Family firm competitiveness and owner involvement

Abstract

Purpose

In many countries, small and medium-sizes enterprises (SMEs) are primarily responsible for wealth, economic growth, innovation and research and development. In this paper, the authors examine the impact of family ownership and owner involvement on the financial performance of unlisted Finnish SMEs.

Design/methodology/approach

This is an empirical paper using a random sample of 1,137 non-listed Finnish SMEs. Through regression analyses and robustness tests, the authors examine the effects of family management, family and employee ownership and involvement.

Findings

Using profitability measures, the authors find family-owned and controlled SMEs perform significantly better than non-family firms. The number of family members actively involved in daily business operations bears a significant negative relation to firm performance. In contrast, non-family firms in which owners are actively involved, provide comparable returns to family firms, suggesting that in non-family firms active involvement contributes to performance. The authors find that employee ownership in SMEs does not provide an efficient way to compensate employees since more dispersed ownership does not lead to higher performance.

Research limitations/implications

SME employee ownership does not provide an efficient way to compensate employees since more dispersed ownership does not lead to higher performance.

Practical implications

In the case of Finland, family ownership is an effective organisational structure. As the depth of the COVID pandemic remains uncertain, firms with committed ownership are key to the economic recovery.

Originality/value

The authors approach the family ownership and involvement issue from a different angle. Unlike earlier studies, the authors examine the impact of both family ownership and involvement on the financial performance of privately owned SMEs. This paper helps shed light on the role of family ownership and involvement as a possible explanatory factor of overall economic performance.

Citation

Buchanan, B., Martikainen, M. and Nikkinen, J. (2023), "Family firm competitiveness and owner involvement", Journal of Applied Accounting Research, Vol. 24 No. 2, pp. 260-281. https://doi.org/10.1108/JAAR-11-2021-0317