The Relationship between Family Firms and Corporate Governance

Simon Bartholomeusz and George A. Tanewski

Journal of Small Business Management, 2006, vol. 44, issue 2, 245-267

Abstract: This paper contributes to the agency theory literature by identifying relations between family control and corporate governance structure. Emerging literature supports the notion that family control creates strong incentives that have potentially competing influences on the manner in, and extent to, which internal corporate governance mechanisms are utilized. A sample of 100 listed companies (evenly divided between family and nonfamily firms) is used to test the hypotheses that corporate governance structures are different between family and nonfamily firms; and that family firms adopt optimal corporate governance structures. This research finds evidence that suggests that family firms utilize substantially different corporate governance structures from nonfamily firms and that these differences lead to performance differentials. Indeed, results suggest that family control creates, rather than negates, agency costs and future research may be well rewarded by pursuing this latter notion further.

Date: 2006
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DOI: 10.1111/j.1540-627X.2006.00166.x

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