Faculty of Economics and Business Administration Publications Database

Optimal Distribution of Earnings between Partners in Family Firm Contracting

Sandner, Kai
Volume: 66
Pages: 132 - 163
Month: April
ISSN-Print: 1439-2917
ISSN-Online: 2194-072X
Link External Source: Online Version
Year: 2014
Keywords: Distribution of earnings; Double moral hazard; Family Firms; Incentive contracts; Multi-principal analysis.

We use principal-agent analysis to examine the distribution of earnings within family firms in a moral-hazard environment. Our analysis incorporates three special characteristics of family firms: owner-manager efforts and responsibilities, co-ownership with one or more family members, and financial and family-oriented goal conflicts. We analyze how these special characteristics interact to shape the optimal distribution of earnings between owner-managers. moreover, we investigate cooperative and non-cooperative mechanisms that affect the design of incentive contracts and the distribution of earnings. Our analysis provides analytically derived insights into the impact of different corporate governance mechanisms in family firms.