Why Family Firms Invest Different Efforts in Fulfilling Internal and External Corporate Social Responsibilities: Exploring the Role of Formal Family Governance

We study why family businesses consider different investments to fulfil their internal and external corporate social responsibility (CSR) and how these impact their firm performance. We analysed data from 8,469 family businesses from the Chinese Private Enterprise Surveys using the feasible generalised least squares estimation method, and found that family (ownership and management) involvement inhibits investment in internal CSR, while having an insignificant impact on investment in external CSR. Formalised governance practices significantly weaken the adverse effects of family involvement on internal CSR and enhance the motivation of family businesses to undertake external CSR. Finally, internal and external CSR function both independently and synergistically to enhance the performance of family businesses. By incorporating formal family governance into a research framework, this study provides a theoretical basis for explaining the differences in the fulfilment of internal and external CSR by family businesses. In doing so, it expands the literature on formal family governance and on the relationship between CSR and firm performance. The findings also have practical implications for how family businesses balance the interests and responsibilities of internal and external stakeholders to achieve a competitive advantage in the long term.