Production Functions and Productivity of Family Firms: Evidence from the S&P 500

Abstract

This paper examines whether the higher profitability and valuation of family firms is related to differences in production technologies and production efficiency. Using data on S&P 500 manufacturing firms, we find that family firms are more productive than comparable non-family firms. Furthermore, our results show that the production technologies of family and non-family firms do not differ per se, thereby suggesting that the differences in the level of production output are caused by higher production efficiency of family firms. These findings indicate that the superior performance of family firms is related to their more efficient use of labor and capital resources.

Keywords: founding-family ownership, Cobb-Douglas production function, productivity, efficiency

JEL Classification: G30, G32, G35