1 Introduction

According to the corporate governance literature, the business’s ownership structure is an essential factor that determines firm performance. From one point of view, distributed ownership creates principal–agent conflict since the managers’ goals may not be aligned with the interests of the shareholders (Ain et al., 2020). Managers who are utility maximizers may choose short-run profit-making initiatives to generate rapid returns and seek high perks above long-term endeavors that result in the long-term maximization of the firm’s wealth sought by shareholders (Jensen & Meckling, 1976). In this circumstance, the existence of concentrated ownership is seen as an effective strategy to reduce this issue since it leads to intense managerial supervision. The existence of block holders, such as family owners, however, causes another kind of agency conflict, principal–principal conflict, in which big shareholders take private gains while exploiting minority via tunnelling of corporate resources. On the contrary, for the sake of the firm’s image and integrity, they might be seen as an alternative governance mechanism for less protected minorities in poorly regulated marketplaces. As a result, the firm’s ownership structure has a significant impact on its performance and is an important field of study in corporate governance.

Family ownership differentiates from other types of ownership structure because of the large shareholding and effective involvement of a single family in ownership and control of the business. According to Armitage et al. (2017), large shareholders and dominant business groups in emerging markets present unique challenges for corporate governance due to weak investor protection and poor regulatory frameworks in such markets. According to Villalonga and Amit (2006), greater family ownership provides family owners with the authority and control to influence board composition and determine the firm’s strategic goals based on the family agenda and reasons. The family business literature (Ghalke et al., 2022; Purkayastha et al., 2019) mostly uses the agency theory and stewardship theory when evaluating the strategic behaviour of family owners. According to the agency framework, the presence of family owners may limit managers’ divergent behaviour owing to effective engagement in the business’s activities, and their presence may minimize the principal-agent conflict, resulting in better firm performance (Amin et al., 2021). On the other hand, the dominating influence and drive to expand family wealth may exacerbate this tension, resulting in the firm’s resources being tunneled towards family objectives. The pursuit of a family agenda and the desire to expand family wealth at the cost of minority shareholders may lead to principal-principal conflict. However, in a low-regulation economy, family ownership may replace minority shareholder legal protection for the sake of the firm’s brand (Yoshikawa & Rasheed, 2010). Similarly, Purkayastha et al. (2019) claimed that the behavioural characteristics of family owners may compensate for the conflicts that arise under the agency theory paradigm. According to this concept, family owners’ drive to achieve the family’s objectives and strong attachment to the family may lead to goal alignment, resulting in greater firm performance. As a result, this research employs agency theory and stewardship theory to investigate the impact of family ownership on business performance.

Moving forward, agency theorists see gender diversity as an important feature of a successful board that decreases agency conflict via intense and independent management oversight (Amin et al., 2021). According to the corporate governance literature, women are more independent and conscientious than males, and their successful presence on the board is associated with lesser agency conflicts. Females’ economic advantages have led in their required appointment on company boards in some nations (Terjesen et al., 2009). For example, federal rules in Norway and France require boards of public companies to include at least 40% female directors. The laws mandate adequate participation of female directors on corporate boards (Carter et al., 2003).

Similarly, in accordance with worldwide initiatives to enhance equitable representation of female directors on boards, the Code of Corporate Governance (CCG) 2017 required corporations listed on the Pakistan Stock Exchange to nominate at least one female director to the board (Mirza et al., 2012). Several studies have shown that female directors had a beneficial impact on a variety of business outcomes, including firm performance (Amin et al., 2021), dividend payout (Ain et al., 2021), and corporate social responsibility (Yarram & Adapa, 2021). Similarly, the existing research investigates the impact of female directors on business performance in cases of family ownership and yields inconsistent results. For example, Ararat et al. (2015) discovered favorable impacts of female directors in family businesses in Turkey. Similarly, Berrone et al. (2012) noted that in family-controlled enterprises, female directors’ interests are linked with the objectives of the family owners. Similarly, Martínez-García et al. (2023) discovered that family ownership had a beneficial influence on board gender diversity. Mustafa et al. (2020), on the other hand, found a detrimental impact of gender diversity in the presence of family ownership in Asian countries. The influence of female directors on firm performance in family businesses is an important topic of research that this study aims to investigate. Overall, this research addresses two critical research questions. Does the presence of family owners in PSX-listed companies promote business performance? Second, does the presence of female directors on boards of family-owned enterprises attenuate this link and enhance company performance?

