Measurement Bias in the Financial Performance of Family Firms

Abstract

Notwithstanding the impressive body of research focusing on the financial performance of family-led enterprises over their non-family counterparts, no aggregate conclusion can be extrapolated from the existing data. In this article, we show that performance inference is biased and depends exclusively on the combined choice of financial measurements and family taxonomy; any general conclusion drawn from a specific pair of metrics should be interpreted with caution. We analyze the cross-combinations of eighteen variants of family firms with twenty financial metrics to show that family attributes greatly influence hybrid performance measures, display a notable effect on accounting-based metrics but have almost no impact on market returns. These peculiar results are ascribed to the fact that family businesses tend to favor creditors and directors over investors.