Nonfamily Managers, Family Firms, and the Winner's Curse: The Influence of Noneconomic Goals and Bounded Rationality

Authors

  • James J. Chrisman,

    Professor, Director of the Center of Family Enterprise Research, Senior Research Fellow, Corresponding authorSearch for more papers by this author
    • James J. Chrisman is a Professor in the Department of Management & Information Systems and Director of the Center of Family Enterprise Research, Mississippi State University, Mississippi State, MS 39762-9581. He also is a Senior Research Fellow at the Centre for Entrepreneurship and Family Enterprise, University of Alberta.
  • Esra Memili,

    an Assistant Professor, Corresponding authorSearch for more papers by this author
    • Esra Memili is an Assistant Professor in the Department of Marketing, Entrepreneurship, Hospitality and Tourism, Bryan School of Business and Economics, University of North Carolina at Greensboro, PO Box 2617, Greensboro, NC 27402-6170.
  • Kaustav Misra

    an Assistant Professor, Corresponding authorSearch for more papers by this author
    • Kaustav Misra is an Assistant Professor in the Department of Economics, College of Business and Management, Saginaw Valley State University, University Center, MI 48710.

  • This work was supported by a grant from the Family Owned Business Institute. The authors thank Jess Chua, Hanqing Fang, Daniel Holt, Franz Kellermanns, Allison Pearson, Chris Penney, ETP Editor Don Neubaum, and two anonymous reviewers for their comments on earlier drafts of this article.

Abstract

We explain why family-centered noneconomic goals and bounded rationality decrease the willingness and ability of small- and medium-sized family firms to hire and provide competitive compensation to nonfamily managers even in a labor market composed of stewards rather than agents. Family-centered noneconomic goals attenuate the ability to attract high-quality, nonfamily managers by promoting inferior total compensation packages, fewer opportunities for advancement, idiosyncratic strategies, and higher performance expectations. Furthermore, bounded rationality limits nonfamily managers' ability to meet performance expectations when hired. The result is the “winner's curse,” where neither the economic nor noneconomic goals of family owners are fully achieved.

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