Our research contributes to the family literature by examining the impact of family-controlled enterprises on company performance in an emerging market environment. In two ways, our study addresses the research gap noted by Martínez-García et al. (2021). First, in keeping with the author’s approach to investigating the impact of corporate governance on this connection, we examined the moderating behaviour of gender diversity on corporate boards, an important governance device for reducing agency conflict. Second, the authors solely utilized the businesses’ industry-adjusted market-to-book ratio to estimate company performance. This research, however, employed three measures of business performance in accordance with the author’s guidelines for alternative measures of firm performance: Tobin’s Q (TOBIN_Q), Return on assets (ROA), and Basic earning price ratio (BEPR). While the stock-based measure (TOBIN_Q) reflects shareholders’ expectations of the firm’s performance and is less susceptible to management manipulation, the accounting-based measures (ROA and BEPR) show the company’s profitability and provide an accurate picture of management’s performance (Hutchinson & Gul, 2004). We also respond to Armitage et al. (2017)‘s research call by investigating the relationship between family companies and company performance in the setting of a developing economy. To analyse agency conflict in business enterprises, we use agency theory and also apply the lens of stewardship theory to the idea that family owners show steward conduct as a consequence of socio-emotional ties and strong attachments, which leads to improved company performance.

The investigation of this relationship in Pakistan is critical for the following reasons. First, Pakistan is an intriguing research site for this study because of its weak investor rules and less strict corporate governance procedures (Mirza et al., 2012). Furthermore, like in other emerging and developing economies, the majority of PSX-listed enterprises are owned and managed by families (Yasser & Mamun, 2017). According to Armitage et al. (2017), family ownership and dominating corporate groupings in developing economies make these nations an excellent study site for researching agency conflict. While existing research shows varied impacts of family owners’ presence and control on business performance and minority shareholder protection, examining this link in the context of Pakistan would have crucial consequences for investors considering investing in this area. Second, Pakistani culture varies greatly from Western culture in terms of female inheritance difficulties and other social factors such as educational and professional chances for the female gender. Although inheritance rules allow for the transfer of a dead person’s assets to females based on property inheritance rights, male family members are sometimes hesitant to transfer ownership rights to female family members. As a result, attaining the firm’s directorship by inheritance is difficult for females in family businesses. Third, Pakistan’s male-dominated culture prevents females from obtaining formal and professional education, lowering their prospects of ascending the corporate ladder and reaching the highest echelons. In such conditions, the efforts of female directors in obtaining professional education and their effect on the firm’s strategic conduct while serving on the boards of publicly traded companies is an essential topic addressed by this research. Finally, in accordance with worldwide initiatives to increase the number of female directors on corporate boards, the CCG 2017 mandated the appointment of female directors to corporate boards of publicly traded companies. The economic advantages of female representation on corporate boards, as well as their role in preserving shareholders’ rights, are critical issues that must be addressed.

This work adds to the literature in the following ways. To begin, we contribute to the current discussion on ownership concentration in the form of family ownership and its impact on company performance in an emerging economy setting. In this setting, our research offers empirical evidence by investigating this link in Pakistan, which varies greatly from other developing countries owing to various social, cultural, and economic characteristics. Pakistan’s social norms are characterised primarily by strong collectivism, with family honour acting as a cornerstone to many ethnic groups. Furthermore, the concentration of authority in the hands of a few notable family members or a single-family leader increases the likelihood that family companies will be seen as a long-term source of financial wealth for the whole family. Furthermore, Pakistan’s general society is male-dominated, with men enjoying superior and authoritative position. Females, on the other hand, are denied their rights and educational opportunities, stifling their advancement and professional development. Investigating family business practices and the effect of female directors on firm performance in the presence of family owners is an important field of study that needs to be investigated in such situations. Second, we compare a few recent studies that employed cross-sectional data (Wu, 2020) and a small sample size (Martínez-García et al., 2021; Purkayastha et al., 2019). This research employed a 12-year panel data collection, which provided additional variability, information, and efficiency. Overall, our results support family owners’ stewardship role and the favourable effect of gender-diverse boards in increasing company performance and safeguarding investors in our sample businesses.

The rest of the paper will proceed as follows. Section 2 provides theoretical context and hypothesis development. The research approach is discussed in Sect. 3. Section 4 presents and discusses the findings, while Sect. 5 concludes.

