Industry and Information Asymmetry: The Case of the Employment of Non‐Family Managers in Small and Medium‐Sized Family Firms

17 Pages Posted: 19 Sep 2017

See all articles by Hanqing “Chevy” Fang

Hanqing “Chevy” Fang

Missouri University of Science and Technology

Esra Memili

University of North Carolina - Department of Marketing, Entrepreneurship, Hospitality and Tourism, Bryan School of Business and Economics

James J. Chrisman

Mississippi State University - College of Business

Christopher Penney

University of North Texas - Department of Management

Date Written: October 2017

Abstract

As family firms begin to professionalize, they face an important crossroads in deciding whether to employ non‐family managers. To preserve socioemotional wealth and minimize agency costs, family owners may resist employing non‐family managers. However, industry sector may play a role that influences the employment of non‐family managers. We argue that the family's reluctance will be stronger in industries where information asymmetries make monitoring managers more difficult. For industries where monitoring is easier, the benefits of employing non‐family managers may offset the loss in socioemotional wealth and increase in agency costs. Results based on a sample of 965 small and medium‐sized retail and manufacturing firms confirm our predictions.

Suggested Citation

Fang, Hanqing “Chevy” and Memili, Esra and Chrisman, James J. and Penney, Christopher, Industry and Information Asymmetry: The Case of the Employment of Non‐Family Managers in Small and Medium‐Sized Family Firms (October 2017). Journal of Small Business Management, Vol. 55, Issue 4, pp. 632-648, 2017. Available at SSRN: https://ssrn.com/abstract=3039138 or http://dx.doi.org/10.1111/jsbm.12267

Hanqing “Chevy” Fang (Contact Author)

Missouri University of Science and Technology

1870 Miner Cir
Rolla, MO 65409
United States

Esra Memili

University of North Carolina - Department of Marketing, Entrepreneurship, Hospitality and Tourism, Bryan School of Business and Economics ( email )

P.O.Box 26170
Greensboro, NC 27412
United States

James J. Chrisman

Mississippi State University - College of Business ( email )

Mississippi State, MS 39762-0964
United States

Christopher Penney

University of North Texas - Department of Management ( email )

TX
United States

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