Family firms tend to offer more stable employment and higher job security than their non-family counterparts. Yet, little is known about whether these practices extend beyond family firms themselves. Drawing on institutional theory, we argue that the prevalence of family firms in a local community—or family firm density (FFD)—serves as a normative force that shapes the employment practices of non-family firms, leading them to provide greater job security. We further theorize that three community-level factors—business-controlling families’ local roots, community cohesiveness, and the extent of family-centric values among community residents—amplify this influence by fostering the diffusion of a family logic. We test our framework on employment and financial data from the entire population of firms in a Western-European region of approximately 6.2 million inhabitants, focusing on employee layoffs during the great financial crisis. Our findings show that high FFD in a municipality reduces the likelihood that local non-family firms lay off employees. Moreover, the effect is stronger in municipalities where families are rooted locally, where community cohesion is higher, and where community members hold stronger family-centric values. Our theory and findings contribute to research on institutional logics, family business, and regional economic development. Our results also highlight the broader relevance of family-oriented practices for shaping legitimate organizational conduct at the community level.
