Family board ownership, generational involvement and performance in family SME: A test of the S-shape hypothesis

Purpose: In order to deepen our knowledge of governance of family firms, in this study we focus our attention on the relation between family owners who are members of the board of directors and firm performance. Also, this study sheds more light on how the generation in charge of the family firm affects that relationship, as generational involvement may be a unique predictor of
governance behavior in these firms.

Design/methodology: We applied a cross-sectional ordinary least-square (OLS) regression model to test the hypotheses on a sample of 313 non-listed Spanish family SMEs. We suggest the possibility of a nonlinear relationship between the percentage of ownership by family members of the board of directors and firm performance, and specifically, we propose an S-shaped effect that implies two break-points.

Findings: We find not only that an inverted U-shaped relationship exists, but also an S-shaped relationship between family board members’ ownership and firm performance in family SMEs. Nevertheless, the results are different in comparing first-, second- and later-generation family firms.

Original/Value: This is one of the few empirical studies that examine the relationship between family board ownership and firm performance in the context of non-listed family SMEs. We consider that the influences of family directors on the board of directors as well as the concentration of family ownership on the board of directors are worth studying in non-listed
family SMEs. Moreover, previous studies have focused mainly on large listed family firms but not on unlisted ones.