Successor Selection in Family Businesses: A Signaling Approach

Signaling theory has been widely used to explain phenomena in personnel selection processes. The present study adds to this perspective on personnel selection by applying signaling theory to personnel selection processes in family firms, focusing on the selection of internal successors. We investigate if and how signaling takes place in these processes. We apply a multiple case study approach using interview data from twenty German family firms. We find that signaling does take place in these processes and build propositions related to the signals sent, the signaling frame, and the signaling game. We find that predecessor and potential successors exchange signals over a long period of time to reduce information asymmetries and legitimate the selection of a successor. Moreover, we show that signals are sent in the family context as well as in business context and change over time. We identify hard to fake and costly signals and discuss how these signals and the signaling game influence the internal successor selection process. We further discuss implications and limitations of the present study.