Family firms

Profitability and performance of family firms

How does the performance of family firms compare to other firms in the economy? What are their advantages and their constraints?

A CCGR study documents that Norwegian family-owned firms generally outperform nonfamily-owned firms. The same result has been documented in multiple other countries.

One might take this to indicate that family ownership is a superior ownership form, but this logic suffers from the chicken and the egg problem: do family firms perform better because they are governed better or are highly profitable firms able to retain control within the founding family? In the latter case, superior profitability may arise from some competitive advantage of the firm which alleviates the family's need to sell equity to raise finance.

To the extent that superior profitability is indeed caused by family ownership, it is of interest to identify the driver of profitability. Family firms may have lower monitoring costs and better governance due to an absense of agency conflicts. Alternatively, family firms have limited resources which force them to focus on their most profitable projects.