Are family firms more efficient? Revisiting the U-shaped curve of scale and efficiency

Ku-Hsieh Chen (), Pei-Hwa Chen (), Julie Ann Elston () and Yingchao Zhang ()
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Ku-Hsieh Chen: National Ilan University
Pei-Hwa Chen: National Taipei University
Julie Ann Elston: Oregon State University
Yingchao Zhang: Durham University

Small Business Economics, 2023, vol. 61, issue 3, No 6, 983-1008

Abstract: Abstract This study applies a stochastic frontier model to examine the relationship between firm size and efficiency using a novel approach. The first novelty is that this study examines large and small firms separately to allow for heterogeneity between firm group sizes in terms of measuring the size-efficiency relationship. The second is that we use a modified frontier model which explicitly includes a family firm variable when measuring firm efficiency. Empirical results reveal that firms are in fact heterogeneous, with small- and medium-sized enterprises (SMEs) exhibiting a U-shaped scale efficiency curve, while large enterprises (LE) exhibit an efficiency curve which is positive and linear. Robust results also confirm that family firms are relatively more efficient than non-family firms. In addition, while controlling for family firms does not appear to change the firm’s size-efficiency dynamics, failure to control for family firms leads to a bias in characterizing the nature of the firm’s production returns to scale.

Keywords: Small firms; Efficiency; Family firms (search for similar items in EconPapers)
JEL-codes: C51 C63 D24 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11187-022-00720-8

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