Despite theoretical debates suggesting that family ownership stakes have a significant impact on the financial performance of family-owned small and medium-sized enterprises (SMEs), prior research has been relatively lacking in examining why and when family ownership stakes drive performance. Based on stewardship theory and agency theory, this study tests the effect of family ownership stakes on the financial performance of family SMEs and verifies that internationalization mediates the relationship between these two variables. Additionally, the moderating effect of institutional investor ownership on the relationship between family ownership stakes and internationalization was tested. Finally, a moderated mediation model was tested to examine whether the degree of institutional investor ownership moderates the strength of the indirect effect of family ownership stakes on financial performance as mediated by internationalization. To this end, this study conducted an empirical analysis on 232 family SMEs listed on the Korea Stock Exchange from 2003 to 2013. The results revealed that family ownership stakes improve the financial performance of family SMEs, and that internationalization partially mediates the relationship between family ownership stakes and financial performance. Furthermore, institutional investor ownership was found to moderate the relationship between family ownership stakes and internationalization, and an integrated test of the moderation and mediation effects demonstrated that the degree of institutional investor ownership moderates the relationships among family ownership stakes, internationalization, and financial performance. Based on the findings, academic and practical contributions, limitations, and directions for future research were presented.