Abstract

Previous studies have shown that various factors of corporate governance interact with one another to affect business performance in a non-linear manner. Hence, to have a clear insight, the performance of family firms is examined at different levels of board independence and audit committee independence. The beauty of the method used in this study is that suitable combinations of corporate governance mechanisms to achieve utmost performance can be identified. Thus, conducting step-wise regression through the dynamic GMM model, we found that for effective monitoring of managerial financial reporting choices and investment decisions of family firms, the proportion of independent directors on the board should be at least 60%. However, the proportion of independent directors on the audit committee that is less (or greater) than 66% increases financial reporting quality and decreases investment inefficiency.