Markets, Hierarchies, and Families: Toward a Transaction Cost Theory of the Family Firm

Authors

  • Eric Gedajlovic,

    Corresponding author
    1. Departments of Innovation and Entrepreneurship and Strategy, School of Business, Simon Fraser University, Vancouver, British Columbia, Canada
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  • Michael Carney

    Corresponding author
    1. Department of Management, John Molson School of Business, Concordia University, Montréal, Québec, Canada
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Eric Gedajlovic, tel.: 778-782-5168; e-mail: erg@sfu.ca, and to Michael Carney at mcarney@jmsb.concordia.ca.

Abstract

Why do family businesses exist? What factors explain their versatility, limitations, and success within and across different industrial and geographic contexts? We develop a transaction cost framework that addresses these questions. In doing so, we identify a class of assets we term generic nontradeables (GNTs), that are firm specific, but generic in application. While many types of firms may possess such assets, we reason that family firm governance provides relative advantages in developing, sustaining, and appropriating value from GNTs through combinations with other types of assets. We propose that these advantages, as well as some concomitant disadvantages, explain the versatility, limitations, and success of family business enterprise.

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