Governance of Family Firms

Posted: 11 Dec 2015

See all articles by Belen Villalonga

Belen Villalonga

New York University (NYU) - Leonard N. Stern School of Business

Raphael ('Raffi") H. Amit

The Wharton School UPENN

Maria-Andrea Trujillo

CESA School of Business

Alexander Guzmán

CESA School of Business

Date Written: December 2015

Abstract

We review what the financial economics literature has to say about the unique ways in which the following three classic agency problems manifest themselves in family firms: (a) shareholders versus managers, (b) controlling (family) shareholders versus noncontrolling shareholders, and (c) shareholders versus creditors. We also call attention to a fourth agency problem that is unique to family firms: the conflict of interest between family shareholders and the family at large, which can be thought of as the “superprincipal” in a multi-tier agency structure akin to those found in other concentrated ownership structures in which the controlling owner is the state, a bank, a corporation, or other institutions. We then discuss the solutions or corporate governance mechanisms that have been devised to address these problems and what research has taught us about these mechanisms' effectiveness at solving these four conflicts in family firms.

Suggested Citation

Villalonga, Belen and Amit, Raphael H. and Trujillo, María-Andrea and Guzman, Alexander, Governance of Family Firms (December 2015). Annual Review of Financial Economics, Vol. 7, pp. 635-654, 2015, Available at SSRN: https://ssrn.com/abstract=2702333 or http://dx.doi.org/10.1146/annurev-financial-110613-034357

Belen Villalonga (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

40 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Raphael H. Amit

The Wharton School UPENN ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6370
United States
215 898 7731 (Phone)

María-Andrea Trujillo

CESA School of Business ( email )

Bogota
Colombia

Alexander Guzman

CESA School of Business ( email )

Bogota
Colombia

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