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The impact of small- and medium-sized family firms on economic growth

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Abstract

Drawing on family business studies and the knowledge-based view of economic growth, we develop and test a model of how the prevalence of small- and medium-size enterprises (SMEs) under family control affects economic growth. Specifically, we propose there is an inverted U-shaped relationship between family SMEs’ proportional representation and economic growth owing to their relative strengths and limitations vis-à-vis non-family SMEs. Using state-level data from the US between 2004 and 2010, we find support for our hypothesis and the underlying contention that economic growth is maximized when an economy includes a balanced mix of family and non-family SMEs.

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Notes

  1. Family firms are firms where the family holds a significant ownership stake, is involved in firm governance, and has a vision for how the firm will benefit the family, potentially across generations (Bennedsen et al. 2010; Chua et al. 1999).

  2. The small magnitudes of these two coefficients are due to the choice of DV (log difference). When changing DV into the percentage difference, magnitudes of family SME proportion as well as its square term become much larger (Table 4).

  3. As above, to control for endogeneity we use the predicted values of the family SME prevalence variable after regressing it against the three instrumental variables and controls (Table 3, 1st stage).

  4. The results of the robustness test and tests below are available upon request from the second author.

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Authors and Affiliations

  1. Bryan School of Business and Economics, University of North Carolina at Greensboro, PO Box 2617, Greensboro, NC, 27402-6170, USA

    Esra Memili

  2. Department of Management and Information Systems, Mississippi State University, Mississippi State, MS, 39762-9581, USA

    Hanqing Fang & James J. Chrisman

  3. China Small and Medium Business Research Institute, Zhejiang University of Technology, Zhejiang, China

    Hanqing Fang

  4. Centre for Entrepreneurship and Family Enterprise, University of Alberta, Edmonton, Alberta, Canada

    James J. Chrisman

  5. Centre for Family Business, Department of Entrepreneurship, Strategy and Innovation, Lancaster University Management School, Bailrigg, Lancaster, LA1 4YX, UK

    Alfredo De Massis

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  1. Esra Memili
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  2. Hanqing Fang
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  4. Alfredo De Massis
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Correspondence to Alfredo De Massis.

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Memili, E., Fang, H., Chrisman, J.J. et al. The impact of small- and medium-sized family firms on economic growth. Small Bus Econ 45, 771–785 (2015). https://doi.org/10.1007/s11187-015-9670-0

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