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Family ownership, altruism and agency costs in Australian small- and medium-sized enterprises

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  • Dong Xiang
  • Andrew C. Worthington
  • Helen Higgs

Abstract

Given the continuing uncertainty about whether family firms enjoy lower agency costs, this article hypothesizes that a combination of the effects of family ownership, altruism and self-control is instead at play. To begin with, family ownership can indeed reduce agency costs through better aligning the interests of owners and managers. This is a 'determining' effect in that it independently mitigates one source of agency problems. However, altruism combined with self-control problems arising from the highly concentrated ownership often found in family firms can also increase agency costs. This is an 'embedding' effect as it is rooted in the personal relationships within the family firm. Using the Business Longitudinal Database compiled by the Australian Bureau of Statistics on small- and medium-sized enterprises (SMEs), we find that for larger SMEs (those with 20-200 employees), the gains in lower agency costs arising from family ownership are almost completely offset by the losses from altruism and the lack of self-control.

Suggested Citation

  • Dong Xiang & Andrew C. Worthington & Helen Higgs, 2014. "Family ownership, altruism and agency costs in Australian small- and medium-sized enterprises," Applied Economics, Taylor & Francis Journals, vol. 46(32), pages 3907-3921, November.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:32:p:3907-3921
    DOI: 10.1080/00036846.2014.946183
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    1. Wilson, Nicholas, 2018. "Altruism in preventive health behavior: At-scale evidence from the HIV/AIDS pandemic," Economics & Human Biology, Elsevier, vol. 30(C), pages 119-129.

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