Do Nonfamily Managers Enhance Family Firm Performance?

Hanqing Fang (), James J. Chrisman (), Joshua J. Daspit () and Kristen Madison ()
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Hanqing Fang: Missouri University of Science and Technology
James J. Chrisman: Mississippi State University
Joshua J. Daspit: Texas State University
Kristen Madison: Oklahoma State University

Small Business Economics, 2022, vol. 58, issue 3, No 12, 1459-1474

Abstract: 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.

Keywords: Family firms; Nonfamily managers; Human capital; Performance; Labor market sorting; D21; L25; L26; M13; M51; O51 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11187-021-00469-6

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