Top management team faultline size and family firm performance

This study examines the impact of faultline size in top management teams on firm performance in family firms. We propose that top management teams in family firms are typically asymmetric factional groups, in which there is a priori, pre-established faultline between two subgroups (family members versus non-family members) with distinct power and status. We further argue that large demographic faultlines in such groups would benefit firm performance, and these benefits are contingent on bifurcation bias shown by the controlling family toward non-family members and the level of development of intermediate institutions. We test our model using data from Chinese-listed family firms. Results provide strong support for our propositions. This study contributes to the corporate governance literature by highlighting that the inter-subgroup dynamics in top management teams or boards of directors in family firms can differ from those in nonfamily firms.