Family Business Literature Review

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Chapter 2: Literature Review 2.1Defining family firm When scholars attempted to answer the question, “Do family businesses outperform non-family businesses”, they got different answers for the same question and the reason is the definition of family business. Different scholars defined family business in different ways. Although many researchers have used (Anderson & Reeb, 2003) definition of family firm, which is, “A firm where family members or descendents hold shares or members of family that is present on the board (BoD), often for multiple generations are known as family firms”. Although many researchers were not satisfied with the above definition, so they attempted to distinguish among the basic elements of family firm’s definition,…show more content…
This study concluded that family firms performed almost same as the non-family firms. ROA showed family businesses are good at making profit than other firms. They noticed greater returns when the family owners acted as CEO’s of their firms. For this they inferred that possible reason might be that the knowledge of the family about the business is more and they are much dedicated to work and their firm. Their research also found a positive relation between the family firms and their valuation and found that family firms have more value. Their result negates their hypothesis that the family firm’s shareholders are negatively affected and their overall conclusion was that family firm structure is much more efficient in comparison with non family business. Short & Keasey (1999) examined the relation between performance and ownership structure by constructing sample of 225 United Kingdom firms listed on stock exchange of London (LSE) for the duration of five years (from 1988 to 1992).The ownership variables taken for the study are, shares in directors’ hand, shares with institutions having 5% or more stock, and percentage of external ownership. Their study measured performance through Tobin’s Q and ROE and the result states that there is significant positive effect of director…show more content…
(2010) examined the differences in performance, growth and characteristics between family business and other business. According to them researches have been conducted to analyze the differences in family business family and non family businesses, but they ignored that firm demographics (size, industry, location, age) can distort comparison of performance and management characteristics of both firms. So this study tried to distinguish between “demographic sample” differences and “real” differences of these businesses (businesses owned by families and businesses owned by other than families). As a result the study revealed real differences for CEO characteristics, use of financial indicators, export activities, variable reward system, short term planning and long term financing problems. Long term planning practices, adopted strategy, involvement in networks, perceived environmental strategy do not seem differ between family and non family business. Typically family owned/controlled businesses are managed by their owners themselves. In case of multinationals and enterprises owned by state(s) management and owners has a direct relation. Many important decisions regarding corporate are not made in Annual General Meetings and/or by Board of Directors but by owners and managers themselves (Din & Javid,

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