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

Author

Listed:
  • Ku-Hsieh Chen

    (National Ilan University)

  • Pei-Hwa Chen

    (National Taipei University)

  • Julie Ann Elston

    (Oregon State University)

  • Yingchao Zhang

    (Durham University)

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 frontier 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 positive and linear. Robust results also confirm that family firms are relatively more efficient than non-family firms. In addition, while controlling for family firms does not appear to change the firm’s size-efficiency dynamics, failure to control for family firms leads to a bias in characterizing the nature of the firm’s production returns to scale.

Suggested Citation

  • Ku-Hsieh Chen & Pei-Hwa Chen & Julie Ann Elston & Yingchao Zhang, 2023. "Are family firms more efficient? Revisiting the U-shaped curve of scale and efficiency," Small Business Economics, Springer, vol. 61(3), pages 983-1008, October.
    • Handle: RePEc:kap:sbusec:v:61:y:2023:i:3:d:10.1007_s11187-022-00720-8
    DOI: 10.1007/s11187-022-00720-8
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    More about this item

    Keywords

    Small firms; Efficiency; Family firms;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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