth et al., 2007). Changes in the organizational structure and processes such as formalization and standardization, employing control mechanisms, and effective planning constitute professionalization in this pillar (Polat, 2021). Formalization, a need for a growing family business, helps to manage organizational growth and complexity, clear out uncertainties and control the firm more effectively (Dekker et al., 2015; Flamholtz and Randle, 2007; Gedajlovic et al., 2004; Howorth et al., 2016; Songini, 2006; Zhang and Ma, 2009). Effective use of formal control mechanisms, such as budgeting, cost accounting and managerial reporting (Hiebl and Mayrleitner, 2019; Songini and Gnan, 2015), helps mitigate the agency costs that relate to nonfamily managers or employees and reduce the family firmspecific agency problems (e.g. free riding, shirking, nepotism) (Dekker et al., 2015; Dyer, 2006; Michiels et al., 2017). Those mechanisms also facilitate performance evaluation and control (Songini and Gnan, 2015), and contributes to transparency and fairness in the organization (Kotey, 2005).

Strategic planning, which is not a ubiquitous practice in family firms (Kotey, 2005), enables family firms to better capitalize on their resources to achieve competitiveness (Eddleston et al., 2008), provides a long-term focus (Songini, 2006), facilitates goal alignment of family and the business (Moores and Craig, 2006) and helps train and direct following generations (Mazzola et al., 2006). Strategic planning, a part of the professionalization process (Howorth et al., 2016; Songini, 2006), is vital for the success, growth and better performance outcomes of family firms (Eddleston et al., 2013; Upton et al., 2001). Another challenge for these firms is attracting and keeping qualified and competent employees (Carlson et al., 2006; Dyer, 2006), which is exacerbated by the lack of widespread use of professional human resources practices (De Kok et al., 2006; Steijvers et al., 2017). Utilizing professional human resources management practices such as meritbased recruitment, fair performance evaluation and rewarding is a tool for rendering a more qualified and motivated workforce in family businesses (Carlson et al., 2006; De Kok et al., 2006). These practices augment a positive perception of organizational leadership
and enhance an organizational climate that leads to positive organizational behavior (Barnett and Kellermans, 2006). By virtue of the benefits they provide, professional human resource practices improve performance in family firms (De Kok et al., 2006; Dekker et al., 2015; Madison et al., 2018; Stewart and Hitt, 2012). Thus, the following hypothesis was proposed:

H1b. Professionalization of organizational structure, processes, and practices will positively affect the financial performance of family businesses.

Another pillar of family business professionalization is professionalizing the relationships between the family and the business, by establishing rules and/or regulatory bodies (Arteaga and Menendez-Requejo, 2017; Polat, 2021; Songini, 2006). Governance mechanisms such as family councils and family constitutions are the most frequently advised tools for mitigating current and potential conflicts among the members of intermingled systems of family, ownership and business, that multiply with the growth of both the family and the business (Gnan et al., 2015; Howorth et al., 2007). These structures facilitate the professionalization of family and business relationships (Blumentritt et al., 2007; Poza, 2010; Songini, 2006; Suess, 2014; Waldkirch et al., 2017). They help in leading younger generations as well as reinforcing family members’ commitment to the firm (Gersick and Feliu, 2014). Though sparse, existing research implies that a family constitution might have a positive impact on firm performance (Arteaga and MenendezRequejo, 2017).

Preparation of a succession plan for guiding the transfer of leadership and/or ownership in family businesses is a necessity for a professional family firm (Polat, 2021), although it is usually delayed by the owning family (Eddleston et al., 2013). Succession in family firms is a pivotal event that might adversely affect firm continuity and performance if not planned well and led successfully (Molly et al., 2010; Wang et al., 2004; Wu et al., 2020). Therefore, family firms might get help from business consultants during the succession planning process (Mahto et al., 2021).

