Family governance and firm performance: exploring the intermediate effects of family functioning and competitive advantage

Abstract

PurposeScholars and practitioners agree that governance practices are at the core of what differentiates family firms from other forms of business. Yet, there is a lack of consensus in the extant literature about how and the extent to which family governance affects firm performance. This study aims to address the matter by taking a more comprehensive unified systems perspective to explore the pathways through which variations in family governance mechanisms simultaneously affect both the business and the family system.Design/methodology/approachThis study utilises a global dataset sourced from a survey and structural equation modelling to empirically measure several intermediate and final outcomes of family governance.FindingsThis study finds that the use of family protocols, as well as formal and informal meetings, have positive effects on the functioning of the family, whereas family involvement in the top management team diminishes the firm's competitive advantage. In turn, this study demonstrates that both family functioning and competitive advantage are positively related to firm performance.Originality/valueBy taking into consideration the complexity of the family and business systems, and measuring their interlinkages, this study advances knowledge by providing a more complete picture of the family governance/firm performance relationship.