Industrial diversification and family firm internationalization: the moderating effect of family governance structure
Mengjuan Ling; Xiaoting Wang; Mingjun Wang
Future Business Journal · 2026-01-02
CC BY 4.0 · https://creativecommons.org/licenses/by/4.0/
Source: https://link.springer.com/article/10.1186/s43093-025-00702-8

Abstract

Despite extensive research on the internationalization of firms in emerging economies, why family firms under similar institutional conditions follow divergent global expansion paths remains poorly understood. This study examines how industrial diversification affects the scale and scope of internationalization in family firms and the moderating role of family governance structures. Using panel data from Chinese-listed manufacturing family firms from 2013 to 2020, we reveal that industrial diversification generally impedes both the scale and scope of internationalization. We address this research gap by proposing a novel theoretical distinction between “restrictive” and “broad” family governance structures. This distinction elucidates why family firms in similar institutional environments exhibit divergent internationalization paths, thereby bridging the gap in the literature on family firm strategy interactions. Specifically, we demonstrate that restrictive governance structures limit strategic flexibility and exacerbate the negative effect of diversification on internationalization, whereas broad governance structures mitigate this effect by enabling more adaptive strategic behavior. Furthermore, heterogeneity analysis further shows that the constraining effect is stronger in “natural” family firms. These findings advance our understanding of governance heterogeneity in family firms and offer practical strategic insights for family firms seeking to balance diversification and internationalization through governance reforms.

Introduction

In the era of deepening globalization and intense competition, foreign direct investment (FDI) has emerged as a promising strategic choice for family firms to mitigate uncertainties, strengthen competitive advantages, improve profitability, and achieve long-term sustainable development [ 72 ]. Over the past two decades, family firms have become pivotal players in the global economy, not only in developed countries but also in emerging economies (EEs). They dominate the private business sector and play a vital role in outward investment [ 55 , 56 , 70 ]. For instance, Luo [ 57 ] indicates that family businesses and small-to-medium enterprises globally contribute 70–90% of GDP, and China is no exception. This trend has attracted growing scholarly attention to the distinctive internationalization patterns of family firms [ 56 , 88 ].

Research on family firm internationalization began in 1991. Prior studies have primarily examined two broad sets of drivers. The first comprises firm-level factors such as international knowledge and experience [ 35 , 81 ] and competitive strategies [ 56 ]. The second encompasses family-level governance factors, including family ownership [ 33 , 34 , 53 , 99 ], family management [ 54 , 87 ], family involvement in boards [ 4 , 80 ], and intergenerational succession (Hanqing [ 29 , 30 ]). Collectively, these studies show that family firms typically exhibit lower degrees of internationalization and a stronger preference for wholly owned subsidiaries over joint ventures [ 10 , 33 , 34 ]. More recent work has largely interpreted these distinctive patterns through the lens of socioemotional wealth (SEW), which indicates family owners’ pursuit of non-economic benefits and rewards in family firms, such as family identity, influence, and control. Family owners prioritize preserving non-economic endowments in strategic decisions [ 37 ]. The SEW perspective enriches our comprehension of the distinctive aspects of family business internationalization, providing important implications for future research.

However, the SEW framework alone does not fully capture the complexity of family firm internationalization. On the one hand, it tends to overemphasize family dynamics while neglecting firm-level factors and their interaction [ 2 , 41 ]. On the other hand, family firms often face liabilities of foreignness, smallness, and newness and typically lack resources, international experience, and institutional support [ 45 , 59 , 61 ]. These disadvantages are particularly pronounced in emerging economies, where institutional voids, underdeveloped capital markets, and weak legal systems further constrain international expansion.

Nevertheless, some family firms have demonstrated strong internationalization momentum. For instance, Shanghai Hoke Filter Technology Co., Ltd., founded in 2002, has under the leadership of the second generation transformed into a modernized and internationalized enterprise, with operations now spanning North America, Europe, and Asia. Footnote 1 This phenomenon raises a critical question: why do family firms embedded in similar institutional environments follow divergent internationalization trajectories?

Addressing this question requires reconsidering the interaction between family governance and firm strategy. Family governance emphasizes the proactive role of families in shaping and pursuing firm visions through a dominant coalition of family members, often across generations [ 16 ]. Family firms’ internationalization rates vary significantly due to complex governance characteristics [ 3 , 67 ]. Existing literature generally conceptualizes this organizational behavior as the preservation of SEW and views the potential gains or losses of SEW as a central framework for interpreting family firms’ strategic formulation and decision making [ 84 ]. Empirical evidence shows that family management tends to constrain innovation and R&D investment due to family members’ risk aversion and loss aversion regarding SEW [ 27 ]. Similarly, in the domain of internationalization, family-controlled firms often display lower levels of international diversification and slower internationalization speed [ 63 , 91 ]. In EEs, such conservative tendencies are likely to be amplified, as internationalization entails not only heightened economic risks but also potential erosion of family control, emotional attachment, and generational authority.

