Family Firms and Financial Performance. Evidence from Russia

The number of businesses owned and operated by families has increased over time, leading to the question whether this form of ownership is effective in terms of financial performance. There is evidence that family businesses perform better than non-family businesses in turbulent times, however they are prone to agency conflicts when families enter the management team. The ownership structure of Russian firms is, on average, under-researched due to a lack of available information, and is typically discussed in terms of government ownership. However, it is logical to assume that the government is not the sole owner of all Russian firms. This study aims to investigate family-owned Russian firms traded on the Moscow Exchange and whether family ownership and management is a viable strategy for Russian firms in terms of accounting performance and market valuation. The sample consists of 121 companies with 1,666 observations collected over the period 2000-2022. To analyse the data, a two-way fixed effects model was employed, controlling for industry and time factors. As a result, we demonstrated that on average, excessive family ownership (more than 75% owned by families) is beneficial for a firm both in accounting and marketing performance. The peak of this effect reaches when the firm is under 35 years old. However the evidence about effectiveness of family management is mixed. We have found that firm volatility decreases with family management, nevertheless it is insignificant in determining profitability and has a controversial result on two different measures of market performance. Since two measures of market performance produce contrary results, it is likely that family firms should remain as principals and employ an independent management team in order to succeed in the business and avoid potential principal-agent conflicts.