The effect of Family Inertia on the Value Creation Process in Family Firms: New Insights from a Simulation Study

The present research can be viewed as a contribution to the literature on the simulation of first-order models of theory testing and on the simulation of second-order models of theory building. It sets out through computer simulations in system dynamics the positive dynamic interconnections studied by Koiranen and Chirico (2006) between knowledge, capabilities, dynamic capabilities, entrepreneurial performance and transgenerational value in family business. Interesting results and 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, though with some exceptions. We conclude that although a paternalistic behaviour 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 behaviours, and, at the same time, prevent their negative consequences.