Corporate governance in family firms: The Norwegian maritime sector

Walle ik, K is in Doc o al Thesis Co po a e go e nance in amily i ms: The No wegian ma i ime sec o PhD Se ies, No. 20.2009 P o ided in Coope a ion wi h: Copenhagen Business School (CBS) Sugges ed Ci a ion: Walle ik, K is in (2009) : Co po a e go e nance in amily i ms: The No wegian ma i ime sec o , PhD Se ies, No. 20.2009, ISBN 9788759383995, Copenhagen Business School (CBS), F ede iksbe g, h ps://hdl.handle.ne /10398/7901 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/208728 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. 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I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by-nc-nd/3.0/ The PhD School o Economics and Managemen PhD Se ies 20.2009 PhD Se ies 20.2009 Co po a e Go e nance in Family Fi ms copenhagen business school handelshøjskolen solbje g plads 3 dk-2000 ede iksbe g denma k www.cbs.dk ISSN 0906-6934 ISBN 978-87-593-8399-5 Co po a e Go e nance in Family Fi ms The No wegian Ma i ime Sec o K is in Walle ik CBS PhD n 20-2009 K is in Walle ik • OMSLAG.indd 1 17/08/09 16:36:21 Co po a e Go e nance in Family Fi ms K is in Walle ik Co po a e Go e nance in Family Fi ms The No wegian Ma i ime Sec o 1s edi ion 2009 PhD Se ies 20.2009 © The Au ho ISBN: 978-87-593-8399-5 ISSN: 0906-6934 “The Doc o al School o Economics and Managemen is an ac i e na ional and in e na ional esea ch en i onmen a CBS o esea ch deg ee s uden s who deal wi h economics and managemen a business, indus y and coun y le el in a heo e ical and empi ical manne ”. All igh s ese ed. No pa s o his book may be ep oduced o ansmi ed in any o m o by any means, elec onic o mechanical, including pho ocopying, eco ding, o by any in o ma ion s o age o e ie al sys em, wi hou pe mission in w i ing om he publishe . Co po a e Go e nance in Family Fi ms The No wegian Ma i ime Sec o K is in Walle ik A disse a ion submi ed o Copenhagen Business School 2009 Acknowledgemen s Comple ing his PhD- hesis has been possible due o all he suppo and encou agemen I ha e ecei ed du ing he cou se o my doc o al esea ch. Wi hou he inancing om Agde Ma i ime Resea ch Founda ion and Agde Resea ch, as well as he suppo om Ake Solu ions MH, his p ojec would no ha e been possible o comple e. The e a e many people I would like o hank. Fi s o all, I would like o hank my supe iso P o esso S een Thomsen a he Copenhagen Business School o his pa ience and suppo . I wan o hank him o guiding me h oughou he whole esea ch p ocess, and I g a e ully acknowledge he help and commen s along he way. Ne e heless, he possible mis akes and p oblems in he hesis a e mine. I would also like o since ely hank P o esso T ond Randøy a he Uni e si y o Agde o ac ing as my co-ad iso and encou aging me du ing he en i e p ocess. In addi ion, I would like o collec i ely hank all my esea ch colleagues a Agde Resea ch o hei suppo . This PhD-p ojec , howe e , has indeed been a p ojec o he whole amily. I would like o exp ess my g a i ude o my husband Mo en o his suppo , pa ience and encou agemen , and my h ee daugh e s Ka h ine, Ma en and Cha lo e o gi ing me he inspi a ion and o unde s anding how ime consuming such a esea ch p ojec can be. I would also like o hank my pa en s, Bjø g and Oddmund, my sis e s Jo unn, Hege and Helene, my pa en s-in-law, Mål id and Ole Johnny, as well as he es o my amily o hei help and suppo du ing his long p ocess. I could no ha e done his wi hou you all. K is iansand, July 2009 K is in Walle ik Con en s In oduc ion 1 Pape One: Co po a e Go e nance in Family Fi ms 7 1.0 In oduc ion 8 1.1 Some Cha ac e is ics o he Family Fi m 10 1.2 Owne ship and Co po a e Go e nance 11 1.3 Di e en Go e nance Models 13 2.0 Theo e ical F amewo ks 15 2.1 Di e en Theo ies, hei Focus and he Use in Go e