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Altruism, agency, and the competitiveness of family firms

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  • William S. Schulze

    (Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106-7235, USA)

  • Michael H. Lubatkin

    (Department of Management, School of Business Administration, University of Connecticut & EM Lyon, 2100 Hillside Road, Unit 2041 MG, Storrs, CT. 06269-2041, USA)

  • Richard N. Dino

    (Department of Management, School of Business Administration, University of Connecticut 2100 Hillside Road, Unit 2041 D, Storrs, CT 06269-2041, USA)

Abstract

The core belief among agency theorists is that when a firm is both owned and managed by family members, its governance structure is efficient. We argue that this belief over-simplifies the complexity of exchanges that occur among the family firm's decision agents, and does not conform to reality. We develop an alternative agency view of family firm governance that accounts for agency problems that are understated in extant agency models. These problems are rooted in the firm's ownership structure, as well as the altruistic relationships that exist between the firm's decision agents. We conclude with four propositions that address the competitive implications of this alternative view. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • William S. Schulze & Michael H. Lubatkin & Richard N. Dino, 2002. "Altruism, agency, and the competitiveness of family firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 247-259.
  • Handle: RePEc:wly:mgtdec:v:23:y:2002:i:4-5:p:247-259
    DOI: 10.1002/mde.1064
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    References listed on IDEAS

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    1. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-1351, December.
    2. 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.
    3. Arrow, Kenneth J, 1974. "Limited Knowledge and Economic Analysis," American Economic Review, American Economic Association, vol. 64(1), pages 1-10, March.
    4. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April.
    5. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
    6. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    7. Stark, Oded, 1989. "Altruism and the Quality of Life," American Economic Review, American Economic Association, vol. 79(2), pages 86-90, May.
    8. Stark, Oded & Falk, Ita, 1998. "Transfers, Empathy Formation, and Reverse Transfers," American Economic Review, American Economic Association, vol. 88(2), pages 271-276, May.
    9. 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.
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