Are family firms really superior performers?

Abstract

Although international evidence suggests that families may be unhelpful to firm performance, recent analyses of U.S. public companies indicate that family firms outperform. This study probes these contrasting findings by investigating more fine-grained measures of family business in the U.S. Specifically, it makes a fundamental but neglected distinction between lone founder businesses in which no relatives of a founder are involved, and true family businesses that do include multiple family members as major owners or managers. The research also seeks to overcome issues of endogeneity and selection bias by examining both Fortune 1000 firms and a random sample of 100 much smaller public companies. The results show that findings are indeed highly sensitive both to the way in which family businesses are defined and to the nature of the sample. Fortune 1000 firms that include relatives as owners or managers never outperform in market valuation, even during the first generation. Only businesses with a lone founder outperform. Moreover neither lone founder nor family firms exhibited superior valuations within a randomly drawn sample of companies. Our results confirm the difficulty of attributing superior performance to a particular governance variable.