Abstract
We investigate the productivity of family owned small- and medium-sized enterprises (SMEs). Specifically, we examine whether productivity is influenced by the number of family owners and by family member involvement in daily operations. We find that the productivity of family firms is non-monotonically associated with the number of family owners and with the number of family members who work in the firm. Although prior empirical research has often been associated with positive effects, we identify problematic cases, especially when a few owners are involved. We document a negative effect on productivity if the firm has few but more than one family owner, and if the firm has two or three owners who are involved in daily business operations. In these cases, an external (non-family) Chair (CEO) might mitigate these effects stemming from the family ownership (family working in the firm). The results of our study have practical relevance and policy implications when it comes to questions concerning optimal governance.