Superiority of non‐family firms in a developing market: Moderating role of international diversification

Abstract

AbstractThis paper examines whether family firms outperform compared to nonfamily firms. We utilize both accounting‐based and market‐based performance measures in the present study. Secondly, we test whether operating performance and market valuation are higher for family firms with international diversification compared to locally operated family firms. We employ a unique setting where more than 65% of publicly listed companies are family firms to test our conjectures. We use ordinary least square regression models to test our hypotheses. Using a large dataset, we find that nonfamily firms perform significantly (both operating and market based performance) higher than counter family firms. However, we find that family firms outperform non‐family firms when they have international diversifications. This study contributes to family business literature, international diversification literature. It provides policy implications in that regulators understand the importance of ownership structure and how it affects firms' valuation, particularly in emerging economies where family firms dominate the markets.