Industry and Information Asymmetry: The Case of the Employment of Non-Family Managers in Small and Medium-Sized Family Firms

As family firms begin to professionalize, they face an important crossroads in deciding whether to employ non-family managers. To preserve socioemotional wealth and minimize agency costs, family owners may resist employing non-family managers. However, industry sector may play a role that influences...

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Bibliographic Details
Published in:Journal of small business management 2017-10, Vol.55 (4), p.632-648
Main Authors: Fang, Hanqing "chevy", Memili, Esra, Chrisman, James J., Penney, Christopher
Format: Article
Language:English
Subjects:
Asymmetric information
Companies
Employment
Family owned businesses
Managers
Owners
Small & medium sized enterprises-SME
Wealth
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Summary:As family firms begin to professionalize, they face an important crossroads in deciding whether to employ non-family managers. To preserve socioemotional wealth and minimize agency costs, family owners may resist employing non-family managers. However, industry sector may play a role that influences the employment of non-family managers. We argue that the family's reluctance will be stronger in industries where information asymmetries make monitoring managers more difficult. For industries where monitoring is easier, the benefits of employing non-family managers may offset the loss in socioemotional wealth and increase in agency costs. Results based on a sample of 965 small and medium-sized retail and manufacturing firms confirm our predictions.
ISSN:0047-2778
1540-627X
DOI:10.1111/jsbm.12267