Family Firms and Financial Performance: The Cost of Growing

Abstract

This study examines the relationship between financial performance and family involvement for 523 listed and non-listed Colombian firms over 1996-2006. Using a detailed database and performing several panel data regression models, we find that family firms exhibit better financial performance on average than non-family firms when the founder is still involved in operations, although this effect decreases with firm size. With heirs in charge, there is no statistical difference in financial performance. Both direct and indirect ownership (control through pyramidal ownership structures within family business groups) affect firms’ financial performance positively. However, this positive effect decreases with firm size, and some kinds of family involvement appear to make firm growth expensive.