IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v153y2022icp285-299.html
   My bibliography  Save this article

Type I and type II agency conflicts in family firms: An empirical investigation

Author

Listed:
  • Purkayastha, Saptarshi
  • Veliyath, Rajaram
  • George, Rejie

Abstract

Dominant family control reduces Type I agency conflicts because of monitoring efficiencies, while increasing Type II agency conflicts because of the family’s voting power. Additionally, Type II agency conflicts could be exacerbated if the family agents managed the firm solely for the family’s benefit. The two different types of agency conflicts were examined in a sample of 499 public Indian family businesses during the years 2006 to 2015. Family-controlled and non-family-managed firms appeared to be optimally configured to minimize both types of agency conflicts. The absence of management control appeared to alleviate some of the dissipative agency conflict effects of dominant family ownership.

Suggested Citation

  • Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2022. "Type I and type II agency conflicts in family firms: An empirical investigation," Journal of Business Research, Elsevier, vol. 153(C), pages 285-299.
  • Handle: RePEc:eee:jbrese:v:153:y:2022:i:c:p:285-299
    DOI: 10.1016/j.jbusres.2022.07.054
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296322006634
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jbusres.2022.07.054?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    2. Ravi Dharwadkar & Maria Goranova & Pamela Brandes & Raihan Khan, 2008. "Institutional Ownership and Monitoring Effectiveness: It's Not Just How Much but What Else You Own," Organization Science, INFORMS, vol. 19(3), pages 419-440, June.
    3. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
    4. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
    5. Ronald J. Gilson & Alan Schwartz, 2013. "Constraints on Private Benefits of Control: Ex Ante Control Mechanisms versus Ex Post Transaction Review," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(1), pages 160-183, March.
    6. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    7. Cronqvist, Henrik & Nilsson, Mattias, 2003. "Agency Costs of Controlling Minority Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(4), pages 695-719, December.
    8. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
    9. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    10. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    12. Clifford G. Holderness, 2003. "A survey of blockholders and corporate control," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 51-64.
    13. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    14. Michael Carney & Patricio Duran & Marc van Essen & Daniel Shapiro, 2017. "Family firms, internationalization, and national competitiveness : Does family firm prevalence matter?," Post-Print hal-02312023, HAL.
    15. Kim, Y. & Gao, F.Y., 2013. "Does family involvement increase business performance? Family-longevity goals’ moderating role in Chinese family firms," Journal of Business Research, Elsevier, vol. 66(2), pages 265-274.
    16. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    17. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
    18. Barclay, Michael J & Holderness, Clifford G, 1991. "Negotiated Block Trades and Corporate Control," Journal of Finance, American Finance Association, vol. 46(3), pages 861-878, July.
    19. Jess H. Chua & James J. Chrisman & Erich B. Bergiel, 2009. "An Agency Theoretic Analysis of the Professionalized Family Firm," Entrepreneurship Theory and Practice, , vol. 33(2), pages 355-372, March.
    20. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    21. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. "Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-1438, September.
    22. Danny Miller & Isabelle Le Breton‐Miller & Barry Scholnick, 2008. "Stewardship vs. Stagnation: An Empirical Comparison of Small Family and Non‐Family Businesses," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 51-78, January.
    23. Carney, Michael & Duran, Patricio & van Essen, Marc & Shapiro, Daniel, 2017. "Family firms, internationalization, and national competitiveness: Does family firm prevalence matter?," Journal of Family Business Strategy, Elsevier, vol. 8(3), pages 123-136.
    24. 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.
    25. Shivaram Rajgopal & Terry Shevlin & Valentina Zamora, 2006. "CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts," Journal of Finance, American Finance Association, vol. 61(4), pages 1813-1844, August.
    26. Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2019. "The roles of family ownership and family management in the governance of agency conflicts," Journal of Business Research, Elsevier, vol. 98(C), pages 50-64.
    27. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    28. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    29. repec:bla:jfinan:v:59:y:2004:i:2:p:537-600 is not listed on IDEAS
