Complexity of Family Businesses in El Salvador: A Structural Equation Model

Abstract

Family businesses play an important role in sustainable development in Latin American countries, providing economic benefits and leading to a reduction in violence. Until now, family businesses, their characteristics, and the factors that influence their economic development have not been studied in this region. Identifying the appropriate variables contributing to successful family businesses in this region and clarifying the relationships between these variables are important for developing a management model that supports the stability and growth of these businesses and their influence on sustainable development in the region. To this end, this study aims to understand the complexity of family businesses classified as small and medium-sized companies located in San Salvador, El Salvador. This study represents a first approximation and application of this model in one of the representative economies of Latin America. Our literature review allowed us to establish a basic management model incorporating the complexity of family businesses in this regional context. Using a partial least squares structural equation model (SEM-PLS) and a database of 181 family firms, we identify the variables that best explain the management model through the following structures: financial management, business management, family complexity, and company complexity. The results show that in conditions where high interest rates coexist with political conflicts and a complex economic situation, family businesses constitute a pillar for the development of the country towards sustainability. This study has practical implications for entrepreneurs and professionals. This research proposes a management model that allows us to identify the variables that increase or decrease the complexity of family businesses and guides entrepreneurs in taking concrete actions to reduce this complexity. In general terms, this model explains that financial performance depends on business management, the complexity of the family, and the complexity of the company. Finally, based on the results obtained in El Salvador, a clear direction for future research is established, through which it is possible to study the variables that may reduce the complexity of the family and the company in other countries with similar socioeconomic characteristics.