Property Rights, Owner-Management, and Value Creation
- 1 July 2021
- journal article
- research article
- Published by Academy of Management in Academy of Management Review
- Vol. 46 (3), 489-511
- https://doi.org/10.5465/amr.2018.0377
Abstract
Building on property rights theory, we explore the relationship among property rights, owner-management, and value creation in private firms. We suggest that property rights in the hands of owner-managers create strategic, incentive, and commitment benefits that facilitate value creation. However, the self-incentivizing nature of property rights engenders three control hazards —those related to reliability, egocentrism, and succession—that threaten stakeholder welfare. In order to mitigate these hazards, owner-managers must establish credible governance. We discuss four governance mechanisms often found in owner-managed firms: commitment to social control, delegation of authority to managers, submission to the hierarchy of a board, and partial transfer of ownership. Although these mechanisms help mitigate control hazards, they also constrain the value-generating benefits of owner-management. Owner-managers thus face control dilemmas when determining how to best govern their firms. Our theory sheds new light on the relationship between property rights and value creation, and lays a foundation for exploring the benefits and liabilities of owner-management.Keywords
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