    30. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    31. Chrisman, James J. & Chua, Jess H. & Kellermanns, Franz W. & Chang, Erick P.C., 2007. "Are family managers agents or stewards? An exploratory study in privately held family firms," Journal of Business Research, Elsevier, vol. 60(10), pages 1030-1038, October.
    32. Barclay, Michael J. & Holderness, Clifford G. & Pontiff, Jeffrey, 1993. "Private benefits from block ownership and discounts on closed-end funds," Journal of Financial Economics, Elsevier, vol. 33(3), pages 263-291, June.
    33. James J. Cordeiro & Rajaram Veliyath & Jane B. Romal, 2007. "Moderators of the Relationship Between Director Stock‐Based Compensation and Firm Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1384-1393, November.
    34. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, February.
    35. Sea-Jin Chang & Jungwook Shim, 2015. "When does transitioning from family to professional management improve firm performance?," Strategic Management Journal, Wiley Blackwell, vol. 36(9), pages 1297-1316, September.
    36. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    37. Michael N. Young & Mike W. Peng & David Ahlstrom & Garry D. Bruton & Yi Jiang, 2008. "Corporate Governance in Emerging Economies: A Review of the Principal–Principal Perspective," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 196-220, January.
    38. Chen, Kevin C. W. & Chen, Zhihong & Wei, K. C. John, 2011. "Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(1), pages 171-207, February.
    39. repec:bla:jfinan:v:58:y:2003:i:3:p:1301-1327 is not listed on IDEAS
    40. Brian K. Boyd, 1995. "CEO duality and firm performance: A contingency model," Strategic Management Journal, Wiley Blackwell, vol. 16(4), pages 301-312.
    41. Attig, Najah & Guedhami, Omrane & Mishra, Dev, 2008. "Multiple large shareholders, control contests, and implied cost of equity," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 721-737, December.
    42. Ramaswamy, Kannan & Purkayastha, Saptarshi & Petitt, Barbara S., 2017. "How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups?," Journal of Business Research, Elsevier, vol. 72(C), pages 1-13.
    43. 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.
    44. Jarrad Harford & Dirk Jenter & Kai Li, 2007. "Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions," NBER Working Papers 13274, National Bureau of Economic Research, Inc.
    45. Singh, Manohar & Davidson III, Wallace N., 2003. "Agency costs, ownership structure and corporate governance mechanisms," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 793-816, May.
    46. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    47. Kee‐Hong Bae & Jun‐Koo Kang & Jin‐Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
    48. Steve Sauerwald & J. (Hans) Van Oosterhout & Marc Van Essen, 2016. "Expressive Shareholder Democracy: A Multilevel Study of Shareholder Dissent in 15 Western European Countries," Journal of Management Studies, Wiley Blackwell, vol. 53(4), pages 520-551, June.
    49. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, June.
    50. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
    51. Igor Filatotchev & Mike Wright, 2011. "Agency Perspectives on Corporate Governance of Multinational Enterprises," Journal of Management Studies, Wiley Blackwell, vol. 48(2), pages 471-486, March.
    52. George P. Baker & Brian J. Hall, 2004. "CEO Incentives and Firm Size," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 767-798, October.
    53. Villalonga, Belen, 2004. "Intangible resources, Tobin's q, and sustainability of performance differences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 205-230, June.
    54. Christopher S. Tuggle & David G. Sirmon & Christopher R. Reutzel & Leonard Bierman, 2010. "Commanding board of director attention: investigating how organizational performance and CEO duality affect board members' attention to monitoring," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 946-968, September.
    55. Liu, Yu & Miletkov, Mihail K. & Wei, Zuobao & Yang, Tina, 2015. "Board independence and firm performance in China," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 223-244.
    56. Ronald W. Masulis & Cong Wang & Fei Xie, 2009. "Agency Problems at Dual‐Class Companies," Journal of Finance, American Finance Association, vol. 64(4), pages 1697-1727, August.
    57. Helen Kang & Mandy Cheng & Sidney J. Gray, 2007. "Corporate Governance and Board Composition: diversity and independence of Australian boards," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 194-207, March.
    58. Lefort, Fernando & Urzúa, Francisco, 2008. "Board independence, firm performance and ownership concentration: Evidence from Chile," Journal of Business Research, Elsevier, vol. 61(6), pages 615-622, June.
