Governance mechanisms and financial performance of family SMEs: an empirical study conducted

Case of Cameroon

Abstract

This paper investigates whether the financial performance of family SMEs can be explained by the use of governance mechanisms. A theoretical framework inspired by the agency theory, the stewardship theory and the theory of resources and competences has been used to analyze the governance of family SMEs. At the end of the theoretical part, three hypotheses were formulated for testing in a sample of family SMEs. To achieve this goal, we opted for a quantitative method by using a questionnaire as a data collection tool with a sample of 33 family SMEs operating in Cameroon. Thus, out of the 45 questionnaires administered at the outset, only 33 were usable, 73.33% exploitation rate. The results show that governance mechanisms do influence the financial performance of family SMEs, and concern both the shareholder structure, the characteristics of the Board of Directors and the family governance mechanisms. Indeed, the opening of the capital to a venture capitalist, the formalization of the functioning of the Board of Directors, the technical heterogeneity of the Board of Directors, the proportion of external directors as well as the recourse to family meetings, constitute governance mechanisms responsible for the positive financial performance of family SMEs. However, the concentration of shares in the hands of family members or managers, the use of the family council and the family charter decrease the financial performance of family SMEs. These results attempt to promote the opening of governance (through professionalization mechanisms such as: the activism of risk investors, the use of external directors and the professionalization of the Board of Directors) as a guarantee of the financial performance of family SMEs.