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Family ownership and firm performance: Influence of family management, family control, and firm size

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Abstract

This study examines the relationship between family ownership and firm performance by considering the influence of family management, family control, and firm size. Using proxy data of 786 public family firms in Taiwan during 2002–2007, this study found that family ownership is positively associated with firm performance. The positive association is strong particularly when family members serve as CEOs, top managers, chairpersons, or directors of the firms; however, the association becomes weak when family members are not involved in firm management or control. The findings suggest that the potential family-ownership effects are more likely to be realized when family ownership is combined with active family management and control. In addition, the association between family ownership and firm performance is stronger in small- and medium-sized enterprises (SMEs) than in large companies.

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Notes

  1. Some scholars suggest that ownership concentration might be advantageous because it can mitigate the classic owner–manager conflict and minimize the free-rider problems inherent in small, automatic shareholders (Cavery, 1998; Demsetz & Lehn, 1985; Smith & Amoako-Adu, 1999).

  2. For example, Anderson and Reeb (2003) reported that among the S&P 500, family control rights are substantially greater than their ownership levels: in firms where families do not have outright majority ownership, their control of board seats is 2.75 times greater than what their equity stake would indicate.

  3. The TEJ database reports the names and shareholdings of the ten largest shareholders, managerial shareholders, and board-member shareholders; the equity holdings of other smaller and non-executive shareholders are not disclosed. Therefore, it is possible that the level of family ownership calculated in this study is underestimated. Although this is the best possible statement under the circumstances, it certainly has its own limitations.

  4. According to the definition of TEJ, the following managerial positions are identified as (non-CEO) top management positions: vice CEO, president, vice president, general managers, vice general managers, divisional managers, managing directors, and other equivalent managerial positions.

  5. These industries include cement, food and beverage, plastics, textile, electric machinery, electrical wire and cable, chemicals and biotechnology, glass and ceramic, paper, iron and steel, rubber, information and electronics, building and construction, shipping and transportation, tourism, wholesale and retail trading, electricity, and other miscellaneous industries.

  6. In Anderson and Reeb’s (2003) estimation, the regression coefficient of family ownership was 0.042 (p < 0.05), very close to the value of 0.044 reported in this paper.

  7. Similar hierarchical regression analyses were conducted for testing all hypotheses. In total, 22 regression equations were constructed. However, for presentation parsimony, only the complete results of Hypothesis 1 were reported, that is, Models 1and 2. Results of additional hierarchical regression analyses are available from the author.

  8. For convenience of presentation, all the 18 industry dummies are included in the regression analysis but not shown in this table. Some industrial affiliations came out significant in the regression models, including textiles, electrical wire and cable, glass and ceramic, and building and construction industries.

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  1. Department of Business Administration, National Taiwan University, Taipei, Taiwan

    Wenyi Chu

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  1. Wenyi Chu
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Correspondence to Wenyi Chu.

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Chu, W. Family ownership and firm performance: Influence of family management, family control, and firm size. Asia Pac J Manag 28, 833–851 (2011). https://doi.org/10.1007/s10490-009-9180-1

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