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Closely held family business agency costs between owners

Author

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  • Nirosha Hewa Wellalage
  • Stuart Locke

Abstract

This paper investigates the relationship between corporate governance mechanisms and principal-principal (PP) agency conflict in Sri Lankan listed family firms. In many countries, the family business sector is seen as a means of rejuvenating the economy and developing sustainable growth. A dynamic modelling framework, which controls for potential endogeneity, is used to investigate 120 family firms and 90 non-family firms from 2006 to 2014. Similar to prior studies, this study reflects deeply on the idea of PP agency conflict between majority and minority shareholders for family firms in emerging economies. This study employed four board characteristics and found large boards with non-executive directors and family leadership increase PP conflict in Sri Lankan listed family firms. Overall results indicate that traditional corporate governance mechanisms cannot mitigate PP agency conflict in family firms in emerging markets. There is strong evidence supporting a need for promulgating and streamlining of corporate laws, in emerging markets, to reduce the possibility of expropriation of minority shareholders by owners of politically powered family firms.

Suggested Citation

  • Nirosha Hewa Wellalage & Stuart Locke, 2016. "Closely held family business agency costs between owners," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 7(4), pages 287-305.
    • Handle: RePEc:ids:ijcgov:v:7:y:2016:i:4:p:287-305
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