2 Theoretical background and hypotheses development

2.1 Family firms and firm performance

Family ownership, characterized by the amalgamation of control and ownership steered by a single family’s role in business direction, presents a distinct ownership structure. As mentioned by Zellweger et al. (2013), family-owned businesses prioritize non-financial objectives and the safeguarding of socio-emotional wealth. For many family owners, businesses are viewed as legacies to be bequeathed to future generations (Miller et al., 2022). This inherent focus frequently places family-driven agendas and objectives at the forefront. Historically, the realm of corporate governance has acknowledged the pivotal role of family ownership. The overarching influence family members exert over business operations has been a topic of investigation (Amin et al., 2023). Jensen and Meckling (1976)‘s agency theory delves into potential conflicts between shareholders and managers. It postulates that family ownership, a form of concentrated ownership, can mitigate such conflicts by restricting managerial self-interest. However, there exists a nuanced challenge: family members, in their quest for personal gains, might inadvertently sideline the interests of minor shareholders, creating a new type of conflict, highlighted as principal–principal conflict (Yasser & Mamun, 2017). On the flip side, Solarino and Boyd (2020) propose that for family businesses, reputation is paramount. As such, they often invest company resources in stakeholder well-being to garner societal recognition, potentially aligning mutual interests. Thus, from agency theory’s point of view, family ownership and control can either mitigate agency conflict through the intensive monitoring and alignment of interest with the minority group for protection of firm’s credibility or make the conflict worse by extracting private benefits by expropriating minority shareholders (Amin et al., 2022).

From Purkayastha et al. (2019)‘s point of view, family ownership results in reduced agency conflicts due to intense monitoring of management. However, the main issue lies in balancing between the monitoring and expropriation effect (Nashier & Gupta, 2020). On one side, a large controlling shareholder can effectively monitor the managers and minimize the free rider problem, thus reducing the probability of making business losses and improving the firm performance (monitoring hypotheses) (Altaf & Shah, 2018). But the counter-risk is them bypassing controls for personal gains, a move detrimental to overall performance (Hu & Izumida, 2008). Sacristán-Navarro et al. (2015) echoed this sentiment, pointing to the propensity of family owners to align decisions with family-centric objectives, occasionally overshadowing the needs of other shareholders. The pursuit of the family agenda and fulfilment of the family’s objectives may compel the family owners to tunnel the firm’s resources for the benefit of the family at the expense of minority shareholders, thus exacerbating the principal-principal conflict (Purkayastha et al., 2019). However, on the other side, Yoshikawa and Rasheed (2010) argued that for the sake of socio-emotional wealth and the firm’s reputation, the family owners’ interests may be aligned with the interests of minorities leading to lesser agency problems.

Similarly, from the stewardship theory’s perspective, the founding family members identify themselves closely with the firm and consider the firm’s health an extension of their well-being (Gomez-Mejia et al., 2003). In contrast, the agency theory considers managers opportunistic, self-serving, and lacking a sense of social responsibility. Conversely, the stewardship theory assumes an agent is a “steward whose behaviour is ordered such that pro-organizational, collectivistic behaviours have higher utility than individualistic, self-serving behaviours” (Donaldson, 1990). The theory posits that due to collectivistic behaviour, the manager seeks to achieve high profits, and maximize shareholder’s wealth through better firm performance thus reducing the agency conflict. In this context, the organizational and family identification of family owners leads to economic benefits and firm’s wealth maximization. Hence, the firm’s objectives precede the family’s interests resulting in the alignment of interest (Zellweger et al., 2013).

Empirical studies investigating the relationship between family ownership, control, and business performance present mixed results. While some studies, like Ciftci et al. (2019) and Galve-Górriz and Hernández-Trasobares (2015), highlights a positive influence, the others, including Kouki and Guizani (2015) and Li and Ryan (2022), suggest a negative relationship. Moreover, these findings oscillate across economic settings. Nguyen et al. (2015) observed positive effects in a developed economy, Singapore, whereas Murtinu (2015) documented contrary outcomes in Italy.

Zooming into Pakistan, the PSX listed firms are dominated by family firms (Yasser & Mamun, 2017). Family ownership, as Federo et al. (2020) contend, brings along socio-emotional wealth, longevity and control preservation to the firm. Further, the academic literature suggests that due to early socialization in business, the family owners possess rich business experience and knowledge that facilitate effective monitoring and provision of resources for the firm. The socio emotional consideration and firm’s legacy urge the family owners to take business decisions for the long-term continuity of the firm (Miller et al., 2022). Thus, we may assume better governance and management’s monitoring in family firms due to strong family identity. We therefore hypothesize that:

Hypothesis 1

Family firm control is associated with higher firm performance.