Preparing potential successors within the family through early exposure to the family business and entrepreneurial role models might help to ensure a smooth transition in the succession process (Combs et al., 2021; Vardaman and Montague-Mfuni, 2021). On the other hand, predetermination of the successor and the succession process by consensus eliminates the uncertainty surrounding future leadership of the business, promotes family cohesion and harmony and aids firm continuity (Poza, 2010). In line with the arguments in favor of succession planning, studies indicate that it positively affects business performance, especially in medium-sized firms (Wang et al., 2004). Based on the above insights, it was hypothesized that:

H1c. Professionalization of the relationship between family members and business will positively affect the financial performance of a family business.

Professionalization of employees requires developing occupational competence, adopting the behavioral features of professionalism, and adhering to a code of conduct and strong work ethic (Cheng and Wong, 2015; Wilensky, 1964), and it should be an integral element of family business professionalization (Polat, 2021). Within the scope of employee professionalization, developing employees’ skills and competencies might unveil their potential and motivate them and inspire positive organizational behavior. On the other hand, disciplining employees through the discourse of professionalism (Aldridge and

Evetts, 2003) might enable employees to adopt a suitable occupational identity, behavior and practices (Gaglio, 2014).

Notwithstanding the scarcity of studies on the effect of human resources on family business performance, lacking a competent and skilled human resource will likely be detrimental to a family firm (Barnett and Kellermanns, 2006). Employees play a vital role in the efficiency and competitiveness of organizations (Chowdury et al., 2014; Backman, 2014), thus impacting the organizational performance (Crook et al., 2011; Nyberg et al., 2014). Professionalization of employees leading to competent, skilled, satisfied and motivated professional employees enables firms to achieve superior performance (Cheng and Wong, 2015). Competencies increase employee job performance and promote contributions to the accomplishment of organizational goals and performance (Jacob and Washington, 2003; Teoderescu, 2006). Accordingly, the hypothesis was developed as here:

H1d. Professionalization of employees will positively affect the financial performance of a family business.

Professionalization entails transforming the work environment and organizational culture, to channel members toward acting in certain ways (Galvis, 2011; Gimeno, 2013). During the process of the professionalization process in family firms, the embedding of new values and norms into the firm culture is required (Alvesson and Sveningsson, 2015; Gedajlovic et al., 2004). In this dimension, professionalization is about the creation of a positive and encouraging setting and a culture complementing and reinforcing the changes envisaged in the other dimensions of professionalization.

Organizational culture has a tremendous impact on the performance of both employees and firms (Warrick, 2017). How professionalization of workplace environment and culture influence the performance in a family business is an interesting question. A culture and a work environment characterized by mutual respect, trust and collaboration might help professionalism, workplace satisfaction, and better task performance to flourish (Shapiro et al., 2014). Employees who have a positive perception about their work environment experience higher job satisfaction, motivation and productivity, and this creates a situation that positively affects firm performance (Gelade and Ivery, 2003, p. 386). Hence, it is hypothesized that:

H1e. Professionalization of work environment and organizational culture will positively affect the financial performance of a family business.

To test the research hypotheses, we conducted a quantitative study based on a sample of 111 privately held family firms in Turkey. The population of the study was private family firms in the list of “Second 500 Largest Industrial Enterprises of Turkey 2016” announced by the Istanbul Chamber of Industry (ISO, 2016). Scrutinizing the firms in the list, 286 firms were identified as unlisted private family businesses, based on the criterion “family ownership and management in business.” All the firms were contacted by phone, and 64 firms agreed to participate in the research. As the sample size was not adequate to perform the intended analyses, questionnaires were sent to the family business in six big industrial cities of Turkey, through the sectoral business associations. Within three months, the number
of firms that accepted to participate increased to 113. After excluding two invalid questionnaires, the analyses were carried out on 111 firms. Table 1 provides the demographic features of the participating firms. Most respondents to the questionnaire were top-level managers (CEO, $8\mathrm{\%}$$8\mathrm{\%}$8%8 \%; general manager, $28\mathrm{\%}$$28\mathrm{\%}$28%28 \%, deputy general manager $23\mathrm{\%}$$23\mathrm{\%}$23%23 \%; chairman of board, $9\mathrm{\%}$$9\mathrm{\%}$9%9 \%; and middle-level managers $32\mathrm{\%}$$32\mathrm{\%}$32%32 \% ).

