Family ownership and firm performance: evidence from Taiwanese firms

Jonchi Shyu

90 citations0/0 files storedInternational Journal of Managerial Finance

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Family Business Performance and Succession Corporate Finance and Governance Firm Innovation and Growth

Abstract

Purpose Using the panel data of 465 Taiwanese listed companies and taking into consideration endogeneity issues this paper aims to examine the influence of family ownership on firm performances. Design/methodology/approach The use of a panel data set encompassing a five‐year period enables one to examine both cross‐sectional and within‐firm variations in the relationships between family ownership and firm performances. The paper also uses a simultaneous equation system to account for the endogeneity between family ownership and firm performances, and apply the quadratic equations to identify the percentage of family ownership that maximizes firm performance. Findings When either a profitability indicator (ROA) or a valuation indicator (Tobin's Q) is applied, the empirical results show that family ownership positively affects firm performance. The results also show that the profitability of a firm (ROA) first increases and then decreases with family ownership. In other words, when families have more than 30 per cent control of the firm, the potential for entrenchment and poor performance becomes greater. Originality/value This paper is the first to examine the relationships between family ownership and firm performances, while simultaneously addressing the issue of endogeneity and identifying the optimal level of family ownership in Taiwanese firms. The finding that family ownership positively affects firm performance elucidates why a family firm is one of the most important business development models in Taiwan. Meanwhile, the finding that the percentage of family ownership should not exceed 30 per cent to avoid the occurrence of poor performance also suggests that excessive family shareholdings may not be necessarily healthy for a family firm in Taiwan.

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References

1999Corporate Ownership Around the World 1988Management ownership and market valuation 1985The Structure of Corporate Ownership: Causes and Consequences 2000The separation of ownership and control in East Asian Corporations 2003Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500 1990Additional evidence on equity ownership and corporate value 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1989Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior

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2013An investigation of the association between ownership structure and corporate performance 2018Structural aspects of corporate governance and family firm performance: a systematic review 2021Strength in Stability: A Meta-Analysis of Family Firm Performance Moderated by Institutional Stability and Regime Type 2018Measuring family business performance: research trends and suggestions 2022The impact of family ownership on firm performance: A study on Vietnam

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