Are family firms more efficient? Revisiting the U-shaped curve of scale and efficiency

Chen, Ku-Hsieh; Chen, Pei-Hwa; Elston, Julie Ann; Zhang, Yingchao

Abstract

This study applies a stochastic frontier model to examine the relationship between firm size and efficiency using a novel approach. The first novelty is that this study examines large and small firms separately to allow for heterogeneity between firm group sizes in terms of measuring the size-efficiency relationship. The second is that we use a modified model which explicitly includes a family firm variable when measuring firm efficiency. Empirical results reveal that firms are in fact heterogeneous, with small-and-medium-sized enterprises (SMEs) exhibiting a U-shaped scale efficiency curve, while large enterprises (LE) exhibit an efficiency curve which is linear, positive, and monotonically increasing. In addition, while controlling for family firms does not appear to change the firm’s size-efficiency dynamics, the study demonstrates that failure to control for family firms leads to a bias in characterizing the nature of the firm’s production returns to scale.

Citation

Chen, K.-H., Chen, P.-H., Elston, J. A., & Zhang, Y. (2023). Are family firms more efficient? Revisiting the U-shaped curve of scale and efficiency. Small Business Economics, 61, 983–1008. https://doi.org/10.1007/s11187-022-00720-8

• Journal Article Type: Article
• Acceptance Date: Dec 6, 2022
• Online Publication Date: Jan 6, 2023
• Publication Date: 2023-10
• Deposit Date: Jan 5, 2023
• Publicly Available Date: Jan 7, 2024
• Journal: Small Business Economics
• Print ISSN: 0921-898X
• Electronic ISSN: 1573-0913
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 61
• Pages: 983–1008
• DOI: https://doi.org/10.1007/s11187-022-00720-8
• Public URL: https://durham-repository.worktribe.com/output/1184305