2.2 Moderating role of gender diversity

The corporate governance mechanisms significantly benefit from the board of directors as they play a crucial role in mitigating agency conflicts, as evidenced by various studies (Fan et al., 2019; Ruigrok et al., 2007). According to Stiles and Taylor (1993), “the board of directors has four main functions: to provide direction; executive management; accountability; and supervision”. The governance literature believes that the independent and diverse board provides more protection to shareholders through stringent monitoring of top management, thus making the board more effective by mitigating agency conflict (Li et al., 2015). Such boards, valuing their reputation and prestige, strive for transparency and resist undue pressures from management (Nadeem, 2020). Adams and Ferreira (2009) postulated, within the agency theory framework, that board diversity, particularly with the inclusion of female directors, bolsters its efficacy through greater autonomy and rigorous oversight. This, in turn, aligns the interests of managers and shareholders.

Similarly, study by Baixauli-Soler et al. (2016) indicates that female directors, due to their superior monitoring capabilities relative to their male peers, can effectively check any misuse of power by family owners. As such, a gender-diverse board stands as a safeguard against the whims of family owners, ensuring the rights of minority shareholders (Ararat et al., 2015). Multiple empirical studies, including those by Ain et al. (2020) and Amin et al. (2022), emphasize the integral role a gender-diverse board plays in refining corporate governance mechanisms to serve both shareholders and managers’ interests.

From the lens of agency theory, female directors enrich board discussions with diverse insights. Their innate empathetic and cooperative tendencies position them as exemplary leaders (Amin et al., 2021). Moreover, their qualities of independence, diligence, and responsibility (Li & Li, 2020) combined with their potential to eliminate systemic biases and widen social networks (Bass, 2019) make gender-diverse boards more effective. The effective monitoring of gender-diverse boards, therefore, mitigates agency conflict and increases shareholder confidence (Amin et al., 2021). Overall, these studies support that female directors’ presence on boards attracts economic benefits for the firm. Their presence reduces the agency conflict and increases shareholders’ protection.

According to Altaf and Shah (2018), an independent and effective board is imperative to facilitate the business’s strategic operations and curb the dominant owners’ undue influence to protect shareholders. Similarly, academic studies highlight the positive outcomes resulting from female representation on corporate boards in terms of enhanced control and decision-making (Ararat et al., 2015). However, the firm ownership structure provides a corporate environment where female directors are involved in decision-making. From the stewardship theory’s point of view, Berrone et al. (2012) noted that the interests of female directors are usually aligned with the interests of family owners. Therefore, the collectivistic behaviour of the family members and female directors may result in better firm performance.

Regarding family businesses, literature underscores the alignment of objectives between female directors and family owners. Martínez-García et al. (2023) observed a preference among family owners to appoint female directors from within their kin. Family literature highlights the inclusion of female directors in family firms, attributing this to familial ties. In the Australian context, appointments of female directors predominantly occur based on family connections (Sheridan & Milgate, 2005). Similarly, Nekhili and Gatfaoui (2013) mentioned that social ties in appointing female directors are a positive signal to the public, and their placement on the board indicates women’s expertise. Poletti-Hughes and Martinez Garcia (2022) mentioned that female directors’ roles depend on their affiliation with family owners and the family’s objectives. The motivation among family businesses to preserve the socio-emotional wealth leads to the alignment of female directors’ objectives with the interests of the family owners and higher representation of female directors on boards.

Empirical evidence underscores the advantages of gender diversity in corporate performance. Carter et al. (2003) and Jurkus et al. (2011) revealed that boards with female representation effectively reduce agency conflicts in listed firms. Ain et al. (2020) noted reduced agency costs in Chinese listed firms in presence of female directors. Brahma et al. (2021) also reported a positive association between gender diversity and firm performance in FTSE 100 firms in the UK. The gender-diverse board, therefore, facilitate creativity within the group, provide diverse perspective and facilitate better decision-making. Saeed et al. (2021) articulated that family firms primarily induct female directors from their families, ensuring alignment with family owners’ interests. In this scenario, the interests of the female are aligned with the interests of the family owners. However, the literature exploring female directors in family firms presents varied outcomes. While some studies like Nadeem et al. (2020) highlight the positive impacts of gender-diverse boards on stakeholders’ value in family firms, others, such as Mustafa et al. (2020) and Sarkar and Selarka (2021), indicate the weakened role of women directors in family firms.