nance 15 2.2 Di e en Theo ies and hei Rele ance in he Go e nance o Family Fi ms 20 2.3 Family Owne ship in an Agency Theo y Pe spec i e 21 2.4 Family Owne ship in a Ne wo k and Social Capi al Theo y Pe spec i e 28 3.0 Family Fi m Go e nance – Va ious Go e nance Models 31 3.1 The Family Fi m 31 3.2 The Rela ional e sus he Con ac ual Go e nance Model 34 4.0 Family Fi m Go e nance – Va ious Rela ionships 37 5.0 Family Fi m Go e nance – A Rela ional Go e nance Model 41 6.0 Concluding Rema ks 44 Re e ences 45 Pape Two: The E ec o Indus y Ne wo ks on Family Owne ship 55 1.0 In oduc ion 56 1.1 Family Owne ship as Mechanism o Reduce Agency P oblems 59 1.2 Family Owne ship as Response o he Business En i onmen 63 1.3 Family Owne ship due o Indus y Ne wo ks 67 2.0 Social Capi al, Rela ional Go e nance and Ne wo ks 68 2.1 Social Capi al and Rela ional Go e nance be ween Fi ms 68 2.2 Ins i u ional Theo y – “Isomo phism” 70 2.3 Indus y Ne wo ks and Clus e s 71 3.0 How can Ne wo ks A ec Family Owne ship in an Indus y? 74 3.1 Ne wo ks and Family Owne ship 74 3.2 Indus y Ne wo ks and Family Owne ship – P oposi ions 77 4.0 E ec s o Indus y Ne wo ks 81 4.1 Gene al Economic E ec s o Ne wo ks 81 4.2 Do Family Fi ms Gain mo e han o he Fi ms om S ong Ne wo ks? 82 5.0 Concluding Rema ks 89 Re e ences 90 Appendices 99 6 7 Pape One CORPORATE GOVERNANCE IN FAMILY FIRMS K is in Walle ik Copenhagen Business School 2009 Abs ac This pape su eys co po a e go e nance esea ch on amily i ms, paying special a en ion o he unique elemen s in he go e nance o amily i ms. The esul is mainly a discussion o co po a e go e nance in amily i ms, emphasizing how elemen s like us , al uism, adi ions, amily ies, s ong ne wo ks, and ela ions a ec he go e nance s uc u e in hese i ms. I a gue ha amily i ms end o use a mo e “ ela ional go e nance model” compa ed o non- amily i ms. This implies di e en mechanisms o selec ing manage s and boa d membe s, which impac s he ela ionship be ween he owne s, manage s and boa d membe s. I p opose ha social capi al embedded in ne wo ks and ela ions canno easily be aded o imi a ed and ha his makes a di e ence in he go e nance o amily i ms e sus non- amily i ms. A ela ional go e nance model may sol e some co po a e go e nance issues in a mo e op imal manne in an en i onmen cha ac e ized by us and sha ed isions. Family i ms may also gain om a ela ional go e nance model due o he special ai s ypical o hese i ms, like amily ies, o e lapping oles in he i m, s ong pe sonal and social ne wo ks, as well as long las ing comme cial ne wo ks. Keywo ds: Family i ms, ela ional go e nance, amily ies, pe sonal ne wo ks 8 1.0 INTRODUCTION Se e al s udies show ha he closely held o he amily i m is he no m o smalle i ms and, in mos coun ies, e en o la ge companies (Shlei e and Vishny, 1997; La Po a e al., 1999; Eisenbe g, 1976). La Po a e al. (1999), ind ha only one- hi d o la ge lis ed i ms ha e dispe sed owne ship, sugges ing ha he image o he “Be le and Means” co po a ion as he dominan owne ship s uc u e in he wo ld is misleading. The e is a g owing body o esea ch in es iga ing he cha ac e is ics o concen a ed owne ship because o he speci ic cos s and bene i s in closely held i ms (Claessens e al., 2000; Faccio and Lang, 2002). Since amily owne ship is he mos common owne ship s uc u e in many coun ies (Shlei e and Vishny, 1986), se e al s udies ha e also in es iga ed he cha ac e is ics o his case o he closely held i m (Ami and Villalonga, 2006; Ande son and Reeb, 2003). Family i ms ha e he special ci cums ances o amily ies be ween amily membe s and ac oss gene a ions, he amily membe s o en ha e se e al oles in he i m, in addi ion o he amily o en being a con olling block holde . Gene ally, la ge owne s ha e s onge incen i es o moni o manage s as well as he powe o en o ce hei own in