Why do so many family companies exist?

AROUND the world, family businesses produce about two-thirds of all economic output and employ more than half of all workers. And they can be very profitable: The world’s 500 largest family businesses generated a collective US$8.8 trillion in 2024. That’s nearly twice the gross domestic product of Germany. Their ubiquity might seem a little strange. After all, families can come with drama, conflict and long memories. That might not sound like the formula for an efficient company.

As researchers who study family businesses, we wanted to understand why there are so many of them in the first place. In our recent article published in the Journal of Management, we set out to understand this different kind of “why” – not just the purpose of family firms, but why they thrive around the world.

The usual answers don’t really explain it

The standard answer to “Why do family companies exist?” is straightforward: They allow owners to generate income and potentially create a legacy for future generations. A related question is: “Why do entrepreneurs even want to involve their relatives in their new ventures?” Research suggests that entrepreneurs do so because family members care and can help when resources are limited.