Towards a theoretically robust operational definition of family firms for public corporations

Recent research shows that a significant proportion of corporations in a number of major financial markets across the world are classified as family firms. That classification is based on a number of different definitions of a family firm, using criteria such as an ownership threshold and/or the presence of a family member on the board of directors and/or in the top managerial positions. The lack of a universal definition of family firms in either the family business or the accounting and finance literature may undermine the comparability or even the validity of any empirical results reported. This paper develops a theoretically robust operational definition of family firms in the context of public corporations for accounting and finance research purposes. Based on agency theory, we argue that the key difference between family and non-family firms arises from control of decision making processes of the corporation. We further argue that a family needs to dominate the leadership structure in order to control the decision making processes. We conclude that family shareholding, although a common characteristic among family firms, is not a useful basis for a definition.