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Note(s): *Generation in management: 1-first generation, 2-second generation, 3-third generation, 4-first and second generation, 5 -second and third generation

3.2.1 Dependent variable. The dependent variable in the study was financial performance, measured by respondent managers’ subjective assessment of their firms’ ROA, ROE, ROS, net profit margin, increase in sales revenues and overall performance. Subjective selfreporting is prevalent in measuring the financial performance of family firms due to the difficulty of obtaining objective data (Basco, 2013; Basco and Voordeckers, 2015; Eddleston et al., 2008; Minichilli et al., 2010). In this study, the respondents compared their firm’s performance relative to the industry average, using a five-point Likert-type scale ( $1=$$1=$1=1= very poor; $2=$$2=$2=2= below industry average; $3=$$3=$3=3= average; $4=$$4=$4=4= above industry average; $5=$$5=$5=5= very good). The reliability Cronbach’s alpha value of the set of six performance variables was 0.92 .
3.2.2 Independent variable. Family business professionalization was measured with variables representing subdimensions of Polat’s (2021) five-dimensional professionalization framework (see Table 2). The data regarding the professionalization variables were collected via a questionnaire created by the authors, with the guidance of a sole multidimensional measurement tool that Dekker et al. (2013) developed, and the extant literature.

The questionnaire aimed to measure two types of variables (dichotomous and continuous) in these five dimensions. The main dimensions of professionalization of employees and professionalization of work environment and culture were measured with Likert-scale questions. Professionalization of the family’s relationship with the business was measured with dichotomous questions. Regarding professionalization of management, the subdimensions of professionalization of board and family involvement in management were measured by numeric questions, while delegation authority and professionalism of managers were measured with Likert-scale questions. Professionalization of organizational structure, processes, and operations was measured with both dichotomous and Likert-scale questions. After a pilot study with 8 companies, the final questionnaire was formed. It is comprised of 51 five-point Likert-scale questions with responses ranging from $1=$$1=$1=1= “strongly disagree” to $5=$$5=$5=5= “strongly disagree”, 17 dichotomous (yes-no) questions, six numerical questions, and the demographic questions.
3.2.3 Control variables. Firm size and firm age were included as control variables, as in most empirical research on the financial performance of family firms (Dekker et al., 2015; Mazzola et al., 2013; Minichilli et al., 2010). Firm size was measured as the natural logarithm of the number of employees, and firm age was measured as the natural logarithm of the number of years elapsed between the foundation of the firm and the date the data were obtained (2017). As the sample consisted of manufacturing firms, the industry was not included as a control variable.

Table 2.
Dimensions and subdimensions of family business professionalization and related indicators

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Table 2.

Table 2.

As there were two types of professionalization variables, the hypotheses were tested using both regression analysis and independent samples $t$$t$tt-test. Before regression analysis, exploratory factor analysis was performed to reduce the large number of variables aiming to measure family business professionalization.

Family business professionalization

To reveal the main dimensions of the family business professionalization measured by continuous variables, a principal component analysis (PCA) was performed for the variables measured through the questionnaire. The Bartlett test of sphericity $({\chi }^2=2757.307$$\left({\chi }^2=2757.307\right.$(chi^(2)=2757.307:}\left(\chi^{2}=2757.307\right.; significance level $=0.000$$=0.000$=0.000=0.000 ) denoted the presence of adequate correlations in the data matrix and the Kaiser-Meyer-Olkin measure (0.883) verified the sampling adequacy for the application of PCA; both confirmed appropriateness of data set (Kalayc1, 2014). The items, factor loadings, eigenvalues, explained variances and Cronbach’s $\alpha$$\alpha$alpha\alpha coefficients are reported in Table 3.

