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9 Business Family Reputation, Internal Markets, and Holdup Agency Costs

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De Gruyter Handbook of Business Families
This chapter is in the book De Gruyter Handbook of Business Families

Abstract

Recent research has drawn attention to the distinct agency costs of owner-managed firms. We focus on the problem of holdup, where employees are disincentivized to make firm-specific investments (e.g., hone specific skills necessary to perform their job at that particular firm). Research contends that holdup may be exacerbated in family firms since family owner-managers have incentive and discretion to favour family employees over non-family employees. We argue that business families - families who own multiple firms - have critical advantages relative to single-family firms in addressing holdup-related agency costs. Specifically, we discuss why and how family ownership of multiple businesses may provide (1) ex-ante credible signals through inimitable reputations; and (2) ex-post institutional controls through internal labor markets, which mitigate the problem of holdup.

Abstract

Recent research has drawn attention to the distinct agency costs of owner-managed firms. We focus on the problem of holdup, where employees are disincentivized to make firm-specific investments (e.g., hone specific skills necessary to perform their job at that particular firm). Research contends that holdup may be exacerbated in family firms since family owner-managers have incentive and discretion to favour family employees over non-family employees. We argue that business families - families who own multiple firms - have critical advantages relative to single-family firms in addressing holdup-related agency costs. Specifically, we discuss why and how family ownership of multiple businesses may provide (1) ex-ante credible signals through inimitable reputations; and (2) ex-post institutional controls through internal labor markets, which mitigate the problem of holdup.

Chapters in this book

  1. Frontmatter I
  2. Contents V
  3. List of Contributors IX
  4. 1 Business Families: An Introduction 1
  5. Part I: Business Families as the Family Behind the Firm
  6. 2 Family Businesses as Multiplex Relationships 31
  7. 3 Family, Organization, and Network: A New Approach to a Systems Theory of the Business Family 49
  8. 4 Resilient Enterprising Families 69
  9. 5 Enterprising Families: An Embeddedness Perspective on Offspring’s Entrepreneurial Career Preferences, Cognitions, and Actions 81
  10. 6 Kinship and Family Businesses on the Move: A Review and a Research Agenda 115
  11. Part II: Business Families with Multiple Businesses
  12. 7 Influence of Next-Generation Family Champions on New Venture Creation by Business Families: An Indian Perspective 135
  13. 8 “All My Firms?” Managing SEW Affective Endowments in Business Family Portfolios 163
  14. 9 Business Family Reputation, Internal Markets, and Holdup Agency Costs 187
  15. 10 The Transformative Function of Weak Institutional Environments: The Case of Business Families in the Arab Middle East 201
  16. 11 Evolutionary Long-Term Entrepreneurial Processes in Business Families 223
  17. 12 Entrepreneurial Multi-Business Families – Evidence from Continental Europe 247
  18. Part III: Governing the Business Family
  19. 13 Introducing “Top Governance Teams”: Towards an Extension of the Family Business Cluster Model 275
  20. 14 Codes of Governance for Family Businesses 309
  21. 15 Family Office Research: A Primer 329
  22. 16 Family Wealth Governance and the Role of Advisors 349
  23. 17 How Can a Family Control its Business Without Ownership Influence? A Case Study of Suzuki Corp 369
  24. 18 How Business Families Advance Their Members’ Careers: The Case of Show Business Families 397
  25. Part IV: Institutionalization of Wealth and Business Families in Society
  26. 19 Institutionalizing Family Legacy, Reproducing Dynasties 413
  27. 20 The Varieties of Business Families: A Capitalist Class Perspective on Business Family Diversity 437
  28. 21 Philanthropy Through Family Offices 465
  29. 22 Traditional Authority in Social Context: Explaining the Relation between Types of Family and Types of Family-Controlled Business Groups 487
  30. 23 Migrant Business Families in Central America 519
  31. 24 Succession Process and the Model of Change in a Transgenerational Family Business 541
  32. Part V: The Future of Business Families Research
  33. 25 Business Families: Promising Future Research Directions 563
  34. List of Figures 577
  35. List of Tables 579
  36. Index 581
https://doi.org/10.1515/9783110727968-009

Chapters in this book

  1. Frontmatter I
  2. Contents V
  3. List of Contributors IX
  4. 1 Business Families: An Introduction 1
  5. Part I: Business Families as the Family Behind the Firm
  6. 2 Family Businesses as Multiplex Relationships 31
  7. 3 Family, Organization, and Network: A New Approach to a Systems Theory of the Business Family 49
  8. 4 Resilient Enterprising Families 69
  9. 5 Enterprising Families: An Embeddedness Perspective on Offspring’s Entrepreneurial Career Preferences, Cognitions, and Actions 81
  10. 6 Kinship and Family Businesses on the Move: A Review and a Research Agenda 115
  11. Part II: Business Families with Multiple Businesses
  12. 7 Influence of Next-Generation Family Champions on New Venture Creation by Business Families: An Indian Perspective 135
  13. 8 “All My Firms?” Managing SEW Affective Endowments in Business Family Portfolios 163
  14. 9 Business Family Reputation, Internal Markets, and Holdup Agency Costs 187
  15. 10 The Transformative Function of Weak Institutional Environments: The Case of Business Families in the Arab Middle East 201
  16. 11 Evolutionary Long-Term Entrepreneurial Processes in Business Families 223
  17. 12 Entrepreneurial Multi-Business Families – Evidence from Continental Europe 247
  18. Part III: Governing the Business Family
  19. 13 Introducing “Top Governance Teams”: Towards an Extension of the Family Business Cluster Model 275
  20. 14 Codes of Governance for Family Businesses 309
  21. 15 Family Office Research: A Primer 329
  22. 16 Family Wealth Governance and the Role of Advisors 349
  23. 17 How Can a Family Control its Business Without Ownership Influence? A Case Study of Suzuki Corp 369
  24. 18 How Business Families Advance Their Members’ Careers: The Case of Show Business Families 397
  25. Part IV: Institutionalization of Wealth and Business Families in Society
  26. 19 Institutionalizing Family Legacy, Reproducing Dynasties 413
  27. 20 The Varieties of Business Families: A Capitalist Class Perspective on Business Family Diversity 437
  28. 21 Philanthropy Through Family Offices 465
  29. 22 Traditional Authority in Social Context: Explaining the Relation between Types of Family and Types of Family-Controlled Business Groups 487
  30. 23 Migrant Business Families in Central America 519
  31. 24 Succession Process and the Model of Change in a Transgenerational Family Business 541
  32. Part V: The Future of Business Families Research
  33. 25 Business Families: Promising Future Research Directions 563
  34. List of Figures 577
  35. List of Tables 579
  36. Index 581
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