Chapter 4: An Experimental Examination of the Fits Family-Business Model: New Insights From a Simulation Study Through System Dynamics

The present research sets out through computer simulations, using a system dynamics approach, the positive dynamic interconnections studied by Koiranen and Chirico (2006) between knowledge, capabilities, dynamic capabilities, entrepreneurial performance, and transgenerational value in family business. New insights emerge when analyzing family inertia in the model (as a function of paternalism) that influences the creation of capabilities and dynamic capabilities negatively, although with some exceptions. We conclude that although a paternalistic behavior can be positive in guiding and training offspring at the beginning of the activity, it may become less crucial if it persists over time preventing change even when it is needed. Family firms should be able to understand the long-term effects and results of actual events, decisions and behaviors, and, at the same time, prevent their negative consequences.