Governance Structure and Performance of Private Family Firms

Journal of Economics and Finance, Forthcoming

34 Pages Posted: 2 Jan 2019

See all articles by Tarun K. Mukherjee

Tarun K. Mukherjee

University of New Orleans

Vighneswara Swami

IBS Business School, Hyderabad

Wei Wang

Cleveland State University

Date Written: July 17, 2018

Abstract

A debate exists on the issue of whether a governance system is value additive or even necessary for a privately-held firm. One side of the debate suggests that, in absence of agency problems, a private firm does not need a costly governance system. The other side argues that a private firm indeed faces agency costs in the form of altruism and, therefore, could extract net gains from a governance system. In this paper, we empirically investigate whether a good governance system crates or destroys value of private family firms. We first demonstrate that a multifamily firm encounters larger agency costs stemming from inter-family conflicts, and therefore, has larger incentive than a single-family firm to institute a superior governance system. We then show that a multifamily firm, owing to its better governance system, outperforms its single-family counterpart.

Suggested Citation

Mukherjee, Tarun K. and Swami, Vighneswara and Wang, Wei, Governance Structure and Performance of Private Family Firms (July 17, 2018). Journal of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3302366

Tarun K. Mukherjee (Contact Author)

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Vighneswara Swami

IBS Business School, Hyderabad ( email )

Plot No. 65, Nagarjuna Hills
Punjagutta
Hyderabad, 500082
India

Wei Wang

Cleveland State University ( email )

Cleveland, OH 44115
United States

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