Principal-principal conflicts and family firm growth

Abstract

Drawing on the principal-principal conflict and identity literatures, the purpose of this paper is to investigate the Agency Problem Type II-bis in the context of family business. Specifically, the authors hypothesize that the size of the family owner group is related to firm growth and that this relationship is moderated by the extent to which the family identifies with the firm. The hypotheses are tested on a sample of 265 medium and large German family firms (FFs) via moderated hierarchical regression analysis. The main findings suggest that business family identity moderates the inverted U-shaped relationship between the size of the family owner group and firm growth in such a way that FFs with medium-sized family owner groups and high levels of business family identity reach higher firm growth. In the context of FFs fully owned by one family, family owners might have different strategic preferences, goals, and identities, thus potentially making them subject to the conflict that could arise among the different family owners in relation to growth expectations. Recognizing this problem could help family owners find potential solutions to ensure the well-being of both the family and the business. The combination of family ownership structure and family ownership dynamics affects firm growth. Challenging the homogeneity of the family owner group, the authors highlight the role of Agency Problem Type II-bis in hindering growth of FFs. A finer-grained view of principal-principal conflicts in FFs is thus discussed.