The knowledge-based view (KBV), however, offers an alternative and complementary perspective. It posits that industrial diversification allows firms to accumulate knowledge and capabilities in domestic markets, thereby compensating for limited international experience and facilitating global expansion [ 56 ]. In EEs, family firms frequently rely on kinship-based relational networks to mitigate uncertainty, strengthen business ties, and access external resources [ 24 ]. Yet, such context-specific social capital is often difficult to transfer or leverage effectively in international markets. Consequently, the effectiveness of diversification in fostering internationalization depends not only on its knowledge-accumulation effects but also on the governance structures of family firms. Different governance configurations may amplify or attenuate the benefits of diversification, thereby exerting a profound influence on the internationalization trajectories of family firms.

Against this backdrop, this study investigates how industrial diversification affects the internationalization of Chinese family firms and how family governance structures shape this relationship. Drawing on the SEW and KBV perspectives, we integrate family-level and firm-level explanations to provide a more comprehensive account of family firm internationalization in emerging economies. Specifically, we address two core questions: (1) Does industrial diversification promote or hinder the internationalization of family firms in EEs? (2) Which boundary conditions—particularly family governance structures—moderate this relationship? To answer these questions, we conduct an empirical analysis using panel data of Chinese family manufacturing firms listed on the Shanghai and Shenzhen A-share main boards between 2013 and 2020. It proposes practical implications for improving the family firms' internationalization level of EEs.

Our contributions to existing literature are as follows. First, we empirically test the impact of industrial diversification on the level of internationalization in family firms, indicating that family firms in EEs adopt the competitive strategy of industrial diversification to overcome the disadvantages in international operations, which expands the research on the antecedents of enterprise internationalization. Second, we divided family firm governance structure (FGS) into restricted FGS and broad FGS from the SEW perspective, deepening our insights into the heterogeneity of family governance. Finally, we identify the contextual conditions for the impact of industrial diversification on family business internationalization by testing the moderating effect of different FGS. These novel conclusions provide a better understanding of the strategic behavior of family firms in EEs.

Theoretical framework and hypotheses — Integrating KBV and SEW in family firm internationalization

This study employs an integrated theoretical framework that combines the KBV and the SEW perspective to examine how family firms navigate the tension between developing knowledge through industrial diversification and pursuing international expansion. The KBV elucidates the role of knowledge as a strategic resource that drives internationalization, whereas the SEW perspective highlights the distinctive features of non-economic utilities and loss aversion in family firm behaviors. Together, these theories form a coherent lens that explains why family firms may constrain international activities despite possessing relevant knowledge resources.

The KBV stems from resource-based theory and posits that knowledge, particularly tacit and complex knowledge, forms the foundation of sustainable competitive advantage [ 39 ]. For example, in the context of sustainability, executives with green awareness are more likely to allocate resources in green technology and development because of their commitment and recognition to environmental sustainability in previous work experience [ 96 ]. Similarly, in the context of international business, knowledge derived from domestic operations and specific market experiences enables firms to overcome liabilities of foreignness and compete effectively abroad [ 28 , 78 ]. Industrial diversification serves as a key mechanism for knowledge accumulation, as exposure to multiple industries enhances absorptive capacity and resource flexibility. However, in family firms, the application of such knowledge is not driven solely by efficiency considerations. At this juncture, the SEW perspective introduces essential nuances. It refers to the non-economic benefits that family owners derive from maintaining control, identification with the firm, emotional attachments, and dynastic succession [ 9 , 37 ]. Within internationalization, SEW is conceptualized as a “mixed gamble,” given that international expansion often entails substantial risks to SEW, including loss of family control, dilution of identity, and increased reliance on non-family managers. Family leaders strive to avert these risks. For instance, the preservation of SEW influences entry mode choices, with a preference for wholly owned subsidiaries or branches to retain control [ 1 , 48 , 69 ]. The salience of this factor varies according to firm type, performance, and external conditions.

Although industrial diversification may strengthen the knowledge base of family firms in line with KBV, the imperative to preserve SEW prompts family decision-makers to refrain from deploying these resources toward international expansion. Instead, they may favor domestic operations or lower-risk internationalization pathways to mitigate potential SEW losses. This theoretical synergy not only elucidates the observed negative relationship between diversification and internationalization in family firms but also accounts for the boundary conditions that moderate this relationship. Variations in family governance structures, such as restrictive versus permissive mechanisms, can amplify or attenuate this effect by altering the family’s ability to balance knowledge utilization with SEW preservation.

Theoretical framework and hypotheses — Family firm industrial diversification and internationalization

Firm internationalization encompasses various approaches, such as exports, franchising, joint ventures, cross-border acquisitions, and greenfield investments. This study focuses on firms’ direct outward investment behavior. The existing literature typically measures firm internationalization along scope and scale. Scope refers to the number of countries or regions where a firm invests abroad, reflecting the diversity and complexity of its international operations. Scale is the amount or proportion of a firm’s FDI, indicating its reliance on overseas operations or investments [ 1 ].

