Comparing the Agency Costs of Family and Non-Family Firms : Conceptual Issues and Exploratory Evidence

Agency costs are investigated by comparing family and non-family firms. The nature of different agency costs is discussed and agency cost control mechanisms are suggested. A study of 1,141 small, privately-held U.S. family and non-family firms yielded results that showed that an overall agency problem in family firms could actually be less serious than in non-family firms. The study explores family involvement effects that are independent of agency costs, the effectiveness and use of agency control mechanisms, interactions of family involvement and agency cost control mechanisms, agency cost drivers that are unrelated to family involvement, and performance drivers that are unrelated to agency costs and family involvement. Conclusions indicate that, when removing the effects of agency cost control mechanisms, family and non-family firms had similar economic growth based on short-term sales growth. Also, strategic planning was found to have a direct, positive impact on performance. Non-family firms gain more from having at least one agency cost control mechanism, such as strategic planning. (JSD)