In conclusion, our contention is that female directors, within the context of family businesses, can mitigate agency conflicts and enhance company performance through their rigorous oversight, independence, and alignment with family owner interests. This leads us to hypothesize that:

Hypothesis 2

The relationship between family control and firm performance is stronger in firms with gender-diverse boards.

3 Methodology

3.1 Sample

We collected information from different sections of published annual reports that are accessible on the PSX website in addition to information from the relevant business website to create the sample. There are 5952 observations in the initial sample, covering 2008–2019. Since almost all of the firms’ corporate governance data was only accessible from 2008 onwards, we regard 2008 as the starting year of the sample. The financial businesses were left out since they are subject to various constraints that have an impact on their financial features. Our final sample is panel data with 2062 firm-year observations after excluding the financial firms and those with inadequate information. The sample selection process and its industry-by-industry makeup are reported in Table 1.

Table 1 Sample composition
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3.2 Variable measurement

Based on our hypothesis, we used three proxies to measure the dependent variable, firm performance: Tobin’s Q (TOBIN_Q), Return on Assets (ROA), and Basic Earning Power ratio (BEPR). Consistent with previous studies (Adams & Ferreira, 2009; Nekhili et al., 2020), accounting- and stock-based firm performance measures were used to determine firm performance. The stock-based measure (TOBIN_Q) is less susceptible to managerial manipulation. However, the accounting-based indicators (ROA, BEPR) correctly represent the organization’s profitability and management’s performance (Hutchinson & Gul, 2004). According to Villalonga and Amit (2006), a block holder may take over a business with as little as 20% ownership. Therefore, we categorise a firm as a family-controlled business (FCF) if a family or an individual owns more than 20% of the shares and is the company’s major shareholder. Consequently, a dummy variable was developed that would indicate ‘1’ if the firm is family-controlled and ‘0’ otherwise.

One commonly used method to evaluate gender diversity is to look at the proportion of female directors on the board (Adams & Ferreira, 2009). Another method is to use a dummy variable, where ‘1’ means there is at least one female director and ‘0’ means there is none female director on boards. This study solely used the first method of measuring gender diversity, which is the proportion of female directors on the board (PFD_BD). Finally, to avoid the endogeneity problem that might lead to biased conclusions, the analysis included four variables to control for firm characteristics and three control variables to account for board characteristics (Nekhili et al., 2020). Table 2 displays the type, measurement, and symbol of each variable used in the study.

Table 2 Variable measurements
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3.3 Theoretical framework

3.3.1 Econometric model

Following the hypotheses, the basic regression model is developed as follows:

$$\sum_{{\text{x}}= \text{1} }^{3}{{\text{FP}}}_{\text{i,t}}\text{ } = {\alpha }_{\text{i,t}}\text{+}\,{\beta }_{\text{k}}{{\text{FCF}}}_{\text{i,t}}\text{+}\,{\beta }_{\text{l}}{\text{PFD\_BD}}_{\text{i,t}}+ \text{ } {\beta }_{\text{m}}{{\text{FCF}}}_{\text{i,t}}\text{*}{\text{PFD\_BD}}_{\text{i,t}}\text{+}\sum_{{\text{n}}= \text{1} }^{7}{\beta }_{\text{n}}{{\text{Controls}}}_{\text{i,t}}\text{+}\sum_{{\text{o}}= \text{1} }^{\text{r}}{\beta }_{\text{o}}{{\text{Industrydummy}}}_{\text{i,t}}\text{+}\sum_{{\text{p}}= \text{1} }^{\text{s}}{{\beta }_{\text{p}}{\text{yeardummy}}}_{\text{i,t}}\text{ } + {\varepsilon }_{\text{i,t}}$$
(1)

FP is the proxy for the dependent variable, firm performance, measured using TOBIN_Q, ROA and BEPR. α represents the model’s intercept, and i and t represent the firm i at time t. In addition, the study employed a dummy variable, FCF, to measure the family control. Gender diversity is measured using PFD_BD. FCF*PFD_BD is the interaction term to determine the moderating effect of gender diversity. Further, the model also includes as listed in Table 2. To control for the industry and year effect, industry and year dummies are included where r = 1,2,3….28 represents the number of industries in the sample firm, and s = 1,2,3…12 represents the number of years. ε is the error term. βk, βl, βm, βn, βo, and βp represent regression coefficients of the respective variables.

