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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 29, No. 3, pp.269-303
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2016
Received 09 Mar 2015 Revised 01 Mar 2016 Accepted 23 Mar 2016

Family Control, Product Market Competition and Firm Performance

Seun-Young Park ; Hyun-Han Shin
Seun-Young Park, Ph.D. in accounting from Ewha Womans University, Seoul 03760, South Korea sypark13@gmail.com
Hyun-Han Shin, Corresponding author, Professor of Finance, School of Business/ Graduate School of Business, Yonsei University, Seoul 03722, South Korea hhanshin@gmail.com

JEL Classification: L13, G34, D43

Abstract

In this paper, we try to determine the effect of the presence of family shareholders on company performance in the absence of external corporate governance. Our empirical results using Anderson et al. (2009, 2012)’s family firm data suggests that family firms exhibit superior firm performance relative to nonfamily firms when the level of product market competition is weak, suggesting that the family control is an effective internal corporate governance mechanism that can compensate for weak external corporate governance. Furthermore, a family firm’s performance results in being superior to nonfamily firms’ performance in weak competitive markets, regardless of whether the CEO of a family firm is a founder, heir or professional manager. These findings suggest that the family control is an effective organizational structure in mitigating agency problems and enhancing firm performance when external corporate governance is weak.

Keywords:

Corporate governance, Family control, Product market competition, Agency problem, Firm performance

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