    59. Marc van Essen & J. (Hans) van Oosterhout & Pursey P. M. A. R. Heugens, 2013. "Competition and Cooperation in Corporate Governance: The Effects of Labor Institutions on Blockholder Effectiveness in 23 European Countries," Organization Science, INFORMS, vol. 24(2), pages 530-551, April.
    60. Sathyajit R Gubbi & Preet S Aulakh & Sougata Ray & M B Sarkar & Raveendra Chittoor, 2010. "Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(3), pages 397-418, April.
    61. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    62. Robert A. Baron & Michael D. Ensley, 2006. "Opportunity Recognition as the Detection of Meaningful Patterns: Evidence from Comparisons of Novice and Experienced Entrepreneurs," Management Science, INFORMS, vol. 52(9), pages 1331-1344, September.
    63. Belén Villalonga & Raphael Amit, 2010. "Family Control of Firms and Industries," Financial Management, Financial Management Association International, vol. 39(3), pages 863-904, September.
    64. Damian Ward & Igor Filatotchev, 2010. "Principal-principal-agency relationships and the role of external governance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 249-261.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shao, Yanmin & Xu, Kunliang & Shan, Yuan George, 2024. "Leveraging corporate digitalization for green technology innovation: The mediating role of resource endowments," Technovation, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2019. "The roles of family ownership and family management in the governance of agency conflicts," Journal of Business Research, Elsevier, vol. 98(C), pages 50-64.
    2. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, October.
    3. Zeineb Barka & Taher Hamza, 2020. "The effect of large controlling shareholders on equity prices in France: monitoring or entrenchment?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 769-798, September.
    4. Connelly, J. Thomas & Limpaphayom, Piman & Nagarajan, Nandu J., 2012. "Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1722-1743.
    5. Ujjayini Roy & Indrani Chakraborty, 2023. "Market concentration, agency cost and firm performance: a case study on Indian corporate firms," Economic Change and Restructuring, Springer, vol. 56(4), pages 2645-2693, August.
    6. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, October.
    7. Agarwal, Anushka & Chaudhry, Neeru, 2022. "Foreign controlling shareholders and corporate investment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    8. Christian Engelen, 2015. "The effects of managerial discretion on moral hazard related behaviour: German evidence on agency costs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(4), pages 927-960, November.
    9. Thomas Keil & Markku Maula & Evangelos Syrigos, 2017. "CEO Entrepreneurial Orientation, Entrenchment, and Firm Value Creation," Entrepreneurship Theory and Practice, , vol. 41(4), pages 475-504, July.
    10. Victor Chen & Jing Li & Daniel Shapiro, 2011. "Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 115-138, March.
    11. Chaiyasit Anuchitworawong, 2010. "The Value of Principles-Based Governance Practices and the Attenuation of Information Asymmetry," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(2), pages 171-207, June.
    12. Jean-Jacques Hamon, 2001. "La répartition des droits de vote, leur exercice et l’efficacité économique," Revue d'Économie Financière, Programme National Persée, vol. 63(3), pages 175-209.
    13. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
    14. repec:dau:papers:123456789/5922 is not listed on IDEAS
    15. Chourou, Lamia & Hossain, Ashrafee T. & Kryzanowski, Lawrence, 2019. "Dual-class firms, M&As and SOX," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 176-187.
    16. repec:dau:papers:123456789/9321 is not listed on IDEAS
    17. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Sorin Rizeanu, 2013. "The governance role of multiple large shareholders: evidence from the valuation of cash holdings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 419-451, May.
    18. Esra Memili & Kaustav Misra, 2015. "Corporate Governance Provisions, Family Involvement, and Firm Performance in Publicly Traded Family Firms," IJFS, MDPI, vol. 3(3), pages 1-36, July.
    19. Thraya, Mohamed Firas & Hamza, Taher, 2019. "Bidder excess control, target overpayment and control contestability: Evidence from France," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 178-190.
    20. Moore, Jared A. & Suh, SangHyun & Werner, Edward M., 2017. "Dual entrenchment and tax management: Classified boards and family firms," Journal of Business Research, Elsevier, vol. 79(C), pages 161-172.
    21. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    22. El Ghoul, Sadok & Guedhami, Omrane & Wang, He & Kwok, Chuck C.Y., 2016. "Family control and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 131-146.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:153:y:2022:i:c:p:285-299. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.