Existing literature emphasizes that internationalization is a process of gradually acquiring, integrating, and utilizing host market and business-related knowledge [ 44 ]. However, empirical results suggest that not all firms follow a progressive development process by steadily accumulating knowledge and experience related to internationalization to increase their commitment to international markets [ 56 , 65 ]. From the KBV, firms can acquire international knowledge and experience directly from foreign markets or transfer knowledge accumulated from previous operations. Diversification is an essential source of this transferable knowledge, Lu et al. [ 56 ] posit that the internationalization of Chinese firms benefits from industry and regional diversification activities. The knowledge developed in managing industry differences can be transferred to international markets, thus contributing to internationalization. Enterprises in EEs, often lack international knowledge and experience and face multiple competitive disadvantages, including liability of foreignness, liability of outsider ship, and liability of origin. In this context, it is worth further investigating the source of emerging market firms’ international knowledge that achieves significant internationalization success quickly, especially in the economic landscape that family firms play. We propose that family firm industrial diversification negatively affects its international scale and scope; we explain how below.

First, the diversified knowledge of family enterprises is unfavorable when converted into international knowledge because of the knowledge structure. Family firms’ knowledge engaged in industrial diversification is usually embedded in local contexts, such as family members' social networks and local market knowledge. Family members' networks help firms overcome potential challenges from market intermediaries, regulatory bodies, and transaction protection mechanisms in cross-industry operations [ 51 ]. Family firms can expand their social capital at a lower cost by leveraging solid ties with family members [ 6 ]. Meanwhile, the long-term orientation of family firms facilitates maintaining better relationships with customers, business partners, and governmental agencies, forming stable business networks [ 12 ]. However, the knowledge rooted in local contexts is difficult to transfer and leverage effectively in international expansion. On the one hand, the trust relationship between the two parties may fluctuate with changing circumstances; on the other hand, the host country's distinct institutional context reduces the applicability of this knowledge, affecting the firm's international operations [ 56 ].

Second, the family governance structure hinders the application of diversified knowledge. Extensive family participation in the business system is a significant hallmark of family firms; however, such involvement may place family firms at a disadvantage regarding knowledge sources and composition [ 86 ]. Family members' knowledge base is relatively homogenous, which may limit the heterogeneity of the team's knowledge structure if the family heavily participates in the executive team or broad, which is detrimental to internationalization. Additionally, homogenous knowledge structures limit the learning ability of the executive team, reducing its efficiency in handling information related to international efforts. Thus, the experience gained by family firms in early cross-industry operations may not convert into international knowledge, hindering further improvements in internationalization.

Finally, due to a strong desire to preserve SEW, family firms may reduce the employment of external professionals or refuse to hire non-family managers, which affects the acquisition and accumulation of international knowledge. Although excellent external managers will help supplement knowledge capital related to international operations and enhance the enterprise’s ability to handle information overload, family firms believe that external managers will dilute family influence, cause management conflicts, and increase agency costs [ 1 , 71 ]. This problem is particularly pronounced in international operations. Compared to domestic operations, there is a more significant information asymmetry between controlling families and non-family managers, leading to ineffective supervision of the opportunistic behavior of executives. In summary, the knowledge structure does not facilitate the transfer of knowledge gained from diversification into an international effort. Hence:

Theoretical framework and hypotheses — H1

Family firms’ industrial diversification will have a negative effect on their internationalization.

Theoretical framework and hypotheses — The moderating effect of family governance

The above hypothesis suggests that family firm industrial diversification negatively impacts internationalization. However, these hypotheses assume homogeneity in family firms as an implicit premise, overlooking the heterogeneity of family firms [ 68 ]. This heterogeneity stems from family governance; family firms under different governance models have different organizational goals, preferences, and practices, prioritizing SEW maintenance differently during the decision-making process, thereby profoundly influencing international behaviors [ 52 ].

Researchers have begun to analyze the impact of family governance models on firm internationalization. Previous studies often classified family firms into family-influenced and family-dominated types based on ownership structure to compare differences in their internationalization strategies [ 1 , 74 , 92 ]. However, such classifications failed to fully account for the dual effects of SEW. After Berrone et al. [ 9 ] theoretically analyzed and expanded the core concept of SEW into a five-dimensional "FIBER" model, Kellermanns [ 47 ] and Le Breton-Miller and Miller [ 49 ] pointed out that SEW not only has a "bright side" that generates positive value but also a "dark side" that can lead to negative outcomes. Based on this understanding, Gu et al. [ 40 ] divided SEW into focused and broad types: the former prioritizes the short-term interests of family managers, while the latter focuses on the long-term interests of the entire family, aiming to achieve the vision of transgenerational control of the business. Similarly, Miller and Le Breton–Miller [ 64 ] emphasized that the differing SEW objectives pursued by family firms significantly influence their strategic decisions.

Therefore, this study integrates the dual effects of family management and SEW by categorizing family governance structures into restricted and broad types based on the family’s intention to preserve SEW. Restricted governance structures (restricted FGS) prioritize the family’s current control over the firm, whereas broad governance structures (broad FGS) place greater emphasis on the family’s future control and influence. In restricted FGS, family owners tend to centralize power, typically manifested by the same individual serving as both CEO and chairman. This concentration of power helps establish unified and comprehensive control, serving as an important means for the family to exert influence and maintain authority [ 9 , 79 ]. Under such structures, family owners evaluate strategic decisions with a long-term orientation and are willing to sacrifice short-term interests for the firm’s sustainable development. This study identifies this structure based on whether the second generation has formally joined the management team, as their participation indicates a long-term orientation [ 15 , 16 ] and places the dimension of transgenerational succession at the core of SEW.

