Governance and long-term operating performance of family and non-family firms in Australia

Abstract

Purpose – The purpose of this study is to conduct a comparative analysis of the long-term operating performance of family and non-family firms from the agency theoretic perspective. The analysis is focused on investigating the impact of family ownership on principal–agent conflicts of interest. Design/methodology/approach – This paper examines the relationship between firm operating performance and family ownership for a large sample of 677 Australian-listed companies. The paper uses the Generalised Method of Moments (GMM) estimator model developed by Arellano and Bond (1991) and used by other studies in finance (Baltagi, 2012; Bond, 2002; Mohamed et al., 2008). Findings – The empirical results show that firms with ownership concentration has a better operating performance due to the alignment of owner-management interests. This study also finds that family-listed companies have higher survival rates and perform better than non-family companies. Findings support the hypothesis that agency costs arise as a result of privileged access of information and self-interest behaviour of managers (outsiders) in firms with dispersed ownership structures. Originality/value – Earlier studies have only focused on short-term perspectives, particularly investigating small and medium types of Australian family businesses from narrow aspects, such as productivity, business behaviour, capital structure and leverage. Therefore, this paper has conducted a comparative examination of family and non-family firms listed on the Australian Stock Exchange (ASX) to identify the impact of agency costs on their financial performance.