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Owner as Manager, Extended Horizons and the Family Firm

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Author Info
HARVEY S. JAMES
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.

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Article provided by Taylor and Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 6 (1999)
Issue (Month): 1 (February)
Pages: 41-55
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Handle: RePEc:taf:ijecbs:v:6:y:1999:i:1:p:41-55

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Related research
Keywords: Family Firms Governance Extended Horizons Managerial Decisionmaking;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  2. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
  3. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
  4. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April. [Downloadable!] (restricted)
  5. Frisvold, George B., 1994. "Does supervision matter? Some hypothesis tests using Indian farm-level data," Journal of Development Economics, Elsevier, vol. 43(2), pages 217-238, April. [Downloadable!] (restricted)
  6. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August. [Downloadable!] (restricted)
  7. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-14, May. [Downloadable!] (restricted)
  8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  9. Lopez, Ramon E., 1984. "Estimating labor supply and production decisions of self-employed farm producers," European Economic Review, Elsevier, vol. 24(1), pages 61-82. [Downloadable!] (restricted)
  10. Ng, Yew-Kwang, 1974. "Utility and Profit Maximization by an Owner-Manager: Towards a General Analysis," Journal of Industrial Economics, Blackwell Publishing, vol. 23(2), pages 97-108, December. [Downloadable!] (restricted)
  11. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-59, October. [Downloadable!] (restricted)
  12. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December. [Downloadable!] (restricted)
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  13. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February. [Downloadable!] (restricted)
  14. Fama, Eugene F. & Jensen, Michael C., 1985. "Organizational forms and investment decisions," Journal of Financial Economics, Elsevier, vol. 14(1), pages 101-119, March. [Downloadable!] (restricted)
  15. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Boland, Michael & Pendell, Dustin, 2005. "Persistence of Profitability in Family-Owned Food Businesses," 2005 Annual meeting, July 24-27, Providence, RI 19216, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Harvey James, 2002. "On the Reliability of Trusting," Microeconomics 0202002, EconWPA. [Downloadable!]
  3. Anderson, Ronald W. & Hamadi, Malika, 2009. "Large powerful shareholders and cash holding," CEPR Discussion Papers 7291, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Sami Basly, 2006. "Propriete, Decision Et Strategie De L’Entreprise Familiale : Une Analyse Theorique," Post-Print halshs-00192818_v1, HAL. [Downloadable!]
  5. Ceja, Lucia & Tapies, Josep, 2009. "Attracting talent to family-owned businesses: The perceptions of MBA students," IESE Research Papers D/815, IESE Business School. [Downloadable!]
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