Each factor was labeled according to the professionalization dimension or subdimension it represents. Hence, the factors are labeled as Professionalization of Employees (F1, PoE), Professionalization of Organizational Structure, Processes, and Practices (F2, POSP), Professional Work Culture (F3, PWC), Delegation of Authority (F4, DoA), and Professional Human Resources Practices (F5, PHRM). The AVE values of the factors from F1 to F5 were $0.49,0.41,0.53,0.50$$0.49,0.41,0.53,0.50$0.49,0.41,0.53,0.500.49,0.41,0.53,0.50 and 0.42 , respectively. As "AVEs are not significantly smaller than 0.5 and standardized factor loadings of all items are not significantly less than 0.5 " (Cheung and Wang, 2017, p. 1), it was concluded that the convergent validity is evident. The composite reliability values of the factors from F1 to F5, respectively, were $0.90,0.87,0.78,0.80$$0.90,0.87,0.78,0.80$0.90,0.87,0.78,0.800.90,0.87,0.78,0.80 and 0.74 . The heterotrait-monotrait (HTMT) ratio of correlations method was used to assess discriminant validity. None of the correlations were higher than 0.85, proving discriminant validity (Henseler et al., 2015).

4.2.1 Results of the correlation and regression analysis for the factors extracted from factor analysis. The relationship between professionalization level, based on principal component scores, and financial performance were investigated with both simple and multiple linear regression analyses. The descriptive statistics and correlations among the variables are presented in Table 4. The correlation between professionalization variables and firm performance points out positive and significant relationships. The correlations between the independent variables are below 0.70 (except the correlation between POS and DoA slightly over 0.70 ), within the acceptable thresholds of multicollinearity (Tabachnick and Fidell, 2007). Besides, the results of the subsequent regression analysis indicated that tolerance levels and variance inflation factor (VIF) scores are all within acceptable limits, implying there is no multicollinearity (Midi et al., 2010), while Durbin Watson statistics showed that autocorrelation is also not a concern (Garson, 2012).

The normality of the variables was tested by checking the histograms and normal $Q-Q$$Q-Q$Q-QQ-Q plots. Also, skewness and kurtosis for all variables were within the range of +1 to -1 . The plot of residuals indicated the random distribution of dots ascertaining independent errors and homoscedasticity. To control common method bias, Harman’s single factor test was performed, and the single factor explained only $35.84\mathrm{\%}$$35.84\mathrm{\%}$35.84%35.84 \% of the total variance. The result indicated that common method bias is not a major problem because no single factor accounts for the majority of variance (Podsakoff and Organ, 1986). Table 5 reports the results of the multiple regression analysis when the financial performance was regressed on the

Table 3.
Factor analysis with Cronbach’s $\alpha$$\alpha$alpha\alpha

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Table 3.

Table 4.
Descriptive statistics and correlations of multiple regression variables

dimensions of professionalization. Professionalization of employees appears as the only professionalization variable with a significant effect on financial performance $(\beta =0.401$$(\beta =0.401$(beta=0.401(\beta=0.401, $p<0.01)$$p<0.01)$p < 0.01)p<0.01), supporting H1d. The regression analysis results suggest no significant impact of control variables on firm performance.

Despite the multiple regression analysis showing professionalization of employees as the only significant predictor, when regressed individually, all professionalization variables had a significant and positive impact on financial performance (Table 6).

Professionalization of organizational structure, processes and practices ( $\beta =0.371$$\beta =0.371$beta=0.371\beta=0.371, $p=0.000$$p=0.000$p=0.000p=0.000 ), professional work culture ( $\beta =0.360,p=0.000$$\beta =0.360,p=0.000$beta=0.360,p=0.000\beta=0.360, p=0.000 ), delegation of authority ( $\beta =0.333$$\beta =0.333$beta=0.333\beta=0.333 $p=0.000$$p=0.000$p=0.000p=0.000 ) and professional human resources practices ( $\beta =0.234,p=0.013$$\beta =0.234,p=0.013$beta=0.234,p=0.013\beta=0.234, p=0.013 ) all predicted financial performance. Accordingly, the results partially supported H1a, H1b and H1e.

