Does the CFO Matter in Family Firms? Evidence from Italy

Using data from 708 small and medium Italian firms during the period of 2002-2004, we find that in family firms a nonfamily CFO drives firm performance in a positive direction. Family firms with a nonfamily CFO perform better than both family firms with a family CFO and nonfamily firms. The best performance is achieved when the CEO is a family member and the CFO is an outsider (nonfamily). An examination of family firms across generations shows that a nonfamily CFO always has a positive effect on firm performance, while a family CEO seems to add value only in the first generation. Our study contributes to the literature on family firms by determining how the presence of a nonfamily CFO has an impact on firm performance. We also contribute to the literature on agency theory by showing that in small family firms: a) having a family as majority shareholder is not detrimental to firm performance; and b) a nonfamily CFO might serve to mitigate any ineptness of descendant CEOs while retaining ownership and management in the hands of family heirs, thus avoiding the conflict of interest between family ownership and management.