Do Nonfamily Managers Enhance Family Firm Performance?

Abstract

Prior studies find that nonfamily managers enhance family firm performance, yet other studies note that family firms have difficulty attracting high-quality nonfamily managers, often settling for average-quality nonfamily managers. Given these findings, how is it possible that average-quality nonfamily managers enhance family firm performance? We address this paradox by theorizing that lower-performing, rather than higher-performing, family firms are more likely to benefit from employing nonfamily managers. Using a sample of 324 small family firms, we find that family firms with below-average performance significantly benefit from employing nonfamily managers, whereas family firms with above-average performance do not experience the same benefit. We attribute the difference to the presence of family-management capacity constraints in lower-performing family firms. For family firms with such constraints, the employment of nonfamily managers is more beneficial than it is for higher-performing family firms, which are not bound by these constraints.