We argue that restricted FGS amplify the negative effect of industrial diversification on internationalization through three primary mechanisms. First, restricted FGS constrain the firm’s knowledge sources, resulting in a homogenized and structurally simple knowledge base that is poorly suited to international markets. In such structures, the CEO and chairman roles are frequently combined to consolidate family control, which tends to produce knowledge homogeneity. Yet, prior research emphasizes that successful internationalization requires a diversified knowledge base and extensive international experience—resources that a homogeneous knowledge structure severely undermines [ 26 , 48 , 56 ]. Second, restricted FGS prioritizes internal family concerns over external market responsiveness and professional expertise. This is commonly manifested in the appointment of family members to senior positions in overseas subsidiaries [ 17 , 22 ]. Although such practices reinforce family control, they often yield leadership teams lacking global experience, thereby limiting the firm’s ability to absorb diverse international insights and adapt to complex foreign markets.

Second, restricted FGS inhibit intra-firm knowledge transfer. Highly centralized decision making complicates the effective application of diversified knowledge to international operations. Knowledge acquired through industrial diversification is often deeply embedded in family-specific contexts, such as unique relationships with local governments and supplier networks, which are not readily transferable to foreign markets [ 56 ]. Furthermore, significant disparities between home and host countries in market environments, consumer preferences, and business practices can render domestically accumulated knowledge ineffective for internationalization. This high concentration of power also discourages employee empowerment, thereby diminishing the firm’s agility in responding to regional variations. As [ 66 ] noted, the dominance of family members in positions of power is often detrimental to business growth.

Third, internationalization efforts are constrained by a myopic focus on family control, coupled with a lack of effective oversight. Internationalization typically involves highly uncertain decision-making environments, which grant senior managers greater autonomy. Differences between home and host countries further exacerbate information asymmetry between owners and managers, potentially leading managers to prioritize personal interests over those of the firm. Therefore, effective monitoring of agents becomes essential [ 80 ]. When the roles of CEO and chairman are separated, firms can perform supervisory functions effectively [ 97 ], thereby curbing opportunistic behavior by family executives [ 11 ]. However, under restricted FGS, the combination of CEO and chairman roles weakens broad management oversight, allowing family interests to take precedence over business interests. Greater concentration of power further exacerbates this issue [ 98 ], resulting in corporate strategies that are increasingly centered on the interests of family shareholders. When concentrated power lacks effective checks and balances, it is more likely to be misused, and family executives may face substantial SEW losses due to the high risks and uncertainties associated with international expansion [ 91 ]. Consequently, out of concern for SEW preservation, family firms often exhibit strong aversion to international expansion.

Therefore, we propose:

Theoretical framework and hypotheses — H2

The negative effect of industrial diversification on internationalization is stronger for family firms with a restricted FGS than for those with a non-restricted structure.

On the other hand, family firms with broad FGS are committed to sustainable growth and family legacy, reflecting a long-term orientation and a desire to preserve SEW. These firms typically have relatively dispersed management control and strong intentions for transgenerational succession [ 8 ]. The involvement of second-generation family members often brings new perspectives and enhances the firm’s knowledge base. Meanwhile, a more decentralized power structure facilitates the transfer and application of diversified knowledge in international markets. We argue that broad governance weakens the negative impact of industrial diversification on the scale and scope of internationalization, with the mechanism operating through the following aspects.

First, second-generation family members in broad governance structures often possess knowledge structures distinctly different from those of the previous generation. This diversity in knowledge promotes the transfer of diversified knowledge to international markets within the firm. To ensure smooth intergenerational succession, family firms typically emphasize their children’s educational backgrounds, encouraging their participation in business operations or overseas study. International educational experiences and relevant work experience equip the second generation with the knowledge and skills required for future roles. This diversified knowledge structure supports the effective transformation and application of knowledge from different business areas.

For Chinese family firms, second-generation members often belong to the “digital native” millennial generation, having grown up in the digital era. Early exposure to digital technology helps them overcome technical barriers more effectively and improves work efficiency [ 18 , 75 ]. Millennials generally receive higher-quality education, possess open and active management thinking, and demonstrate strong inclusivity and clear goal orientation [ 21 ]. These traits enable them to integrate the diverse knowledge accumulated from previous industrial diversification and convert it into managerial capabilities, helping the firm address the lack of international knowledge and experience [ 73 ].

Second, the decentralized power structure in broad governance helps family firms effectively utilize diversified knowledge and enhance their internationalization levels. These firms focus on long-term development and are often willing to relinquish current family control in exchange for sustained growth opportunities. A relative balance of power between family and non-family members in the top management team facilitates knowledge integration and improves firm performance [ 66 ]. Subsequently, the family no longer exercises dominant control over the firm, allowing non-family members to actively participate in decision making and operations. This promotes knowledge flow and integration between family and non-family members, thereby facilitating the absorption and transformation of diversified knowledge within the firm [ 72 ].

