The use of value-based management in family firms

Abstract

This study examines determinants of the use of value-based management (VBM) and its performance measures in family firms. Family firms constitute an important part of the economy but mostly have no capital market orientation. Although agency conflicts between free float shareholders and managers are thus unlikely to increase the need for VBM, other types of agency conflicts can occur in family firms. Therefore, we conduct a survey and find that, as predicted, privately held family firms also tend to use VBM when facing current or upcoming agency conflicts. This is particularly the case when family firms have been concerned with managerial succession and now exhibit a non-family executive board or if managerial succession will be a future concern. Moreover, a large degree of international business activities serves as another driver of the use of VBM. In these contexts, VBM can help family firms to improve decision-making quality by enabling consistent and goal-congruent decision support and performance measurement. Overall, our findings provide a better understanding of the management accounting choices and internal decision-making of family firms.