Agency and psychological ownership in family firms: Governance and performance issues

Abstract

This paper links the psychological component of ownership to family firm governance and performance. By introducing insights on psychological ownership within a general agency framework, we unlock deeper understanding of agency relationships in family firms. We advance theory that in family firms psychological ownership has both a dark side and a bright side. On the dark side, strong psychological ownership feelings are cause for additional and specific agency costs. On the bright side, a transfer of psychological ownership from family members to non-family managers, mitigates their opposing interests, thereby reducing specific agency costs. In addition, we argue that the intensity of psychological ownership feelings present among family firms‟ key stakeholders, adds to our understanding of the heterogeneity that is found among family businesses in terms of performance. As such, this article provides further insight in agency relationships in family firms, and helps explain the variation in family firm performance outcomes.