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Markets, Hierarchies, and Families: Toward a Transaction Cost Theory of the Family Firm

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  • Eric Gedajlovic
  • Michael Carney

Abstract

Why do family businesses exist? What factors explain their versatility, limitations, and success within and across different industrial and geographic contexts? We develop a transaction cost framework that addresses these questions. In doing so, we identify a class of assets we term generic nontradeables (GNTs), that are firm specific, but generic in application . While many types of firms may possess such assets, we reason that family firm governance provides relative advantages in developing, sustaining, and appropriating value from GNTs through combinations with other types of assets. We propose that these advantages, as well as some concomitant disadvantages, explain the versatility, limitations, and success of family business enterprise.

Suggested Citation

  • Eric Gedajlovic & Michael Carney, 2010. "Markets, Hierarchies, and Families: Toward a Transaction Cost Theory of the Family Firm," Entrepreneurship Theory and Practice, , vol. 34(6), pages 1145-1172, November.
    • Handle: RePEc:sae:entthe:v:34:y:2010:i:6:p:1145-1172
    DOI: 10.1111/j.1540-6520.2010.00418.x
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