An empirical study on the relationship between ownership and performance in a family-based corporate environment

This study examines the relationship between family ownership and firm performance in a family-based corporate environment in which managerial ownership is used as a proxy for family ownership. The relationship is in cubic form with a pattern of “entrenchment-alignment-entrenchment, ’’ which is the reverse of that found in earlier US. and U.K. studies. This con.rms that research based on US. and U.K. evidence is not applicable to East-Asian corporations due to the diferences in ownership concentra-tion. Taking the endogeneity issue into consideration, the simultaneous equations regression analysis confirms that in a family-owned corporate structure, ownership affects performance and not vice versa. The wide range of alignment in the nonmonotonic relationship supports the classical “convergence of interest ” hypothesis. However, at a very high level of ownership, the entrenchment efect becomes dominant. This indicates that if the family form of ownership can be controlled and made use of ap-propriately, Jim? pe$ormance can be optimized due to convergence of interest. It also follows that a company with high ownership concentration should pay even more attention to improving corporate governance prac-tices in order to enhance its performance. 1