Effects of Family Ownership and Professionalization on Firms’ Financial Performance and Sustainability Reputation

Abstract

Family firms face significant challenges in professionalizing their management, while the professionalization effects on the firms’ performance are unclear. Drawing on stewardship and agency theories, we theorize and test the effects of family ownership and professionalization on firms’ financial performance and sustainability (environmental, social and governance) reputation. Using a large-scale management practices dataset of both public and private companies in the US, UK, Germany, and France, we find that family firms outperform nonfamily ones in terms of both financial performance and sustainability reputation, and professionalization helps strengthen such positive effects. We theorize that this is because professionalization can address agent opportunistic behaviors, while enhancing steward behaviors unique to family firms. The findings contribute to the literature on family business governance and professionalization.