A Meta-Analysis About the Relationship between Family Firms and Firm Performance

Abstract

My meta-analysis clearly shows that family management is a curse and not a blessing according to financial performance of family firms compared to nonfamily firms. Based on a univariate and multivariate meta-analysis of 270 studies from 42 countries, I addressed the main objective of my dissertation to investigate the financial performance of family firms compared to nonfamily firms. My first robust finding proves that family firms outperform nonfamily firms financially (Research question 1). This result endorses former meta-analyses and the majority of primary studies. My second finding (Research question 2) supports the finance research stream differentiating in market and accounting based measures. So, the market, represented by analysts, assumes that family firms do not outperform family firms. Contrary to what family firms report and document in their financial statements with accounting measures as my findings show. A third finding (Research question 3) is that the composition of primary studies samples, consisting of only publicly listed companies, only manufacturing or technological firms, do not influence the overall results. However, small and medium-sized companies report smaller financial performance indices and therefore reduce the dependent variable. The majority of SME's in almost all countries possesses less market power and therefore achieves smaller revenues (Cressy & Olofsson, 1997). The forth result (Research question 4) shows that the engagement of family management leads to a significant drop in financial performance of family firms and therefore family firms underperform nonfamily firms. Family managers in family firms, however, preserve the wealth of all family members and therefore the financial performance indices are not always the key. Again, nonfinancial goals should be drawn into conclusion in empirical analyses. My second objective to investigate the influence of institutional factors is addressed by a multivariate analysis revealing the associations among family firms, financial performance is sensitive to institutional factors (Research question 5): in Europe, the financial performance of family firms is lower compared to North America. That is, European publicly listed companies are mainly underrated compared to North America (Caldwell, 07.06.2014). Furthermore, in a society with high masculinity, family firms reveal a better financial performance compared to nonfamily firms. Masculinity is associated with male assertiveness, ambition, acquisition of wealth, and clearly distinct gender roles. But law regimes do not influence firm performance at all. Additional evidence comes from the investigation of the rule of law logic. A high rule of law excels the performance of family firms because they get a discount on their debt costs.