4.2.2 Results of the analysis for the effect of the boards and family involvement in management. The professionalization of the board was assessed according to the board size, the frequency of board meetings, the number of nonfamily board members, and the number of outsider directors, both nonfamily and nonaffiliated (Table 7). Then, we tested the effects of the board professionalization on financial performance by regression analysis, and found that professionalization of the board did not have a statistically significant effect on firm financial performance. Then, the boards were grouped in three categories as family boards composed of family members only, insider boards comprising the employees and shareholders of the firm including nonfamily members, and outsider boards that include nonfamily members not employed in the firm. The performance differences between the three groups were assessed through a one-way ANOVA test, and the results were insignificant.

Family involvement was measured using two indicators: the percentage of management positions held by nonfamily members and the CEO’s family membership. Of the 111 firms in the study, 97 had a family CEO. The descriptive data related to the managers appear in Table 8. When the performance of the firms with family CEO and nonfamily CEO was examined with the Mann-Whitney $U$$U$UU test, no significant result was achieved. To measure the effect of nonfamily managers on firm performance, the performance of the firms was regressed on the ratio of the number of nonfamily managers to the total number of managers employed by the firm. Analyses showed no significant effects of increasing the number of nonfamily managers on financial performance. The results did not reveal any linkage between nonfamily involvement in management and firm performance. Accordingly, regarding these two subdimensions, Hla was not supported.

Table 8.
Descriptive statistics for the managers

The test results showed that the presence of a written strategic plan, written reward systems and written code of ethics and rules of conduct generate significant and meaningful performance differences between firms (Table 10).

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Table 9.
Descriptive statistics for dichotomous professionalization variables

Testing dichotomous independent variables against each financial performance variable showed that the existence of written policies, effective reporting systems, and a succession plan also make a significant difference in the financial performance of the family firms (Table 11).

Mann-Whitney $U$$U$UU tests (Table 12) revealed that compared to other family firms, the firms with written job descriptions have superior performance in terms of ROE and increase in sales revenues. Besides, the firms with a written performance evaluation system performed better in ROA and saw higher increases in sales revenues and better overall financial performance.

To provide a more comprehensive understanding of family business professionalization and its consequences, this study tried to shed light on its dimensions and effects on the firm performance. Although the test results did not completely support all hypotheses regarding the performance effect of various subdimensions of professionalization, they still provided partial evidence for the positive effect of professionalization on firm performance.

Among the subdimensions of professionalization of management, only delegation of authority had a significant positive influence on financial performance when regressed alone. This result is consistent with Dekker et al.‘s (2015) findings, and it contributes to the scarce literature on the effects of delegation of authority on firm performance. Family involvement in management was assessed based on the percentage of family and nonfamily managers and family membership of the CEO. No relationship with financial performance was found, in line with the studies revealing no significant distinction between the financial performance of the firms, whether managed by family or nonfamily managers (Lin and Hu, 2007; O’Boyle et al., 2012). In most firms in the sample, the top-level managers, family members or not, had a high level of professional education, and there was a significant number of nonfamily managers on the management team who could influence the CEO’s decisions. These may have trivialized the performance differences attributable to family involvement or professional management (De Massis et al., 2015; Sciascia and Mazzola, 2008). Besides, other moderating or mediating variables might influence the impact of family involvement on performance, such as the CEO’s inclination to act as stewards, board engagement in serving and monitoring the CEO, generations involved in the management (Bauweraerts et al., 2021), and the top-level managers’ propensity for various ways of growth, such as merger and acquisition (Santulli et al., 2021).

