Agency Problems and Familiness

Since the publication of the pioneering papers of Alchian and Demsetz (1972) and Jensen and Meckling (1976), it has been customary to view firms as organisations that are characterised by contractual relationships among self-interested “factors of production” (Fama, 1980, p. 289). These papers laid to rest the traditional view of the firm that merged together the roles of the manager and the owner, and fostered discussions about the potential for conflict of interest between managers who (re-)negotiate contracts with all other input owners and the owner-investors who bear the risk associated with the organisation’s operations and have residual claims to its profits. Indeed, despite early arguments about the efficiency of arrangements that separate ownership and control in firms (Fama, 1980), the dominant view in the literature is that agency conflicts between managers and owner-investors that characterise widely held firms (Berle and Means, 1932) explain why managerial decisions may not be in the interests of the shareholders (Shleifer and Vishny, 1988; Bebchuk and Fried, 2003).