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Governance structure and performance of private family firms

Tarun Mukherjee (), Vighneshwara Swami () and Wei Wang ()
Additional contact information
Tarun Mukherjee: University of New Orleans
Vighneshwara Swami: IBS Business School
Wei Wang: Cleveland State University

Journal of Economics and Finance, 2019, vol. 43, issue 4, No 4, 713-734

Abstract: Abstract A debate exists on the issue of whether a governance system is value additive or even necessary for a privately-held firm. One side of the debate suggests that, since agency problems do not exist in a small private firm, it does not need a costly governance system. The other side argues that a private firm indeed faces agency costs in the form of altruism and, therefore, could extract net gains from a governance system. In this paper, we empirically investigate whether a good governance system crates or destroys value of private family firms. We first demonstrate that a multifamily firm encounters larger agency costs stemming from inter-family conflicts, and therefore, has larger incentive than a single-family firm to institute a superior governance system. We then show that a multifamily firm, owing to its better governance system, outperforms its single-family counterpart.

Keywords: Family firms; Ownership structure; Financial performance; Governance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 L25 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12197-018-9466-6

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