The Effect of Corporate Governance Mechanisms on Family-Owned Businesses with Mediating Role of Firm Performance

Abstract

Corporate governance mechanisms play a crucial role in shaping the strategic direction, operational efficiency, and long-term sustainability of family-owned businesses. These mechanisms, including board structure, ownership concentration, and managerial oversight, are designed to ensure accountability, transparency, and effective decision-making within organizations. Family-owned businesses, which form a significant portion of global economies, often face unique governance challenges due to the intertwining of family and business interests. This study examines the effect of corporate governance mechanisms on family-owned businesses, with a focus on the mediating role of firm performance. Drawing on agency theory and stewardship theory, the research hypothesizes that strong governance mechanisms positively influence firm performance, which in turn enhances the overall sustainability and competitiveness of family firms. Using a quantitative research design, data were collected from 350 family-owned business managers and executives across diverse industries. Structural equation modeling was employed to evaluate the direct and indirect effects of corporate governance on firm outcomes. The findings indicate that governance mechanisms, including board independence, monitoring, and ownership structure, have a significant positive impact on firm performance. Firm performance acts as a partial mediator, demonstrating that effective governance enhances operational efficiency, financial outcomes, and strategic decision-making. The study contributes to the literature by bridging governance theory and family business management, providing empirical evidence on how governance structures can improve firm performance in family-owned enterprises. For practitioners, the research emphasizes the importance of establishing formal governance frameworks to balance family influence and professional management. Policymakers can also benefit by promoting governance standards that strengthen transparency and accountability in family-owned firms. Overall, the study highlights that corporate governance is not only a compliance mechanism but also a strategic tool that fosters firm growth, sustainability, and long-term value creation in family-owned businesses.