Third, broad FGS typically adhere to long-term growth visions aligned with internationalization goals, enabling them to tolerate short-term performance fluctuations and avoid myopic behavior. Prior research indicates that a strong intention for transgenerational succession in family firms increases the likelihood of adopting long-term-oriented behaviors, such as increasing R&D investment, enhancing employee training, and fostering stable relationships with external stakeholders [ 12 , 50 ]. As internationalization involves market expansion and the pursuit of sustainable growth, firms with a long-term orientation are more likely to engage in international operations. Family firms with broad FGS adjust their preferences by relinquishing family control or bearing some SEW loss to achieve international growth [ 14 ], Hanqing “Chevy” [ 31 , 32 ].

Therefore, we propose:

Theoretical framework and hypotheses — H3

The negative effect of industrial diversification on internationalization is weaker for family firms with a broad FGS than for those with a non-broad structure.

The framework of this study is illustrated in Fig. 1 .

Methods — Sample and data collection

We obtained the manufacturing family firms listed on the A-shared main broad of Shanghai and Shenzhen A-shared stock markets spanning the 2013–2020 period and their information from the China Stock and Accounting Research (CSMAR) database and Wind database. The year 2013 is selected as the starting point of the observation period because it marks the introduction of China’s Belt and Road Initiative(BRI), which has significantly accelerated the integration of Chinese enterprises into the global economy [ 25 ]. Among all industries, the manufacturing sector exhibits a higher degree of participation in the BRI which creates favorable conditions for the execution of this study [ 95 ]. Meanwhile, Scholars widely adopt 2013 as the starting point in empirical studies examining the impact of the BRI on promoting Chinese enterprises’ OFDI [ 94 , 100 ]. Main-board-listed manufacturing firms are chosen as the research sample because they are generally more mature and larger in scale. Having undergone rapid growth, these firms are now largely engaged in a stage of transformation and upgrading, characterized by the expansion of industrial chains and business portfolios. This makes them an ideal sample for examining the relationship between diversification and internationalization in the present study.

Our study follows the common practice of previous studies and uses family ownership and management rights to define family firms [ 16 ], Hanqing “Chevy” [ 31 , 32 ]: (1) The actual controller of the business is a natural person or family; (2) The shareholding ratio of the natural person or family is not less than 10%; (3) At least one family member who is related to the actual controller participates in management. In addition, we exclude samples from abnormal listing statuses, such as suspended or terminated listings, ST and *ST firms, a few firms that were renamed, and firms with less than two years of data due to the panel data estimation requirements. This screening is methodologically imperative for three principal reasons. First, firms with abnormal listing statuses such as suspended trading or delisted entities exhibit compromised data reliability and introduce survivorship bias. Simultaneously, ST and *ST firms represent financially distressed companies subject to regulatory interventions that distort market-driven behaviors. Second, excluding firms that underwent renaming during the observation window ensures entity continuity by isolating structural breaks stemming from corporate actions such as backdoor listings or major restructurings. Although these exclusions enhance data reliability, they may reduce sample representativeness; however, the retained observations continue to reflect the characteristics of mature, publicly listed family firms. Third, our adoption of panel data methodologies requires a minimum of two temporal observations per firm. Singleton observations, defined as firms with only one year of data, lack computable within-firm variation and would be automatically excluded during fixed-effects estimation. To maintain sample consistency, we proactively eliminate such cases during preprocessing. Finally, an unbalanced panel data consisting of 628 family firms and 3362 observations was obtained, and Fig. 2 shows the distribution of observations over the observation years.

Methods — Dependent variables

Our study focused on determining the factors influencing family firms' internationalization. Internationalization is a complex concept, with various studies employing diverse methods to gauge it. In line with the previous research [ 3 , 89 ], we selected explanatory variables linked to the degree of internationalization, encompassing the breadth and depth of internationalization. These dimensions are synonymous with the internationalization scope and scale [ 85 ]. Specifically, drawing insights from the works of [ 83 ] and [ 13 ], the internationalization scale is quantified by the number of overseas subsidiaries owned or controlled by the firm in the present year, internationalization scope is gauged by the count of overseas subsidiaries situated in host countries in the current year. Considering the delayed impact of industrial diversification on internationalization [ 56 ], we have applied a one-period lag to both the firm’s international scale and scope.

Methods — Independent variables

The independent variable is the degree of industrial diversification. Existing research mainly uses two methods to measure industrial diversification: the entropy index or the Herfindahl index (HHI). This index considers the number of segments a firm operates and the proportion of total sales each segment represents, capturing diversification across the Standard Industrial Classification. Following [ 38 ] and [ 56 ], the measure is calculated as follows:

where \({P}_{i}\) represents the proportion of sales attributed to business segment ‘i’.

The moderator variables in this study are family governance through two variables. Restricted FGS: a dummy variable, which is assigned a value of 1 if the CEO and chairman of the Broad are the same person, otherwise it is assigned a value of 0. Broad FGS: a dummy variable, assigned a value of 1 if the actual controller has children working in the company, otherwise it is assigned a value of 0. This is also consistent with the practice of previous studies [ 93 ].

Methods — Control variables

Enterprise internationalization is a multifaceted process influenced by numerous factors. Drawing on previous studies ((Hanqing “Chevy” [ 31 , 32 , 74 ]), this study conducted a control for three key factors: firm’s characteristics, financial health, regional marketization level, and family governance characteristics. The primary enterprise traits encompass variables such as the firms' age and size, while financial health considerations encompass metrics like return on assets (ROA), financial leverage, firm growth, unabsorbed slack, and absorbed slack. Regional marketization levels were assessed using the provincial marketization index. Capturing the potential impact of family governance on corporate internationalization, the study further controlled for family governance-related attributes in analyzing family business samples. Detailed explanations of specific variables and measurement methodologies can be found in Table 1 .

