Family influence and SME performance under conditions of firm size and age

The purpose of this paper is to provide a better assessment of the positive impact of family influence (FI) on the performance of SMEs and investigate a possible shift with firm size (FS) and age.

This study is based upon a large sample of 4,240 firms representative of small businesses operating in the USA. It focuses on active ownership, i.e. direct involvement of owners alongside employees as an important factor of FI and conducts hierarchical regression models with profitability as the dependent variable, FI as the independent variable, and FS/age as moderating variables. It also includes other firm characteristics as control variables.

The results show that even though active family ownership is positively associated with the profitability of SMEs, the relationship between FI and profitability is negatively moderated by FS and firm age (FA).

The limitations of this study are mainly related to the definition of family SMEs and to the cross-sectional data used to understand the variations in economic performance. However, the results show the great importance of this kind of study; more attention must be paid to heterogeneity due to the size and age of family businesses as well as the level of owners’ involvement alongside employees.

Practitioners are encouraged to maintain a higher degree of family ownership combined with a higher degree of active ownership in the initial stages, when family businesses are young and small. However, the level of active ownership should be reduced when family businesses increase in age and size. According to this study, practitioners should open up businesses to external human resources other than the owners’ family as the firm increases in size/age to avoid the risks associated with family members lacking talent and/or expropriating benefits.

This study is one of the first to give evidence on not only a direct (and positive) relationship between FI and economic performance, but also an indirect (and negative) moderating effect of FS and FA on this relationship.