4 Results and discussion

4.1 Descriptive statistics

The descriptive statistics of the variables used in the study are depicted in Table 3. The table depicts that the mean of TOBIN_Q in the case of full-sample firms is 2.62. Similarly, the mean for the ROA and BEPR is 7.03% and 13.03%, respectively. The mean for FCF is 0.76, that reflects 76% of our sample firms are family owned and controlled. These stats are in line with the study of Armitage et al. (2017), that argued that firms owned and controlled by families mainly characterize emerging markets. The PFD_BD lies between 0% and 38%, which indicates that while some companies does not have any female on boards, the other have around 38% of the representation. Concerning control variables, the mean of BS is 8.01, the average PID_BD is 11.10%, and CEO_DUAL has a mean of 0.02. The mean value of Sales is 21.74; LEV is 21.10%; the average FAGE in our sample is 26 years; and the mean of FS is 22.87.

Table 3 Descriptive statistics
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4.2 Correlation matrix

The Pearson correlation analysis of all variables is presented in Table 4. In conformity with hypothesis, significant positive correlation between all measures of firm performance (TOBIN_Q, ROA, BEPR) and family ownership (FCF) was observed. The correlation was substantial with FCF at a 5% significance level in the case of TOBIN_Q and at a 10% significance in the case of ROA and BEPR. Similarly, we found a statistically significant positive correlation at a 1% significance level in the case of PFD_BD and all firm performance variables. Moreover, consistent with the prior literature, e.g., Sheikh et al. (2018) and Zaid et al. (2020), our firm performance measures were positively related to board size and negatively associated with CEO_DUAL.

Table 4 Correlation matrix
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According to Gujarati (2016) “multicollinearity is imminent if the correlation coefficient exceeds 0.8.” Our analysis shows that in all cases, the coefficient of correlation was below 0.8 which reveals absence of multicollinearity. Moreover, we further check this issue using VIF and found that in all cases our values do not exceed 0.5 (Caramanis & Spathis, 2006). This again confirmed that our sample does not suffer from this problem.

4.3 Generalized method of moments estimation

The generalised method of moments (GMM) estimation is regarded as the preferred method of hypothesis testing in the existing literature because the GMM model can account for the three major sources of endogeneity: simultaneity, dynamic endogeneity, and unobserved heterogeneity (Amin et al., 2023; Huang et al., 2023). Consequently, we utilised it for hypothesis testing. Table 5 displays the GMM estimations for gender diversity, family ownership, and firm performance.

Table 5 Generalized method of moments estimation-family controlled firms, gender diversity, and firm performance
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We contend that the presence of family owners enhances business performance because of efficient oversight and the family managers’ stewardship function (H1). Therefore, we anticipate that the two variables will have a positive connection. We discovered a substantial positive relationship between FCF and all firm performance metrics (TOBIN_Q: 0.291***; ROA: 0.237***; BEPR: 0.192***), which is consistent with our hypothesis. In every instance, the association was significant at the 1% significance level, proving our hypothesis. Not only are our findings statistically significant, but they also have economic importance. As an example, coefficient estimate for TOBIN_Q is 0.291***, meaning that a one standard deviation rise in FCF corresponds to a 5.22% (0.291 × 0.33/1.84) increase in TOBIN_Q in relation to the sample mean (mean of TOBIN_Q = 1.84; SD of FCF = 0.33).

We suggested, based on the monitoring hypothesis, that agency conflict is decreased in family enterprises, leading to higher firm performance, because of effective monitoring and less information asymmetry. Our findings provide theoretical backing for our hypothesis. Our findings empirically corroborate previous research (Ciftci et al., 2019; Galve-Górriz & Hernández-Trasobares, 2015), which discovered a beneficial effect of family ownership on business performance in both developed and developing nations. Interestingly, our results agree with those found in Western culture (e.g., Maury, 2006). The economic significance of our findings (5.22%) is larger than the outcomes (2.92% = 0.109** × 0.41/1.53; whilst the mean of TOBIN’s Q is 1.53 and the standard deviation of FCF is 0.41), as stated by Maury (2006) in the context of Western European firms.