Methods — Regression model

The dependent variables examined in this study, namely the number of overseas subsidiaries and the number of host countries, are non-negative integer count variables. Estimating such variables using ordinary least squares methods may lead to substantial heteroskedasticity. Count variables generally take values within a limited range rather than existing on a continuous scale, and they frequently deviate from a normal distribution. Accordingly, adopting a count data model can improve the reliability of estimation results. Among count data models, the Poisson model is widely used; however, its core assumption requires that the mean and variance of the variable be equal. In this study, the mean of the internationalization variables substantially exceeds their variance (the mean of internationalization scale is 4.157 with a variance of 41.692, and the mean of internationalization scope is 2.558 with a variance of 8.783), indicating substantial overdispersion in the data. To address this issue, we employ a negative binomial model to test the hypotheses.

The negative binomial model is a probabilistic statistical approach designed for discrete data. As a generalized linear model, it is particularly suitable for describing the number of occurrences of a discrete event across repeated observations. Model estimation is conducted using maximum likelihood estimation, which identifies optimal parameter values by maximizing the likelihood of observing the sample data. This modeling technique is widely applied in practice, such as in finance for estimating the number of defaults or in medicine for predicting disease incidence. For robustness, we also estimate a Poisson regression model. The results show that the absolute value of the log-likelihood function for the negative binomial regression is considerably smaller than that for the Poisson regression, indicating that the negative binomial specification offers a superior fit to the data.

We construct the following research models to test hypotheses:

Results — Main results

Table 2 presents the descriptive statistics and correlation analysis outcomes for the primary variables. The majority of correlation coefficients demonstrate expected signs and indicate statistical significance. All variables’ variance inflation factors (VIF) are comfortably below the acceptable threshold of 10. Thus, multicollinearity poses no significant issue in this analysis.

Table 3 presents the main results of factors affecting international scale and scope. Model 1 and Model 2 are baseline models; we include control variables, among firms’ characteristic controls, firm size, ROA, and unabsorbed slack exhibit a significant positive influence on international scale and scope, while firm age and the degree of marketization in the firm's location are a significantly negative impact on international scale and scope. We include industrial diversification variables to test H1. The degree of industrial diversification demonstrates a negative impact on both the scale and breadth of internationalization efforts (Model 3, β = − 0.921, p < 0.01; Model 4, β = − 0.979, p < 0.01), which indicates that a higher degree of industrial diversification within family firms corresponds to reduced levels of internationalization. The results support Hypotheses 1a and 1b.

Table 3 also presents the moderating effects of family governance. Models 5 and 6 include restricted FGS with industrial diversification as an interaction term (Restricted × Dvsf). In Model 5, it is observed that restricted FGS negatively moderates the relationship between industrial diversification level and international scale (Model 5, β = − 0.218, p < 0.1). While the interaction term is insignificant in Model 6, Hypothesis 2a receives support. Models 7 and 8 incorporate board FGS and the interaction term of board FGS and industrial diversification (Board × Dvsf). In Model 7, it can be seen that intentions positively moderate the relationship between industrial diversification and international scale (Model 7, β = 0.253, p < 0.05). Similarly, in Model 8, the interaction term coefficient (Board × Dvsf) is positively significant (Model 8, β = 0.122, p < 0.1), providing support for Hypothesis 3a and 3b.

To better comprehend this finding, we also plotted the moderating effect of restricted FGS and broad FGS on the relationship between industrial diversification in figures (refer to Figs. 3 , 4 and 5 ). As shown, a higher degree of industrial diversification is associated with reduced internationalization. Notably, in Fig. 2 , as one goes from mean minus one standard deviation to mean plus one standard deviation of industrial diversification, the slope of decreasing international scope with family firms with focused FGS is steeper than that for family firms with non-focused FGS. Conversely, Figs. 3 and 4 reveal that family firms with broad FGS also show a negative slope, as one goes from mean minus one standard deviation to mean plus one standard deviation of industrial diversification, international scale, and scope decrease for family firms with non-broad FGS, but slightly decreased for family firms with broad FGS.

Results — Robustness checks

To enhance the credibility of our findings, we conduct a series of robustness tests. First, replace the measurement of the independent variable. Specifically, following Gomez-Mejia et al. [ 38 ], we measure industrial diversification from the income entropy index to the adjusted Herfindahl index. The calculation formula is as follows: Adj-HHI = 1-HHI = 1-Σ \({P}_{i}\) 2 , where \({P}_{i}\) represents the proportion of sales attributed to business segment ‘i’. The larger the value of this index, the higher the enterprise's industrial diversification level. Second, drawing on Hanqing [ 29 , 30 ] and Ray et al. [ 74 ], the proportion of foreign sales revenue in total sales revenue (FSTS) is used to measure the level of internationalization. In addition, we also construct internationalization as a composite indicator based on the number of overseas subsidiaries, the number of overseas host countries, and FSTS. Specifically, we divide the number of overseas subsidiaries of enterprises by the maximum number of overseas subsidiaries owned by sampled enterprises to derive a new variable representing the proportion of overseas subsidiaries, with values ranging from 0 to 1. The same approach is applied to the number of host countries for overseas operations. Finally, the composite internationalization index is obtained by adding these three variables. Third, we change the lag period of the dependent variable and lag the international scale and scope by two periods. Tables 4 , 5 and 6 show the regression results, respectively, our finding remained fundamentally unchanged.

