Outsiders on the board of directors and firm performance: Evidence from Spanish non-listed family firms

The aim of the study was to examine firm performance in family SMEs and analyze the effects of outsiders (both affiliated and independent) on the board of directors while also considering the generational effect. To test our hypotheses that outside directors may act as either agents or stewards, we examined the relationship between firm performance and the proportion of affiliated and independent directors on the board, using data from non-listed family firms in Spain. Our findings indicate that affiliated directors have a positive impact on firm performance in family firms. It is also important to note the differences between family firms run by the first generation and those run by subsequent generations. The presence of independents on the board has a positive effect on performance when the firm is run by the first generation. However, when the firm is run by the second and subsequent generations, the presence of independents has no effect on performance.

Research highlights▶ Our findings show the existence of a positive impact of affiliated directors on firm performance in family firms. ▶ It is also important to note the different behavior between family firms run by the first generation.▶ In this case, the presence of independents and affiliates on the board has a positive effect on performance when the firm is run by the first generation. ▶ When it is run by second and subsequent generations, the presence of independents has no effect on performance.▶ The results of this study contribute to knowledge concerning agency and stewardship relationships in family firms.