The professionalization of the board did not show any significant effect on the financial performance. One explanation for this is that the benefits to be derived from the board might depend more on the expertise and experience of the board members and how effectively the board functions, rather than the composition or meeting frequency of the board (Basco and Voordeckers, 2015; Dekker et al., 2015).

This dimension of professionalization was measured with both Likert-scale and dichotomous variables. In the factor analysis, the items representing this dimension were split into two
factors: professionalization of organizational structure, processes, and practices and professional human resources practices. The results of the simple linear regression analysis indicated that these two factors have a significant impact on performance. Moreover, the independent samples $t$$t$tt-tests and the Mann-Whitney $U$$U$UU tests revealed that the existence of written performance evaluation and reward systems in family firms resulted in higher financial performance. Therefore, this study supports prior research findings showing a significant positive effect of formal human resources practices on the financial performance of family firms (Carlson et al., 2006; Dekker et al., 2015; Madison et al., 2018). Furthermore, this study demonstrates that the variables related to formal organizational structure, such as the presence of written job descriptions and responsibilities, written policies, and an effective control system, make a positive difference in the financial performance of family firms. Thus, the study supports the previous findings regarding the performance effect of formal control systems (Songini and Gnan, 2015). The studies regarding the association between strategic planning and performance generally produced tentative findings (Nordqvist and Melin, 2010 ). The results of this study support the positive effect of strategic planning on performance (Eddleston et al., 2013; Upton et al., 2001; Schulze et al., 2001), indicating that the family firms which have written strategic plans performed better than the firms without one. Given that the significant and positive performance effect of its various subdimensions, it can be said that the dimension of the professionalization of organizational structure, process and practices has a positive effect on the family business performance.

Professionalization of the family’s relations with the business was assessed with the presence of a family constitution, a family council, and a succession plan. The results showed that the firms with a succession plan displayed better performance in terms of growth of sales revenues and net profit margin than others, confirming previous findings on the positive impact of succession planning on business performance (Wang et al., 2004). On the other hand, no statistically significant relationships were found between firm performance and family council or family constitution. Perhaps investigating the characteristics of these structures can help to better understand their effects on firm performance (Arteaga and Menendez-Requejo, 2017).

Human resources are the most valuable assets of a firm. Qualified and motivated employees with necessary skills and competencies, can play an important role in the success of family firms by enhancing efficiency and competitiveness, hence improving performance (Backman, 2014; Barnett and Kellermanns, 2006; Chowdury et al., 2014; Crook et al., 2011; Nyberg et al., 2014). In this study, most of the items developed to measure the professionalism of employees were loaded into a single factor called “professionalization of employees.” In the multiple regression analysis, the professionalization of employees was found to be the only variable that influences the financial performance of family firms. This finding might generate a novel approach to family business professionalization, highlighting the importance of the professionalization of employees in family firms. Improving professionalism contributes toward enhancing employees’ skills as well as promoting professional behavior, which yields improved organizational performance and employee satisfaction (Cheng and Wong, 2015). Professionalization enhances the social capital of family firms, and social capital positively affects performance, regardless of whether it is family or nonfamily social capital (SanchezFamoso et al., 2015), as well as boosting employee satisfaction, positively associated with firm performance (Huang et al., 2015).

In this study, most items measuring the professional work environment and the cultural elements constituting this environment in family businesses were grouped under a variable called “professional work culture.” Despite its insignificant effect on financial performance in multiple regression analysis, simple linear regression analysis indicated that this dimension has a positive and significant effect on financial performance. Furthermore, the results of the independent samples $t$$t$tt-test indicated that the presence of written codes of ethics and rules of conduct made a meaningful positive difference in financial performance. These results provide partial support for H1e. Professionalization of family businesses also includes cultural change (Polat, 2021). Family firms should reckon with the fact that culture and organizational structure and processes mutually affect each other, and both play an important role in the success of the organization, and that culture and performance are closely associated, and a healthy organizational culture leads to higher levels of performance (Warrick, 2017). It should be also considered that positive practices in a work environment encourage positive organizational behavior and enhance organizational performance (Cameron et al., 2011).

