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The Impact of Governance Structure on the Performance of Small Family and Nonfamily Firms: The Moderating Role of Firm Age

Vitaliy Skorodziyevskiy Hanqing “Chevy” Fang Esra Memili James J. Chrisman
Review of Corporate Finance. December 7, 2022

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Drawing upon agency theory and the family business literature, we hypothesize that governance structure, the extent to which ownership and management are concentrated in the hands of a single individual or family, has an inverted U-shaped relationship with firm performance in small owner-managed firms. We further hypothesize that the inverted U-shaped relationship diminishes as firms age. Using a cross-sectional sample of 8,201 SBDC clients, we find support for an inverted U-shaped relationship between governance structure and firm performance. We also find that this relationship is moderated by firm age. Our findings have implications for the fields of finance and family business in terms of the concentration and separation of ownership and management in single and multi-family firms.