IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/17886.html
   My bibliography  Save this paper

Family Capitalism Corporate Governance Theory

Author

Listed:
  • Jellal, Mohamed

Abstract

Family firms, which are prevalent around the world both for small organizations and large corporations, are usually more performant than other types of firms. This paper draws on altruism and on the theory of incentives contracting to explain why family firms perform better. Assuming that altruism only exists in family firms, we show that the strength of family ties has an impact on the optimal contract only under asymmetric information. Then, we extend the analysis to the principal-agent supervisor setting and prove that the recruitment of family members may be seen as a device against collusion within a three-tier hierarchy.

Suggested Citation

  • Jellal, Mohamed, 2009. "Family Capitalism Corporate Governance Theory," MPRA Paper 17886, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17886
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/17886/1/MPRA_paper_17886.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-1093, Nov.-Dec..
    2. Chami, Ralph & Fullenkamp, Connel, 2002. "Trust and efficiency," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1785-1809, September.
    3. repec:bla:econom:v:65:y:1998:i:260:p:557-80 is not listed on IDEAS
    4. McConaughy, Daniel L. & Walker, Michael C. & Henderson, Glenn Jr. & Mishra, Chandra S., 1998. "Founding family controlled firms: Efficiency and value," Review of Financial Economics, Elsevier, vol. 7(1), pages 1-19.
    5. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-338, May.
    6. Wolff, Francois-Charles & Laferrere, Anne, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 13, pages 889-969, Elsevier.
    7. Ernesto Villanueva, 2001. "Parental altruism under imperfect information: Theory and evidence," Economics Working Papers 566, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
    8. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
    9. H. Cremer & P. Pestieau, 1998. "Delaying Inter Vivos Transmissions Under Asymmetric Information," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 322-330, October.
    10. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    11. Dunn, Thomas A. & Phillips, John W., 1997. "The timing and division of parental transfers to children," Economics Letters, Elsevier, vol. 54(2), pages 135-137, February.
    12. Behrman, Jere R. & Pollak, Robert A. & Taubman, Paul, 1995. "From Parent to Child," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226041568, December.
    13. 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, Third Edition, pages 257-298, National Bureau of Economic Research, Inc.
    14. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
    15. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    16. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-1166, December.
    17. Enrico Santarelli & Francesca Lotti, 2005. "The Survival of Family Firms: The Importance of Control and Family Ties," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(2), pages 183-192.
    18. Chami, Ralph, 1996. "King Lear's dilemma: Precommitment versus the last word," Economics Letters, Elsevier, vol. 52(2), pages 171-176, August.
    19. Bhattacharya, Utpal & Ravikumar, B, 1997. "From Cronies to Professionals: The Evolution of Family Firms," MPRA Paper 22939, University Library of Munich, Germany, revised Jan 2004.
    20. H. Cremer & P. Pestieau, 1998. "Delaying Inter Vivos Transmissions Under Asymmetric Information," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 322-330, October.
    21. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
    22. Kathleen McGarry & Robert F. Schoeni, 1995. "Transfer Behavior within the Family: Results from the Asset and Health Dynamics Survey," NBER Working Papers 5099, National Bureau of Economic Research, Inc.
    23. repec:bla:econom:v:70:y:2003:i:279:p:423-438 is not listed on IDEAS
    24. Gatti, Roberta, 2000. "Family altruism and incentives," Policy Research Working Paper Series 2505, The World Bank.
    25. Rotemberg, Julio J, 1994. "Human Relations in the Workplace," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 684-717, August.
    26. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-656, May.
    27. Becker, Gary S, 1993. "Nobel Lecture: The Economic Way of Looking at Behavior," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 385-409, June.
    28. 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.
    29. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    30. Kathleen McGarry & Robert F. Schoeni, 1995. "Transfer Behavior in the Health and Retirement Study: Measurement and the Redistribution of Resources within the Family," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages 184-226.
    31. Jellal, Mohamed & Wolff, François Charles, 2003. "Leaving home as a self-selection device," MPRA Paper 38528, University Library of Munich, Germany.
    32. Bhattacharya, Utpal & Ravikumar, B, 2001. "Capital Markets and the Evolution of Family Businesses," The Journal of Business, University of Chicago Press, vol. 74(2), pages 187-219, April.
    33. Akerlof, George A, 1983. "Loyalty Filters," American Economic Review, American Economic Association, vol. 73(1), pages 54-63, March.
    34. Mr. Ralph Chami, 2001. "What is Different About Family Businesses?," IMF Working Papers 2001/070, International Monetary Fund.
    35. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January.
    36. Laffont, Jean-Jacques, 1990. "Analysis of Hidden Gaming in a Three-Level Hierarchy," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(2), pages 301-324, Fall.
    37. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    38. Jellal, Mohamed & Wolff, Francois-Charles, 2002. "Cultural evolutionary altruism: theory and evidence," European Journal of Political Economy, Elsevier, vol. 18(2), pages 241-262, June.
    39. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    40. McGarry, K & Schoeni, R-F, 1996. "Measurement and the Redistribution of Resources Within the Family," Papers 96-11, RAND - Reprint Series.
    41. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
    42. 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.
    43. L.A.A. Van den Berghe & Steven Carchon, 2003. "Agency Relations within the Family Business System: an exploratory approach," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(3), pages 171-179, July.
    44. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    45. Bruce A. Weinberg, 2001. "An Incentive Model of the Effect of Parental Income on Children," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 266-280, April.
    Full references (including those not matched with items on IDEAS)

