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Governance of Family Firms

Author

Listed:
  • Alexander Guzmán

    (CESA School of Business, Bogotá 110311, Colombia)

  • Belén Villalonga

    (Stern School of Business, New York University, New York, NY 10012)

  • María-Andrea Trujillo

    (CESA School of Business, Bogotá 110311, Colombia)

  • Raphael Amit

    (Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

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

  • Alexander Guzmán & Belén Villalonga & María-Andrea Trujillo & Raphael Amit, 2015. "Governance of Family Firms," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 635-654, December.
    • Handle: RePEc:anr:refeco:v:7:y:2015:p:635-654
    DOI: 10.1146/annurev-financial-110613-034357
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    More about this item

    Keywords

    agency theory; control; corporate governance; family firms; minority shareholders;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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