We do a panel regression with PFD_BD acting as a moderator in the model in order to test our hypothesis H2. Table 5 presents the findings. Our hypothesis was that having women on the board would enhance the effect of family ownership on business performance and lessen principal-principal conflict because of improved independence and monitoring. We discovered a positive impact of PFD_BD in all situations of firm performance (TOBIN_Q: 0.187**; ROA: 0.191**; BEPR: 0.193**), which provided credence to our claim. In every instance, the findings were significant at the 5% significance level. Our findings theoretically validate the claims made by agency theory about the value of female directors in reducing agency problems because of their impartial and efficient oversight. In the instance of TOBIN_Q, the high significance level suggests that the existence of a diverse board is seen favourably by the shareholders. Our findings empirically align with those of Nadeem et al. (2020) and Ararat et al. (2015), who found that gender diversity in family businesses had a favourable impact in the UK and Turkey. The findings we got, for instance in the case of TOBIN_Q (3.35% = 0.187 × 0.33/1.84), do not, however, have an economic magnitude that is greater than the results (4.76% = 0.23 × 11.41/55.13) found by Nadeem et al. (2020) in the setting of UK family companies. Overall, our findings confirm the robustness of family companies in developing countries and are in line with the literature. Notably, the validity of our model is shown by the negligible p-values of the Hansen j test and the Arellano bond (AR) two test. The Arellano bond test shows that the model does not have second-order autocorrelation, whereas the Hansen j test verifies the validity of the instruments.

4.4 Additional analysis

To confirm the results obtained from the generalized method of moments estimation, the study further applied OLS analysis for hypotheses testing. According to Hassan and Marimuthu (2016) “the panel data set is expected to produce regression results based on pooled, fixed, and random effects. However, by using diagnostics tests, researchers may have a choice for better selection between fixed and random effect methods.” Consistently, to check for the appropriateness of the fixed effect method or random effect method, the Hausman test (Hausman, 1978) was applied. The null hypothesis of the Hausman test suggests that the random effect model is appropriate, whereas, in case of rejection of the null hypothesis, the fixed effect model is preferred. As reported in Table 6, in all the cases, the p-value of the Hausman test was significant at 1% and 5% levels of significance. Hence, we rejected the null hypothesis of the random effect model’s appropriateness and used the fixed effect model. Consistent with our prior findings, positive association between FCF and all measures of firm performance (TOBIN_Q: 0.268**; ROA: 0.219*; BEPR: 0.231**) was observed. Similarly, in line with our expectations, significant positive association between the interaction term FCF*PFD_BD (TOBIN_Q: 0.293**; ROA: 0.281*; BEPR: 0.263*) was evident.

Table 6 OLS regression results-family controlled firms, gender diversity and firm performance
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Although the results obtained through OLS analysis and GMM estimations provide conformance for our hypotheses H1 and H2, consistent with Sacristán-Navarro et al. (2015), we further confirmed our results using industry-adjusted firm performance measures. The findings reported in Table 7 show additional support for our hypotheses H1 and H2.

Table 7 OLS regression results-family controlled firms, gender diversity and firm performance (industry adjusted)
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Finally, to establish the influence of gender diversity on performance of the firm, we conducted a difference-in-difference analysis (DID) to confirm whether the introduction of gender quotas resulted in significant change before and after adding female directors to boards. Accordingly, we conduct the DID estimation using the following model:

$${\text{Firm performance}}_{\text{i,t}}\text{ } = {\alpha }_{\text{i,t}}\text{+}{\beta }_{1}{\text{TREAT*POST}}_{\text{i,t}}\text{+}{\beta }_{2}{{\text{FCF}}}_{\text{i,t}}+ \text{ } \sum_{{\text{n}}= \text{1} }^{7}{\beta }_{\text{n}}{{\text{Controls}}}_{\text{i,t}}+ \text{ } \sum_{{\text{o}}= \text{1} }^{\text{r}}{\beta }_{\text{o}}{\text{Firm fixed effects}}_{\text{i,t}}+\sum_{p=1}^{s}{{\beta }_{p}\text{Year fixed effects}}_{i,t}+{\upvarepsilon }_{i,t}$$
(2)

TREAT and POST are the dummy variables created to capture the difference before and after the promulgation of CCG 2017. Therefore, TREAT represents ‘1’ if the firm experiences an addition in female directors and ‘0’ otherwise. In contrast, POST is a dummy variable that indicates the post-event years and equals ‘1’ if the year is post-2017 and ‘0’ otherwise. Following Huang et al. (2023), we also include firm fixed effects to control for time-invariant company-specific features and year-fixed effects to control for potential changes due to the macroeconomic environments of each year; thus, TREAT and POST are absorbed. The positive and statistically significant coefficient estimates of the interaction term ‘TREAT*POST’, reported in Table 8, indicate that the performance of the treatment firms significantly increased following the implementation of the gender quota. These results confirm that female directors’ presence significantly affects firm performance.

