Family involvement and financial performance in SMEs: evidence from Italy

The aim of this study is to provide new evidence on the relationship between family involvement and financial performance in small and medium-sized enterprises (SMEs). We analysed the effects of family involvement in ownership and in the board of directors (BoD) for 214 Italian SMEs. Using an ordinary least squares (OLS) regression model with time-period and industry-fixed effects and lagged financial data over a four-year period (2014–2017), we found a statistically significant U-shaped relationship between family ownership and return on assets (ROA). Contrary to our expectations, the relationship between family involvement in the BoD and profitability was negative. These results suggest that family involvement in firms may have both positive and negative effects on financial performance depending on the thresholds considered. We also found a few other contextual variables related to company structure that influenced SME financial performance.