Family firm ownership and its impact on performance: evidence from an emerging market

Using agency and stewardship theory, we study the impact of family ownership on the performance of small and medium-sized enterprises (SMEs) in the context of internal and external governance mechanisms. Employing a sample of all SME exchange-listed firms from their inception to 2018, we use a three-stage least squares (3SLS) estimation method to account for the endogeneity of the ownership-performance relationship. We find a positive bi-directional relationship between performance and promoter ownership, with no moderating impact of internal governance. However, when external governance mechanisms operate, the performance-ownership relationship shows mixed results, supporting the impact of culture on firm performance. The study contributes to the debate on the ownership-performance relationship by analyzing small firms in the emerging economy of India. Regulators need to be cognizant of the cultural nuances before implementing corporate governance codes for small firms. One-size-fits- all regulations will not apply to every firm. Regulators should consult with small business owners to come up with norms that would ensure good corporate governance practices in small listed firms.