e es s. This should in p inciple inc ease sha eholde s’ alue and inancial pe o mance due o inc eased incen i es o moni o manage s and educe manage ial oppo unism (Thomsen and Pede sen, 2000). Ne e heless, la ge sha eholde s may also ha e an incen i e o ex ac p i a e bene i s igge ing agency p oblems and enhancing agency cos s (Schulze e al., 2001). Consequen ly, amily owne ship could ha e bo h a posi i e and a nega i e e ec on i m alue. Se e al s udies ha e analyzed he ela ionship be ween amily owne ship and pe o mance, measu ing inancial pe o mance by he ma ke - o-book a io, Tobin’s q o e u n on asse s (Ami and Villalonga, 2006; C onquis and Nilsson 2003; Gomez-Mejia e al., 2001; Gedaljo ic and Shapi o, 2002; Ande son and Reeb, 2003; Ande son, Mansi and Reeb, 2003; Gugle , 2003). These s udies d aw di e en conclusions abou his ela ionship. Howe e , he a ious s udies a e conduc ed in di e en agency con ex s and wi h di e en de ini ions o he amily i m, which may pa ly explain he di e ging esul s. The a ia ions in esul s may also be due o i m, indus y o na ion speci ic ac o s, o due o di e en means o ope a ions, s a egic decisions and go e nance s uc u es, a ec ing bo h he cos s and he bene i s o high owne ship concen a ion and amily con ol. Fo his eason, i seems di icul o es ablish one common ela ionship be ween amily owne ship and pe o mance. This indica es ha he agency con ex o he s udies needs o be aken in o conside a ion in he in e p e a ion o he esul s. 9 Due o he wo ldwide p e alence o amily i ms, he e should be some ad an ages wi h his owne ship s uc u e ha o se s he di e si ica ion disad an ages, and so he op imal owne ship s uc u e includes an analysis o he ade-o s be ween isk and incen i e e iciency (Jensen and Meckling, 1976; Fama and Jensen, 1983; Demse z, 1983; Shlei e and Vishny, 1997). An impo an issue in he discussion o amily i ms om a co po a e go e nance pe spec i e is he ques ion o succession and how his should happen. Bu ka e al. (2003) a gue ha he e a e h ee b oad heo ies o he bene i s o a amily o p ese ing con ol. The i s bene i is ha he e is a signi ican “ameni y po en ial” o amily con ol, e e ing o he non-pecunia y p i a e bene i s o con ol. This means u ili y o he ounde ha does no come a he expense o p o i s and in cases whe e he ameni y po en ial is la ge one can expec amilies o emain in con ol as long as hey can (Demse z and Lehn, 1985). A second eason o p ese a ion o amily con ol is ha he amily name i sel is a ca ie o a epu a ion in economic and poli ical ma ke s, gi ing ” epu a ional bene i s”, whe e hese bene i s a e dilu ed i con ol is su ende ed o an ou side . A hi d heo y is he possibili y o exp op ia ion o ou side in es o s ha comes wi h con ol (Bu ka e al., 2003). In he analyses o amily i ms many ques ions a ise: Wha de e mines he di e ences in amily con ol among coun ies? How should amily i ms be de ined? Wha in luences and d i es amily owne ship? Do amilies use con olling de ices o enhance con ol? How do amilies go e n he i m? Se e al o hese ques ions a e ou side he scope o his pape , which will mainly be a discussion o co po a e go e nance in amily i ms, emphasizing how elemen s like al uism, adi ions, amily ies, s ong ne wo ks and ela ions a ec go e nance s uc u es in hese i ms. One may a gue ha he e a e some go e nance e iciencies in amily i ms compa ed o o he i ms due o he social ins i u ion he amily ep esen s. Howe e , hese e iciencies may also be due o he go e nance models hey choose, whe e a mo e ela ional go e nance model may ep esen a be e solu ion o go e nance p oblems in some i ms and agency con ex s. In o de o discuss co po a e go e nance in amily i ms, I i s in oduce some cha ac e is ics o he amily i m in addi ion o a gene al in oduc ion o co po a e go e nance and why owne ship is pe cei ed o be