Project R-3654

Measuring and explaining the productivity premium of family firms (Research)

Theoretical and empirical studies provide opposing evidence on whether family-controlled firms perform better than non-family ones. Usually, performance is measured by financial measures such as the Tobin's q. While such measures make it easy for interpretation, in theory, they do not take into account input and output market imperfections (e.g. markups, capital and labor frictions). Therefore, any estimated financial performance premium of family-controlled firms may yield substantially biased coefficients. Instead, we consider multi-factor productivity (MFP) controlling for such market imperfections at the level of the firm. This focus is driven primarily by the fact that family ownership in itself is not the only predictor of performance but rather how it is related to management as a source of MFP growth. Moreover, this project would be one of the first to explain productivity differentials between family versus non-family firms (using different typologies of ownership and management). The advantage of this approach is that it does not rule out the part of the premium that captures other productivity determinants linked to market power effects, innovation, capital, and labor and wage characteristics. We test our model using Dutch firm-level panel data on production variables linked to matched employee-employer characteristics, innovation and ownership.

01 January 2012 - 31 December 2015