Agency Relations within the Family Business System: an exploratory approach

Abstract

Researchers use various definitions to describe the family firm. The characteristics of family firms that are stressed in each of these definitions are somehow related to family control. All characteristics together reflect a spectrum of family firm types along one core dimension: family involvement in the firm. However, it is more helpful to distinguish among family firms by using their precise type. Each particular family firm type is characterised by a set of agency relations within and between the family system, ownership system and the business system. This paper is a first attempt to apply the insights from agency theory on a highly simplified (reference) family firm situation where the father is full owner and the daughter manager of the family firm. Agency theory establishes the foundation for the optimal contract conditions between father and daughter. While real life is often characterised by bounded rationality and incomplete information, future research should help identify the “optimal contract” be‐tween the family/shareholders and management in various family firm types under these circumstances.