such an impo an elemen . The ea e , I discuss se e al o he heo ies used in he co po a e go e nance li e a u e and in he analyses o amily i ms, wi h agency heo y being he mos cen al. My main in e es in his pape is he special ac o s in he go e nance o amily i ms, whe e he go e nance mechanisms a e a ec ed by amily ies, s ong ela ions and ne wo ks. Fo his pu pose, I in oduce he ne wo k and social capi al heo y in o de o cap u e hese addi ional ai s. 10 1.1 Some Cha ac e is ics o he Family Fi m The e is no common ag eemen on how o de ine wha he e m “ amily business” ac ually means. The amily i m cons i u es a wide ange o i ms, om small owne -manage i ms o la ge lis ed amily-con olled co po a ions (Mus akallio, 2002). Neubaue and Lank (1998) s a e, ha a i m can be ega ded as a amily i m i a gi en amily holds he o ing con ol o he i m. Ami and Villalonga (2006), s a e ha in amily i ms he amily is o en in con ol, ei he h ough being a la ge block holde wi h cash low igh s, o hey ha e o he o ing a angemen s enabling hem o emain in con ol. Randøy and Goel (2003) also ocus on he deg ee o in luence and con ol h ough managemen posi ions o s ong ep esen a ion on he boa d in de ining he amily i m. E en hough amily i ms a e di e en , hey sha e some common cha ac e is ics. One cen al elemen in amily i ms is he o e lapping oles o amily, owne ship and managemen . In i ms wi h dominan amily owne ship, he amily o en has mul iple oles in he i m h ough bo h managemen posi ions and boa d o di ec o s (Tagiu i and Da is, 1982). Family in ol emen and he mul iple oles hey ha e may inc ease commi men o long- e m alue c ea ion, bu i may also ep esen a challenge in se ing up op imal go e nance s uc u es in hese i ms (Mus akallio, 2002). A second cha ac e is ic in amily i ms is he s ong ocus on owne iden i y, wi h sha ed iden i y and common language o amilies, a s ong o ganiza ional cul u e, and amily membe s’ business expe ise gained du ing ea ly childhood onwa ds (Ke s de V ies, 1996; Neubaue and Lank, 1998; Mus akallio, 2002). Thi dly, al uism and s ewa dship a e o en used as cha ac e is ics o amily i ms compa ed o o he owne ship s uc u es, whe e amilies a e pe cei ed o ha e ocus on non-economic goals in addi ion o he economic goals (Donaldson and Da is, 1991; Luba kin, Ling and Schulze, 2003; Ke s de V ies, 1996). This mix u e o business and non-business goals may lead o manage ial en enchmen whe e owne -manage s ac oppo unis ically by sa is ying hei own needs a he expense o i m pe o mance and long- e m su i al (Mus akallio, 2002). A ou h ac o is he su i al o he i m due o lack o managemen capabili ies in amily i ms, especially ega ding he descendan s o ounde (Ge sick e al., 1997; Ke s de V ies, 1996). Finally, sha es in amily i ms a e o a ce ain deg ee illiquid wi h he implica ion ha selling ou is no always an op ion o he owne s o a amily business (Mus akallio, 2002). The abo e men ioned elemen s a e some o he cha ac e is ics o en men ioned when discussing amily owne ship as opposed o o he owne ship s uc u es. The e a e, howe e , addi ional issues ela ed o amily i ms and o he go e nance o hese i ms ha will be discussed la e . 11 1.2 Owne ship and Co po a e Go e nance Owne ship has been one cen al elemen in he co po a e go e nance esea ch due o he e ec i has on how i ms ope a e and o ganize hemsel es (James, 1999), bu also due o he ques ion o who con ols he i m (Bennedsen and Wol enzon, 2000). Hansmann (1996) de ines a i m’s owne s as pe sons ha ing wo o mal igh s: “ he igh o con ol he i m and he igh o app op ia e he i m’s p o i s” (Hansmann, 1996, page 11). Fama and Jensen (1983a) ocus on esidual isk and esidual claims as impo an in he s udy o owne ship and di e en o ms o economic o ganiza ion, whe eas Jensen and Meckling (1998) ocus on he igh o sell he owne ship igh s in hei