How agency conflict between family managers and family owners affects performance in wholly family-owned firms: A generational perspective

Zero-Leverage Policy: Is the Family Nature of Private Firms Relevant?

“…This may generate information asymmetries and the opportunistic behaviour of managers (Blanco-Mazagatos et al, 2007). In fact, owner-managers will be focused on the interests of their family branch and make decisions for the benefit of their own nuclear family, rather than for that of the family (firm) as a whole (Blanco-Mazagatos et al, 2016). Therefore, one could assume that leverage could prevent owner-managers from utilizing free cash flow to realize personal objectives (Jensen, 1986), to the detriment of non-manager family owners and their family branches.…”

“…In fact, leverage provokes bankruptcy risk for a firm and, thus, presents a stronger incentive for owner-managers to recover the debt capital invested and to maximize the firm's value. Nonetheless, adequate governance mechanisms, such as direct control by non-manager owners, existence of board of directors and family governance mechanisms (for example, the family council mentioned by Villalonga et al, 2015), effectually discipline managers and, per se, cause agency conflicts between owner-managers and non-manager owners to be negligible in the later generations (Blanco-Mazagatos et al, 2016). To put it differently, the presence or absence of debt in later-generation family firms have no moderating effect on supposed agency conflicts between owner-managers and non-manager owners.…”

Traditional Governance and Innovative Strategies in Italian Family SMEs: Evidence from Tuscany

“…Outside Board members can bring managerial skills and networking abilities to the firm, thus compensating for the shortage of competences in family members and helping the firm sustain its orientation towards innovation. The development of internal learning processes from generation to generation (Klein, Shapiro, & Young, 2005;Bonti & Cori, 2011;Cori & Bonti, 2014;Maseda, Itturalde, & Arosa, 2015;Blanco-Mazagatos, de Quevedo-Puente, & Delgado-Garcí a, 2016) may reduce the need for additional (and external) knowledge and abilities.…”

“…the Board's composition), as a result of different degrees of family involvement (Maseda et al, 2015;Blanco-Mazagatos et al, 2016). Different governance structures -presence of family and/or non-family members, number of generations and/or family branches, types of roles on the Board, and so on (Gómez-Mejí a, Haynes, Nú ñ ez-Nickel, Jacobson, & Moyano-Fuentes, 2007;Le Breton-Miller & Miller, 2006) -can compromise the firm's ability to have multiple and different perspectives.…”

Performance, financing decisions and corporate governance of Italian medium and large private family firms

“…In fact, in this kind of family firm, ownership and management become more fragmented, thus generating room for information asymmetries and the opportunistic behaviour of managers (Blanco-Mazagatos et al, 2007). Owner-managers will be focused on the interests of their family unit and make decisions for the benefit of their own nuclear family, rather than that of the family firm as a whole (Blanco-Mazagatos et al, 2016), thus prejudicing family firm performance. Since shortterm debt gives lenders the possibility of effectively monitoring managers with minimum effort (Rajan and Winton, 1995), reducing debt maturity also helps minimize the agency conflicts between managers and owners (Stulz, 2000), that is between owner-managers and non-manager owners in family firms, thus improving business performance.…”