Ownership, Control, and Productivity: Family Firms in Comparative Perspective

Abstract

While the property right theory has gained prominence in contemporary literature, there is a notable lack of empirical research into its relevance. This study delves into the implications of the property right theory concerning family-owned businesses and their impact on productivity. Specifically, we explore how family firms’ characteristics affect the benefits and hazards derived from the rights to utilize, appropriate, and transfer firm resources, influencing the production process and, more specifically, the levels and growth of a firm’s productivity. Based on an extensive dataset of European firms, our findings indicate that family-owned businesses tend to prioritize labor over capital in their production processes when compared with nonfamily firms. Moreover, the distinctive decisions regarding the production process lead to consistently lower levels of productivity in family firms. However, we also uncover that when family firms share with non–family members management and ownership control, they are less labor intensive and achieve higher productivity and productivity growth. This suggests that certain ownership and control structures can help family firms overcome the productivity gap with nonfamily firms. Overall, our findings support the ideas from recent developments in property rights theory, considering the unique characteristics of family-owned businesses. Our study contributes to strategy research on family firms and corporate governance.