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Owner as Manager, Extended Horizons and the Family Firm

Harvey James ()

International Journal of the Economics of Business, 1999, vol. 6, issue 1, 41-55

Abstract: Previous work on firm ownership structure suggests that organizations in which ownership and control are combined may be undervalued relative to the market investment rule because decision makers have an incentive to forgo investment projects that managers in firms with specialized ownership find profitable. However, the specialization of ownership and decision-making functions may result in substantial agency costs. This paper shows that these tradeoffs may not exist in family firms. The extended horizons characteristic of family businesses may provide the necessary incentives for decision makers to invest according to the market rule while limiting agency costs that arise when ownership and control are separated. Family ties, loyalty, insurance, and stability are expected to be effective in lengthening the horizons of managers and in providing the incentives for family managers to make efficient investments in the family business.

Keywords: Family Firms; Governance; Extended Horizons; Managerial Decisionmaking (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1080/13571519984304

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