Results — Endogeneity

Because not all family firms in the sample engaged in international expansion, the international scale and scope of non-international firms could not be observed as outcomes of diversification, which may give rise to potential sample selection bias. For firms that did not publicly disclose, or were not observed to have, international operations, the corresponding observations were treated as missing values. Accordingly, following [ 20 , 60 ], we re-estimated the model using a Heckman two-stage procedure, which is well suited to correcting sample selection bias in settings where the dependent variable is observed only for a non-random subsample [ 42 , 90 ]. In the first stage, we estimate a probit regression of international scale and scope dummy variables (Scale_dummy, Scope_dummy) on the control variables to compute the inverse Mills ratio, which is then included in the second-stage regression. As shown, the results are consistent with the main specification reported in Table 7 , confirming the robustness of our findings.

Results — Heterogeneity analysis

Prior studies have typically employed two primary approaches to classify family firms. The first approach categorizes firms based on ownership or management control [ 19 ], Sciascia, [ 77 ]). These two forms of authority differ significantly in the degree of discretion they afford in strategic decision making, thereby influencing the family’s inclination to safeguard its interests. The second approach classifies family firms from the perspective of generational involvement (H. [ 29 , 30 , 82 ], dividing them into two types: those managed by first-generation founders and those involving second-generation or later successors. This classification emphasizes the varying impacts of generational transitions on firm strategy and family influence. Overall, these classification methods center on the extent of family involvement in firm operations or generational dynamics, or in other words, family governance models [ 24 ]. However, they overlook the dynamic impact of ownership transitions during the formation of family firms and their profound influence on firm characteristics.

This study adopts a critical distinction in family firm classification based on ownership transition mode . Specifically, firms are categorized into natural family enterprises (Type 1), defined as entities under family control since their initial public offering, and Transitioned family firms (Type 2), comprising corporations that transformed into family dominance post-listing through either: (a) Ownership transfers involving negotiated stake acquisitions or market transactions, or (b) Privatization restructuring of former state-controlled entities. This bifurcation accounts for fundamental divergence in legitimacy foundations and socioemotional wealth endowment—Founder-IPO firms typically exhibit entrenched family legitimacy, whereas Transitioned firms navigate institutional imprinting from pre-conversion governance structures. Table 8 shows the regression results; it indicates that diversification significantly reduces both the scale and scope of internationalization in natural family firms, while its impact is weaker and largely insignificant in Transitioned family firms. This result suggest that entrenched family control amplifies risk-averse orientations and constrains outward expansion.

Additionally, we conducted subsample tests based on firm size and regional differences. However, the regression results were not encouraging. We found that in both sample groups, industrial diversification of family-owned enterprises significantly negatively impacted both the scale of internationalization and the number of international subsidiaries. This may be attributed to the fact that the study samples were drawn from main board-listed companies, which are typically more mature and exhibit limited size variation. The lack of significance in regional heterogeneity may be due to homogenized policies across China.

Discussion

This study advances research on the antecedents of family firms’ internationalization by examining the influence of industrial diversification through the theoretical perspectives of SEW and the KBV. In addition, we considered the role of family governance structures to identify the boundary conditions of this relationship. Our analysis supports Hypothesis 1, which posits that industrial diversification restrains the internationalization of family firms. While prior studies suggest that domestic and regional diversification facilitates international expansion [ 56 ], our findings indicate that this relationship is more complex in family firms. The unique governance attributes of family firms, together with the localized and tacit nature of their knowledge resources, limit the transferability of knowledge across borders. Consequently, diversification knowledge is less applicable in international operations. Consistent with H. C. [ 31 , 32 ]), we also find that family firm owners often adopt a wide-framing approach to decision making, integrating multiple strategic outcomes in order to keep overall organizational risk within acceptable bounds. Higher levels of diversification elevate perceived risk and motivate family owners to constrain both the scale and scope of internationalization as a means of reducing risk exposure.

Hypotheses 2 and 3 explored the moderating role of different governance modes. For Hypothesis 2, we proposed that restricted FGS would condition the effect of diversification on internationalization. The evidence provides partial support. Restricted FGS intensifies the negative impact of diversification on the scale of internationalization, although it does not significantly affect its scope. Concentrated family control weakens the ability of firms to exploit organizational knowledge accumulated through diversification, thereby increasing liabilities of newness and foreignness in international markets. This finding also suggests that weakened monitoring heightens the risk of opportunistic behavior, as family members may prioritize control preservation and SEW protection over long-term international growth. Such conditions also make family owners more reluctant to support high-risk strategic investments such as innovation and information technology [ 5 , 23 , 46 ].

