Blood and Money: Kin Altruism, Governance, and Inheritance in the Family Firm

80 Pages Posted: 15 Apr 2012 Last revised: 17 Apr 2015

See all articles by Thomas H. Noe

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Date Written: April 15, 2015


Using the inclusive fitness framework (Hamilton, 1964), this paper models family firms. The structure on altruism imposed by the inclusive fitness framework ensures that increasing kinship reduces monitoring efficiency. Nevertheless, when incentive alignment determines management compensation, increasing kinship increases net efficiency. At the same time, increasing kinship promotes nepotistic hiring, and when institutions are weak, may not increase firm value. When labor markets determine compensation, increasing kinship lowers efficiency, but never induces nepotism, and sometimes increases firm value. Family firm founders are always more altruistic toward related managers than their direct descendants, leading to intergenerational conflicts over compensation and hiring policies.

Keywords: corporate governance, entrepreneurship, kin altruism, contract theory

JEL Classification: M13, G34, D64, J33, J41

Suggested Citation

Noe, Thomas H., Blood and Money: Kin Altruism, Governance, and Inheritance in the Family Firm (April 15, 2015). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 378/2013, Available at SSRN: or

Thomas H. Noe (Contact Author)

University of Oxford - Said Business School ( email )

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United Kingdom

University of Oxford - Balliol College ( email )

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Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
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