Firm size and technical efficiency: A study of family and non-family SMEs
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This paper aims to identify whether family firm size may be constrained by family owners’ reluctance to relinquish control, and how such constraints in turn impact firm performance. Considering expansion of firm size brings about some loss of control, family firms may grow at a slower pace, and thus have a tendency to be smaller in size relative to their non-family counterparts. Using panel data from over 3400 small to medium sized enterprises across four years, this paper empirically tests this potential size effect using technical efficiency as a measure of performance. Controlling for industry, age and other covariates, descriptive statistics show that family firms are indeed smaller than nonfamily firms. These results are robust to multiple measures of size. Further, by means of non-parametric analysis of technical efficiency, we find that family firms on average are less technically efficient than their non-family peers. When we decompose this inefficiency into two components, “pure” technical inefficiency and scale inefficiency, we find the largest component of family firm inefficiency is due to scale. In other words, family firms are not reaching the most productive scale size, and as a result are paying an efficiency penalty.
This document has been peer reviewed.