Firm ownership and productivity: a study of family and non-family SMEs

Motivated by a lack of consensus in the current literature, the objective of this paper is to reveal whether family firms are more or less productive than non-family firms. As a first step, this paper links family business research to the theoretical notion that family involvement has an effect on the factors of production from a productivity standpoint. Second, by using a Cobb-Douglas framework, we provide empirical evidence that family labour and capital indeed yield diverse output contributions compared with their non-family counterparts. In particular, family labour output contributions are significantly higher, and family capital output contributions significantly lower. Interestingly, differences in total factor productivity between family and non-family firms disappear when we allow for heterogeneous output contributions of family production inputs. These findings imply that the assumption of homogeneous labour and capital between family and non-family firms is inappropriate when estimating the production function.