Towards the Management of Family Firms:
Is involvement of Professional Outside-Family Managers Important?
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| Author | Josephat Lotto |
| ISSN | 2307-2466 |
| On Pages | 430-438 |
| Volume No. | 2 |
| Issue No. | 6 |
| Issue Date | october 01, 2020 |
| Publishing Date | october 01, 2020 |
| Keywords | Manager-Controlled, Family-Managed, Ownership, Performance |
Abstract
This paper examines to examine the relationship between family ownership and firm performance by considering the impact of management professionalism on the performance of manager-controlled firms and family-managed firms using data for 643 non-financial UK listed companies. Pooled Ordinary Least Squares Regression specification is used to test whether ownership affects firm performance. A fully robust variance matrix estimator (to estimate t-statistics) is employed to avoid within-cluster (firm) correlation and any form of possible heteroscedasticity. The study reports a positive relationship between ownership of the largest shareholder and performance in manager-controlled firms and a negative relationship in family-managed firms. These findings confirm the allegation that, external managers are professionally trained and may use their managerial skills to boost up the firm performance as opposed to managers chosen within the family members who might lack sufficient managerial skills. This study tries to contribute in literature by addressing how different owners� identity affects firm�s value differently. More specifically, the study throws light on the impact of management professionalism on the performance of manager-controlled firms and family-managed firms. The key implication of the findings of this paper is that family companies have to accept the involvement of non-family professional managers because outside managers can possibly bring information, competencies, and access to fundamental resources for efficient exploitation of opportunities. The presence of non-family managers could be beneficial in reducing the institutional overlap between the family and the company.
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