The Effects of Family Firms on Performance

This study investigates the impact of family firm on performance and extend it by studying firm that transitioned from family－firm to non－family firms, and vice versa, using a data set of Korean firms. From a sample of 3,440 firms listed on the stock market over a seven－year period (2000－2006), the group of non－family firms reported better performance than the group of family firms. Two distinct measures of firm performance were employed―Tobin's Q and MTB (market－to－book) ratios―to test the mean differences between the two sample groups. The results were in line with each of our regression models. The findings support our hypothesis, which posits that family firms do not perform better than non－family firms in contrast to the findings of Martinez et al (2007), Villalonga, and Amit (2006), who find that family firms perform significantly better. Our hypothesis is supported by the fact that there is a negative relationship between firm performance and the transition from non－family ownership to family ownership.