Governance Structure and Firm Performance in Private Family Firms

35 Pages Posted: 20 Jan 2016

See all articles by Limei Che

Limei Che

BI Norwegian Business School

John Christian Langli

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics

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Date Written: November/December 2015

Abstract

Although a large proportion of firms are family owned and most family firms are private, our understanding of private family firms is limited. Using confidential information on family relationships between board members, CEOs, and shareholders, this is the first study to provide large‐scale evidence on the association between governance structure and firm performance in family‐controlled private firms. Our sample is unique as it covers almost all private limited liability firms in Norway, spans 11 years, traces firm ownership to ultimate owners, and identifies family relationship using data on kinship, marriage, and adoption. The results show a U‐shaped relationship between family ownership and firm performance. Higher ownership of the second largest owner, higher percentage of family members on the board, stronger family power, and smaller boards are associated with higher firm performance. In addition, the positive association between the ownership of the second largest owner and firm performance also occurs when the second largest owner is a member of the controlling family, but the association is stronger when the second largest owner is a non‐family member. We further test the relative importance of these test variables and find that ownership structure is more associated with firm performance than board structure.

Keywords: Governance structure, firm performance, private family firms, ownership structure, board structure

Suggested Citation

Che, Limei and Langli, John Christian, Governance Structure and Firm Performance in Private Family Firms (November/December 2015). Journal of Business Finance & Accounting, Vol. 42, Issue 9-10, pp. 1216-1250, 2015, Available at SSRN: https://ssrn.com/abstract=2718654 or http://dx.doi.org/10.1111/jbfa.12170

Limei Che (Contact Author)

BI Norwegian Business School ( email )

N-0442
Oslo
Norway

John Christian Langli

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics ( email )

N-0442 Oslo
Norway

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