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Do Family Firms Have Worse (or Better) Management Practices?

Shigeru Asaba

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Existing survey evidence suggests that family firms have worse management practices than non-family firms. Given that better management practices result in higher firm performance, family firms are assumed to have lower performance than non-family firms. Performance comparisons between family and non-family firms, however, have found the contradictory result that family firms outperform their non-family counterparts. To resolve this conflict, this study examines the relationship between the ownership-management structure and management practices of firms, using comparable survey data on Japanese firms. We find that family-owned and -managed firms and founder-managed firms have as good management practices as non-family firms and that family-owned but not managed firms have better management practices. Moreover, we find that management ownership has a negative impact on management practices. These results suggest that family ownership has a positive impact, and combined ownership and control have a negative impact on management practices. In family-owned but not managed firms, only a positive effect works while in family-owned and -managed firms, a positive effect is offset by a negative effect. These results contrast with agency theory, which argues that the source of family firms' advantages is reduced agency conflicts. However, they are in line with agency theories emphasizing entrenchment effects, and the theory arguing that the preservation of socio-emotional wealth is the source of the characteristics of family firms.

New Economics Papers: this item is included in nep-sbm
Date: 2017-03
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