The Trade-Off Between Financial Resources and Agency Costs in the Family Business: An Exploratory Study


  • The authors are grateful to Juan Manuel de la Fuente, Juan Bautista Delgado, and Sanjay Goel for helpful comments. They are also indebted to anonymous reviewers who enhanced the quality of this study. This research was partially supported by the Consejeria de Economia y Hacienda de Castilla y León.

Virginia Blanco-Mazagatos and Esther de Quevedo-Puente are at the University of Burgos in Spain.


This exploratory study is intended to analyze how a combination of the resources-based view and agency theory can provide a better understanding of the internal dynamic of the family business and its evolution. Our evidence seems to suggest that the desire to keep family control produces specific sources of value and conditions the firm's financial capacity to acquire resources. These peculiarities change between first and following generations. During the first generation, we find that less severe agency costs balance the negative effect of scarce financial structure on the family firm's value. After descendants join the firm, the increasing agency costs are compensated by the enlargement of the firm's financial structure.