Founders versus Descendants: The Profitability, Growth and Efficiency Characteristics Comparison in the UK Small and Medium Sized Family Businesses

Abstract

Family businesses and business families existed long before the genesis of historians and economists. In most economies, family business is estimated to represent over two–thirds of all enterprises and accounts for about half of the economic activity and private employment contributing to the Gross Domestic Product (GDP). Over the last two decades, family business studies have gathered momentum, which is reflected not only in terms of the number of published papers and publication outlets, but also in research support provided by agents and foundations. This article proffers researchers and practitioners empirical evidence of variations in financial performance of family businesses mastered by different generations. The article commences with a literature review of theories associated with business performance and family business governance, for example, agency theory, altruism and business lifecycle. This is followed by a description of the research methods adopted in this study. Statistical analyses are then conducted in two phases. Phase A employs univariate analyses to depict business demographic features. Phase B further investigates the differences of financial performance between family businesses marshalled by owner–managers in different generations. In summary, the article concludes with a set of tentative recommendations. It is anticipated that this study will bring to the surface the debate on issues surrounding the practice of family business management and widen awareness of the critical factors shaping business performance.