The ownership-performance puzzle: agency issues in small and medium-sized family firms

Abstract

Using a cross sectional sample of 2,863 family firms from the 1998 NSSBF database, we examine the relationship between family ownership and financial performance for small and medium-sized family firms with a chained-interaction model in which we combine ownership dispersion proxies with moderating management and family variables. Our results suggest that ownership dispersion has a positive influence on performance when the family firm is in a later generational stage, giving support to predictions put forth by agency cost models in private family firms (Schulze et al., 2003). Our results also suggest that the zero agency-cost base case as described by Jensen and Meckling (1976) is in fact no zero agency cost case due to ignored agency costs in family firms.