The empirical results reported in this study should be considered in light of some limitations. First, the study relies on single-country data that constrains the generalization of the findings. Future studies should incorporate larger samples and address multinational differences. Another limitation of the study is that the data were cross-sectional, self-reported, and obtained from a single respondent, which might raise common method bias concerns (Podsakoff and Organ, 1986); however, Harman’s single factor test indicated that this was not the case. Most of the respondents were upper-level managers who could provide accurate data concerning their organizations. In addition, the strong correlation between subjective and objective performance data can mitigate the adverse influence of potential bias (Dess and Robinson, 1984). However, future research could include multiple respondents, both family and nonfamily, from the same firm. Likewise, measuring the impacts longitudinally could shed further light on causality. The circumstances and contingencies that provide better outcomes in terms of professionalization can also be studied. Another potential limitation of this study is not including noneconomic family business goals in the performance measure. Including nonfinancial measures would provide more valuable insight in future studies.

This study makes several important theoretical contributions to the literature. First, it refines further our understanding of family business professionalization, addressing calls for examining it from a multidimensional perspective (Dekker et al., 2013). It broadens the current approach to this crucial transformation by extending the existing multifaceted conceptualization of family business professionalization to include two overlooked aspects that are not unique to the family business but are necessary for family business professionalization: professionalization of employees and professionalization of work environment and culture.

Second, the study addresses a research gap by examining the effect of professionalization on the financial performance of family firms from a broader point of view. The result of the study provides additional evidence for the positive influence of family business professionalization on financial performance. Very few studies have empirically investigated the performance effect of family business professionalization as a multidimensional construct, and none focused on employees or culture (Dekker et al., 2015). Thus, the study is particularly important as it draws attention to employees of family firms, a neglected area in family business literature. Besides, the impact of professionalization

professionalization
on performance was investigated in an emerging economy context in this study in contrast to most studies built on listed family firms in developed countries. Finally, to the best of our knowledge, the questionnaire developed here is the most comprehensive tool in the literature aiming to measure the professionalization levels of family firms. Yet, it can be improved further.

This study has also several practical implications. The professionalization construct delineated here might assist family business owners, managers, and consultants in gaining a better understanding of professionalization as a long-term multidimensional transformation and in assessing the professionalization level of their firm. Given that professionalization is a complex process, the owners and managers of family firms should plan and execute that, consistent with the needs of their firms (Polat, 2021). The professionalization framework presented here provides a roadmap and a guide for family business owners and managers, to plan the professionalization process and determine their priorities. While professionalization encompasses profound changes in the organization, family firms should refrain from untimely and unnecessary professionalization that might cause organizational inefficiencies (Waldkirch et al., 2017).

As the primary research question, this study unveiled the impact of the various dimensions of family business professionalization on firm performance. This allows family firms to gain insight into the potential performance effect of professionalization in a particular dimension and its subdimensions. This study underlines the professionalization of employees as a remarkable pillar of family business professionalization. Family firms should consider developing their employees by increasing their competences and embracing professionalism in their organizational culture, as a strategy to achieve superior performance.

This study argues that family business professionalization is a broader multidimensional transformation than previously presented and that it includes the professionalization of all employees, regardless of whether they are family members or not, and the penetration of professionalization into the work environment and culture. Thus, it brings a novel approach to the literature. The results of this study indicate that professionalization has a positive association with the financial performance of the family firm, and the professionalization of employees appears to be a salient factor determining the performance. Nevertheless, it is not easy to untangle the dimensions of professionalization and their direct effect on performance as there are many professionalization variables that might have reciprocal effects on one another and/or have a counter effect on firm performance. Therefore, further empirical research with larger sample sizes is likely to provide more insight into the complex relationships between dimensions of professionalization and their performance effect, as well as to enable generalization of the results.

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Gülçin Polat can be contacted at: gpolat@pau.edu.tr