Danny Miller talks with
ScienceWatch.com and answers a few questions about
this month's New Hot Paper in the field of Economics &
Article Title: Are family firms really superior
Breton-Miller, I;Lester, RH;Cannella, AA
Journal: J CORP FINANC
Year: DEC 2007
* HEC Montreal, 4642 Melrose Ave, Montreal, PQ H4A 2S9,
* HEC Montreal, Montreal, PQ H4A 2S9, Canada.
* Univ Alberta, Montreal, PQ H4A 2S9, Canada.
* Texas A&M Univ, Mays Sch Business, College Stn, TX
* Arizona State Univ, Dept Management, WP Carey Sch
Business, Tempe, AZ 85287 USA.
Why do you think your paper is highly
Perhaps because the topic is important and the findings require a
reinterpretation of influential prior studies. The relationship between
governance and performance has been a perennial issue. Unfortunately,
earlier research has suffered from inattention to the social context of
those who govern. This paper begins to fill that gap by comparing family
ownership—even within the founding generation—to lone founder
ownership. The differences in the social contexts and hence, in the natural
agendas and conduct of such owners, may indeed have an important connection
to market performance.
Does it describe a new methodology?
The methods used in the paper do not constitute dramatic departures from
practice. However, they are unusually painstaking in assessing the
robustness of these findings and at discovering exactly why the results of
this paper differ from those of previous researchers. Specifically, we
replicated the results of others using our data and then show how our more
fine-grained governance measures and distinctions generate more accurate
and differentiated findings.
We were also careful in analyzing not only the typical Fortune 1000 firms
but also a random sampling of 100 much smaller public enterprises.
Moreover, we employed a variety of multivariate techniques and comparisons
to confirm our findings, and conducted checks to guard against sample
selection bias and endogeneity. Finally, we were careful not to impute
causal directions in the relationships that we found.
Would you summarize the significance of your
paper in layman's terms?
The previous claims that family-owned firms outperform other public
companies are incorrect. As soon as there is more than one family member
acting as a major owner or officer within the firm, even within the
founding generation, any performance advantage disappears. It is only lone
founders who outperform, perhaps because they are unencumbered by family
concerns such as nepotism, conflict, conservatism to keep the business in
the family, and appropriation of business resources for family purposes.
However, family firms do not under-perform other public companies, perhaps
because of their owner-manager agency advantage.
How did you become involved in this research,
and were there any problems along the way?
We had written a book, Managing for the Long Run (Harvard Business
School Press, 2005), about outstanding, long-lived family
businesses—enduring success stories. But along the way we discovered
many special challenges of these and other family organizations that were
based in family motives—nepotism, hyper-conservatism, and asset
appropriation among them—that tended to detract from shareholder
value. We thus began to question if for the breed as a whole, the agency
advantages would outweigh the disadvantages.
The major problem in conducting the research was coding the
proxies—some family members’ names might change, and families
might control their firms through trusts and family banks. Therefore great
care had to be taken to track down family ownership.
Finally, as an added challenge, we should say that our career disciplines
are strategy and organization theory, not finance, and we were trying to
publish in a finance journal for the first time. The co-editor of the
Journal of Corporate Finance, Harold Mulherin, who is also a
Professor in the Department of Banking and Finance at the Terry College of
Business at the University of Georgia, was kind enough to take us by the
hand and show us how to develop, confirm, and present our findings for a
readership of financial scholars. We are in his debt.
Where do you see your research leading in the
We hope there will be more studies of family firms to determine the
strategic and organizational conduct that issues from governance
distinctions and also underlies and differentiates performance outcomes.
Do you foresee any social or political
implications for your research?
Family firms may enjoy reduced owner-management agency costs and
competitive advantages such as "patient capital"—equity provided by
family business founders or successors—and a long-run orientation.
But some companies have undermined these advantages with owner-owner forms
of appropriation and parochial family agendas. It would be useful to
determine the governance controls and arrangements that might limit the
latter and free family firms to become a truly superior form of public
Research Chair in Family Enterprise and Strategy
HEC Montréal and University of Alberta