Corporate Governance and Competitive Advantage in Family-Controlled Firms

Abstract

Past research has indicated that family-controlled firms have a competitive advantage over other firms, although it has been difficult to identify a basis for this advantage.This competitive advantage is investigated by exploring the organizational value-creating characteristics ingrained in the family firm system of corporate governance. Several theories of family firm value creation are discussed, including agency theory, and the influence of different cultures and institutions is considered.Governance and organizational processes are explored, especially the forms of managerial, alliance, and familial governance.The discussion of familial governance is further divided into discussions of its three dominant propensities of parsimony, personalism, and particularism.The pros and cons of value creation are discussed.The impact of scarce environments, social capital, and opportunistic investments are also discussed and are believed to have a significant positive impact on the competitive advantage of family firms. Family-owned firms do have governance advantages for value creation, as influenced by their parsimony and efficiency advantages.These advantages may dissipate as firm size increases.The control rights of family firms allow them to make business decisions unavailable to firms with different governance structures.Areas for future research are proposed. (AKP)

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