Family Control, Product Market Competition and Firm Performance

Abstract

In this paper, we try to determine the effect of the presence of family shareholders on company performance in the absence of external corporate governance. Our empirical results using Anderson et al. (2009, 2012)s family firm data suggests that family firms exhibit superior firm performance relative to nonfamily firms when the level of product market competition is weak, suggesting that the family control is an effective internal corporate governance mechanism that can compensate for weak external corporate governance. Furthermore, a family firms performance results in being superior to nonfamily firms performance in weak competitive markets, regardless of whether the CEO of a family firm is a founder, heir or professional manager. These findings suggest that the family control is an effective organizational structure in mitigating agency problems and enhancing firm performance when external corporate governance is weak.