Table 8 Difference-in-difference analysis
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We further employed Blau index (Blau, 1977) and Shannon index (Shannon, 1948) to check the robustness of our results. The results reported in Table 9 aligned with those obtained through OLS regression, confirming our earlier results.

Table 9 Blau and Shannon index
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5 Summary and conclusions

The research investigates the influence of family firm control on firm performance and explores how gender diversity can moderate this relationship. This study aims to make several significant contributions to the existing body of knowledge. Firstly, it extends the family business literature by emphasizing the positive impact of family-owned firms on firm performance within an emerging economy, drawing upon agency theory and stewardship theory frameworks. This research underscores the absence of conflicts among principals within our sample firms and confirms the responsible stewardship behavior of family owners in these enterprises. Secondly, unlike previous studies that relied on cross-sectional data or smaller sample sizes, this study employs panel data spanning 12 years, allowing for a more comprehensive analysis of variation and information. Thirdly, it expands upon prior research by examining how gender diversity, measured through three performance proxies, moderates the family firm-control and firm performance relationship, addressing the Martínez-García et al. (2021)’s call for research in emerging economies. Finally, it advocates for the appointment of female directors on corporate boards, aligning with the reforms introduced in 2017 by the Corporate Governance Code (CCG 2017). This study highlights the economic benefits of having female directors on corporate boards in the context of family-owned firms.

In summary, this research finds that the presence of family owners is linked to improved firm performance, and the inclusion of female directors on the board enhances this association. In line with hypothesis H1, grounded in agency theory and stewardship theory, the study argues that the presence of family owners reduces principal-agent conflict and encourages steward behavior, ultimately leading to enhanced firm performance due to robust monitoring, firm commitment, and reduced information asymmetry. Empirical findings support this argument, aligning with previous research in this context. Similarly, hypothesis H2 posits that the presence of female directors on the board positively moderates the relationship and improves firm performance through effective monitoring and supervision. Again, empirical evidence supports this hypothesis, consistent with prior studies emphasizing the positive impact of gender diversity in family-owned firms.

This research offers several theoretical contributions. Firstly, it adds to the growing family business literature by highlighting the positive role of family ownership in emerging markets, where weak regulatory frameworks and dominant family businesses are common. The study demonstrates the absence of agency conflicts and highlights the superior performance of family-owned and controlled firms in this context. Secondly, it contributes to the gender diversity literature by emphasizing the positive impact of female directors in family-owned firms. These results align with previous studies highlighting the economic advantages of female directors and their positive influence on firm outcomes. Finally, the research enriches existing literature by providing empirical support for both agency theory and stewardship theory in an emerging market context.

This study holds important implications for investors and policymakers. Firstly, in Pakistan, an emerging economy reliant on local and foreign investments, maintaining shareholders’ confidence is crucial for economic stability. The research assures investors by highlighting the positive influence of family owners on firm performance and the absence of principal-principal conflicts in sample firms. It suggests that in an emerging economy characterized by weak regulations and institutional gaps, family owners serve as an effective governance mechanism for shareholders. Additionally, family owners can address information asymmetry and transparency issues prevalent in such contexts. Secondly, the study supports the global trend of advocating for gender-diverse boards, especially in the context of emerging markets. The empirical evidence underscores the benefits of gender diversity in improving decision-making, monitoring, and overall firm performance, signaling enhanced protection of shareholders’ rights and wealth. Policymakers are urged to promote gender diversity on corporate boards and provide a supportive environment for female career development through fair corporate practices and professional training programs.

However, this study has its limitations, suggesting potential directions for future research. Firstly, it does not consider the post-pandemic period, which may have influenced the behavior of family firms. Future research could explore how family firms have adapted during and after the COVID-19 pandemic. Secondly, the study focuses solely on family ownership; examining other ownership patterns like lone founder, state ownership, institutional ownership, and foreign ownership could be a promising avenue for future research. Lastly, while the research examines gender diversity, future studies could explore the moderating impact of other board diversity aspects, such as age, qualifications, tenure, and ethnicity.