Can emotional ties to the family business unlock entrepreneurship and knowledge sharing across generations?

Innovation and entrepreneurship are key to long-term success, but family businesses often lean toward stability over change. How, then, can they develop a culture that fosters forward-thinking behavior while maintaining their legacy?

One answer lies in psychological ownership (PO)—a deep emotional attachment where family members see the business as an extension of themselves. This attachment, rooted in identity, belonging, and stewardship, may be the secret ingredient that helps family firms not only survive but thrive. However, this dynamic isn't straightforward. Governance structures, such as who’s in charge or who sits on the top management team (TMT), significantly affect how PO influences entrepreneurial behavior.

This article summarizes key findings from a study of 93 Spanish family firms, revealing how PO shapes entrepreneurial orientation (EO) through knowledge sharing and how different governance contexts modulate this relationship.

What We Studied

Using stewardship theory as a conceptual lens, the authors conducted a survey-based study among 93 Spanish family businesses. The main variables included:

• Psychological ownership (PO): Measured by family members’ sense of identification, belonging, and responsibility toward the firm.
• Entrepreneurial orientation (EO): Measured through three dimensions—proactiveness, innovativeness, and risk-taking.
• Knowledge sharing (KS): Evaluated as the willingness to exchange, absorb, and disseminate information within the firm.
• Governance heterogeneity: Captured through (1) the generation in control, (2) the number of generations involved in the firm, and (3) the extent of family involvement in the TMT.

Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to test direct, mediated, and moderated relationships.

Key Insights

1. Psychological Ownership Spurs Innovation and Proactivity

Family members who feel a strong sense of psychological ownership are more likely to promote innovation and initiate proactive strategies. These individuals don't just work in the business—they feel it's theirs. This emotional connection fosters a stewardship mindset, encouraging behaviors that benefit the long-term health of the organization.

2. Knowledge Sharing Is the Key Channel

The study finds that knowledge sharing is the main pathway through which psychological ownership leads to entrepreneurial outcomes. PO alone doesn’t automatically yield innovation—it needs to be activated through collaboration and communication. When family members openly share insights, lessons, and ideas, the organization becomes more agile and innovative.

3. Risk-Taking Gets Dampened by Emotional Attachment

Interestingly, while PO increases innovation and proactivity, it decreases risk-taking. This is because psychological ownership also brings a desire to protect the business as a source of identity and legacy. The emotional investment leads to a more conservative approach to risk, highlighting the complexity of balancing stewardship with bold moves.

4. Governance Shapes How PO Translates Into Action

Family firms are not homogeneous. The structure of governance matters significantly:

• Generation in Control: Later-generation leaders tend to implement more formal governance systems, which can dilute the positive effects of PO by reducing the influence of informal relationships and discretion.
• Family Involvement in the TMT: A high percentage of family members in top leadership strengthens the impact of PO on knowledge sharing, thanks to stronger informal ties and shared values.
• Multiple Generations in Management: Contrary to expectations, having multiple generations involved simultaneously does not significantly enhance knowledge sharing. It may even introduce complexity and conflict that weakens the PO–KS link.

Takeaways

1. Make Ownership Emotional

Encourage family members to cultivate psychological ownership, not just legal ownership. Activities that deepen emotional connection—like involving younger generations in storytelling, mentoring, or legacy-building projects—can strengthen stewardship.

2. Prioritize Knowledge Sharing

Create an environment where family and non-family members feel comfortable sharing knowledge. Informal mentoring, open communication channels, and collaborative decision-making can help.

3. Respect the Limits of Risk Appetite

Recognize that emotional attachment can make family firms more conservative. While this protects the legacy, it may also inhibit bold innovation. Strategic planning should include a balanced approach to evaluating and managing risk.

4. Align Governance with Culture

Be mindful of how governance structures affect culture. Over-formalization may stifle entrepreneurial energy. Leaders should ensure governance mechanisms still allow space for informal influence, especially in innovation processes.

Impact

This research illuminates how deeply human factors—like the feeling of psychological ownership—drive organizational behavior in family firms. It also emphasizes the importance of context: not all family firms are created equal. Understanding how governance structures interact with emotional dynamics can help tailor strategies for growth, continuity, and innovation.

For advisors, these insights underscore the need for personalized, context-sensitive approaches. For scholars, it offers a clearer view into the “black box” of how psychological factors translate into business outcomes. And for family business leaders, it’s a call to embrace both heart and structure in guiding the future of their enterprises.

Recommendations

• Family Business Leaders: Develop programs that cultivate emotional engagement and encourage stewardship across generations.
• Consultants and Advisors: Factor in governance structure when recommending strategies to enhance entrepreneurial orientation.
• Educators and Trainers: Teach next-gen leaders how emotional investment can be leveraged strategically—not just sentimentally.
• Researchers: Explore further mediators beyond knowledge sharing, such as decentralization, communication quality, or leadership style.

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