By contrast, Hypothesis 3 receives strong support. Broad FGS enhances both the scale and scope of internationalization. A broader FGS will enrich the knowledge base, encourage long-term orientations and exploratory initiatives [ 76 ], and facilitate the transfer of capabilities accumulated through diversification into international markets. This finding resonates with recent calls for a more fine-grained theorization of SEW, emphasizing that family firms oriented toward cultivating enduring relationships are more likely to pursue internationalization [ 67 ].

Discussion — Conclusions, implications and limitations

This study investigates the influence of industrial diversification on the internationalization of family firms, drawing upon data from manufacturing enterprises listed on the Shanghai and Shenzhen A-share main boards in China between 2013 and 2020. The empirical findings demonstrate that diversification within family firms exerts a constraining effect on internationalization, a relationship that remains robust under multiple tests for endogeneity and alternative specifications. Moreover, governance heterogeneity plays a critical moderating role: while a concentrated, cluster-oriented governance model exacerbates the negative association between diversification and internationalization, a broad-based governance structure attenuates this effect. Further heterogeneity analysis shows that the family interest protection feature is more obvious in natural family businesses, that is, the inhibitory effect of industrial diversification on internationalization is more significant.

The theorical contributions of this study are threefold. First, it develops a research framework grounded in the knowledge-based perspective to elucidate the impact of diversification on family firm internationalization, thereby enriching the literature on the antecedents of international expansion. Prior research has underscored the role of internationalization knowledge as a pivotal resource enabling firms to compete globally [ 58 ]. Extant studies have primarily examined how firms acquire such knowledge through experiential learning in foreign markets or by appointing managers with overseas experience [ 7 , 71 ]. However, the knowledge base accumulated during earlier stages of corporate diversification has received limited scholarly attention. Although previous studies have examined the impact of corporate diversification on internationalization, they have overlooked the unique model of family governance [ 36 , 43 ]. This study illustrates that not all organizational knowledge can be seamlessly converted into generalizable capabilities for international operations. This insight provides a novel perspective for future research on how varying forms of knowledge accumulation shape internationalization strategies.

Second, the study advances the understanding of heterogeneity in family governance models. The family business literature has long emphasized the diverse nature of family enterprises [ 15 , 62 ], noting that variations in governance arrangements significantly affect strategic outcomes, including internationalization [ 1 ]. While family firms often lag behind their non-family counterparts in internationalization due to concentrated control, managerial limitations, and weaker knowledge foundations, our findings highlight the nuanced effects of governance structures. Specifically, governance models emphasizing intergenerational succession and the inclusion of second-generation members can mitigate the adverse consequences of diversification, as new generations contribute additional knowledge and revitalized perspectives. Conversely, governance structures prioritizing the preservation of current family control tend to suppress international expansion, as family owners often prioritize control retention and socioemotional wealth preservation over the risks associated with globalization.

Finally, this study contributes to the extension of the knowledge-based view by demonstrating that organizational learning relevant to internationalization derives not only from incremental foreign market experience [ 28 , 45 ] but also from prior cross-industry operations. It is noteworthy that diversification across industries fosters the accumulation of heterogeneous knowledge and capabilities, which can be redeployed to address the complexities inherent in internationalization. By examining the relationship between diversification and internationalization, this study advances theoretical and empirical insights into how firms’ strategic orientations influence their global expansion trajectories.

The findings of this study provide clear and actionable practical implications for managers of family firms and policymakers. To mitigate the negative impact of diversification on internationalization and the amplifying effect of concentrated family control, the following recommendations are proposed: First, corporate managers should strengthen corporate governance by separating the CEO and chairman roles. For example, they can appoint independent directors and professional non-family managers, and actively involving the second-generation in strategic decisions to enhance transparency, resource transferability, knowledge diversity, and organizational openness. Second, managers should promote power dispersion and higher succession willingness within the family to weaken the constraining effect of excessive family control on international expansion. Finally, for policymakers, they should encourage governance reform in family firms through targeted incentives and regulatory guidance, provide institutional support such as international market information and export training programs, and design differentiated policies that offer greater assistance to family firms with dispersed power and high intergenerational participation while imposing stricter governance standards on highly concentrated family-controlled firms.

Although this study advances the understanding of the relationship between diversification and internationalization, several limitations remain. First, the sample is restricted to listed manufacturing firms on China’s main board, and the applicability of the findings to other sectors and non-listed firms requires further validation. This is especially relevant as many non-manufacturing and small and medium-sized enterprises have also engaged in international expansion under policies such as “Going Global” and the “Belt and Road Initiative.” Second, manufacturing firms differ significantly from other industries in production and managerial characteristics, which calls for caution in generalizing the conclusions across industries. Finally, due to data availability, the study controls only for firm-level operational, financial, and market characteristics, while the institutional and economic environments of home and host countries, which may also affect internationalization, are not fully addressed. Future research could expand the sample to include firms from different boards and industries and incorporate macro-level institutional and economic factors to provide a more comprehensive understanding of the diversification–internationalization nexus.

Availability of data and material

The data used in this paper were obtained from the CSMAR Database and WIND Database. However, access to these data is subject to restrictions and requires a license. Interested parties can obtain the data with the permission of CSMAR Database and the WIND Database.

Notes

Data source: White Paper on Internationalization of Family Businesses 2024

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