Principal–principal conflicts in Lebanese unlisted family firms

Abstract

Unlike previous research which had focused solely on principal-agent conflicts in the Middle East, this paper enriches corporate governance literature of privately-held family firms in an emerging economy with inadequate legislative and enforcement framework, by examining conflicts between controlling and minority shareholders. Based on a sample of 288 privately-held family firms from Lebanon, we find that the inequality between cash flow and voting rights of the controlling shareholders increases self-dealing behaviour. Similarly, family CEO and political involvement of owner intensify the expropriation of minority shareholders. Conversely, the equity ownership by private equity firms and banks acts as monitor and thus protects minority shareholders from being abused. The relevance of our results is not limited to Lebanon but can be transferable to other Middle Eastern countries, where public and private sectors are joining efforts to customize codes of corporate governance in unlisted family firms in order to promote foreign investment.