An empirical investigation of the production function of the family firm

This article examines the impact of the family form of business ownership on the production frontier of privately held firms in Western New York. Using survey and published data, it is found that family firms tend to be older, yet smaller in sales and production, than their non-family small business counterparts. From a "macro" perspective, a production function estimation concludes that family firms contribute less per firm to the flow of income in the examined regional economy than other privately held small business enterprises. This is based on the lower level of sales generated by family firms after controlling for other factors of production. The results confirm other published research on some measures, but contrast sharply with others, leading to a second conclusion that the performance of family business enterprises may differ by industry and region. Economic development agencies, both federal and regional, could best serve the economy by designing community-specific guidelines and incentives for their programs.