    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. Wolff, Francois-Charles & Laferrere, Anne, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 13, pages 889-969, Elsevier.
    2. Jellal, Mohamed, 2009. "A Theory of Educational Inequality Family and Agency Costs," MPRA Paper 17434, University Library of Munich, Germany.
    3. Jellal, Mohamed, 2014. "A theory of family education incentives and inequality," MPRA Paper 57913, University Library of Munich, Germany.
    4. Bennedsen, Morten & Nielsen, Kasper & Pérez-González, Francisco & Wolfenzon, Daniel, 2005. "Inside the Family Firm," Working Papers 21-2005, Copenhagen Business School, Department of Economics.
    5. Brandts, Jordi & Solà, Carles, 2010. "Personal relations and their effect on behavior in an organizational setting: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 246-253, February.
    6. Francois-Charles Wolff & Seymour Spilerman & Claudine Attias-Donfut, 2005. "Do Parents Help More their Less Well-Off Children? Evidence from a Sample of Migrants to France," Microeconomics 0504001, University Library of Munich, Germany.
    7. Suveera Gill & Parmjit Kaur, 2015. "Family Involvement in Business and Financial Performance: A Panel Data Analysis," Vikalpa: The Journal for Decision Makers, , vol. 40(4), pages 395-420, December.
    8. Weiping Liu & Haibin Yang & Guangxi Zhang, 2012. "Does family business excel in firm performance? An institution-based view," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 965-987, December.
    9. Ana Fernandes, 2011. "Altruism, labor supply and redistributive neutrality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1443-1469, October.
    10. Fernandes, A., 2000. "Altruism with Endogenous Labor Supply," Papers 0002, Centro de Estudios Monetarios Y Financieros-.
    11. Marta Melguizo Garde, 2007. "La motivación de las transmisiones lucrativas entre generaciones de una familia: modelos teóricos y evidencia empírica," Hacienda Pública Española / Review of Public Economics, IEF, vol. 181(2), pages 81-118, June.
    12. Francesco Barbera & Ken Moores, 2013. "Firm ownership and productivity: a study of family and non-family SMEs," Small Business Economics, Springer, vol. 40(4), pages 953-976, May.
    13. Wu, Zhenyu & Chua, Jess H. & Chrisman, James J., 2007. "Effects of family ownership and management on small business equity financing," Journal of Business Venturing, Elsevier, vol. 22(6), pages 875-895, November.
    14. Stefan Hochguertel & Henry Ohlsson, 2009. "Compensatory inter vivos gifts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 993-1023.
    15. Audretsch, David B. & Hülsbeck, Marcel & Lehmann, Erik E., 2013. "Families as active monitors of firm performance," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 118-130.
    16. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    17. Ctirad Slavik & Kevin Wiseman, 2018. "Tough Love for Lazy Kids: Dynamic Insurance and Equal Bequests," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 64-80, January.
    18. Christoph Kaserer & Benjamin Moldenhauer, 2008. "Insider ownership and corporate performance: evidence from Germany," Review of Managerial Science, Springer, vol. 2(1), pages 1-35, March.
    19. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
    20. Mazzi, Chiara, 2011. "Family business and financial performance: Current state of knowledge and future research challenges," Journal of Family Business Strategy, Elsevier, vol. 2(3), pages 166-181.

    More about this item

    Keywords

    Family Capitalism; Altruism; Family Ties ; Asymmetric Information; Supervisor Agent Principal; Collusion;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • Z1 - Other Special Topics - - Cultural Economics
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:pra:mprapa:17886. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.