de ini ion o owne ship. Mus akallio (2002) summa izes he di e en de ini ions o owne ship in o h ee elemen s: 1) he igh o con ol he i m, 2) he igh o esidual claims and 3) he igh o sell owne ship igh s. In addi ion o he de ini ion o owne ship, an impo an ques ion has been whe he owne ship should be ea ed as endogenous o exogenous. Va ious s udies conclude di e en ly on his poin (Himmelbe g e al., 1999; Gugle and Wiegand, 2003; Ekeland, 2002). In his pape I ea owne ship as endogenous, whe e my main ocus is on he go e nance o amily i ms mo e han he easons o amily owne ship. Ea lie co po a e go e nance li e a u e ends o ocus on he di e ences be ween dispe sed and concen a ed owne ship in he analyses o co po a e go e nance mechanisms. Dispe sed owne ship no mally implies many small in es o s and sepa a ion be ween managemen and con ol (Be le and Means, 1932). One excep ion o his could be cases whe e he e is a de iance be ween cash low igh s and con olling igh s, ei he h ough mul iple sha e classes o o he con olling de ices. Fama and Jensen (1983), s a e ha his s uc u e su i es because o he bene i s o specializa ion o managemen and isk bea ing as well as con ol o agency p oblems. The de ini ion o concen a ed owne ship may a y om coun y o coun y depending on he legal en i onmen , he le el o in es o p o ec ion, as well as he size o i ms. In he U.S, concen a ed owne ship in publicly lis ed i ms is o en de ined as 5% o mo e o he o ing igh s (Ami and Villalonga, 2006). Due o he size o hese i ms, each sha e-holde only holds a small ac ion o he equi y, and 5% is ega ded as a subs an ial sha e o he equi y. In o he coun ies whe e concen a ed owne ship is mo e common, he c i e ion is o en 20% o he o es, assuming ha 20% is enough o ha e e ec i e con ol o a i m (La Po a e al., 1999). In de ining a amily i m, ac ual con ol and in luence o he i m is o en emphasized, compa ed wi h pe cen age owne ship, ocusing on means o main aining con ol like mul iple sha e classes o py amids (Neno a, 2003; Bu ka e al., 2003). 12 The inance li e a u e ocuses bo h on dispe sed and concen a ed owne ship, bu ends o ha e a s ong sha eholde pe spec i e, especially ega ding he possible exploi a ion o mino i y sha eholde s in publicly lis ed i ms (La Po a e al., 1999). Family i m esea ch, on he o he hand, has o en been ound in he “managemen and en ep eneu ial” li e a u e, o en ocusing on non-lis ed amily i ms. Howe e , in many coun ies he e is also a la ge p opo ion o publicly lis ed amily i ms (Be and and Schoa , 2006), indica ing ha he e is also a need o d aw he a en ion o his ype o amily i m. In his pape I ega d he amily i m as a special case o he closely held i m, assuming ha he e a e di e ences in he go e nance s uc u e depending on whe he he amily is he block holde o no . I ocus on he special issues in he go e nance o amily i ms, whe e he go e nance mechanisms should be se up o go e n bo h he i m and he amily. The e a e di e en de ini ions o co po a e go e nance. Acco ding o Shlei e and Vishny (1997, page 737), “co po a e go e nance deals wi h he ways in which supplie s o inance o co po a ions assu e hemsel es o ge ing a e u n on hei in es men ”, wi h he co po a e go e nance mechanisms supposedly p o iding his assu ance. This pe spec i e on co po a e go e nance is o en e e ed o as ac i i ies o educe he p oblem o sepa a ion o owne ship and con ol, o en ound in widely held i ms (Shlei e and Vishny, 1997). Bech , Bol on and Roell (2002), de ine co po a e go e nance issues as being conce ned wi h he esolu ion o collec i e ac ion p oblems among dispe sed owne s and he esolu ion o con lic s be ween a ious co po a e claimholde s. They men ion ha a undamen al dilemma o co po a e go e nance is ha egula ing la ge sha eholde s is necessa y, bu limi ing he powe o la ge in es o s can also esul in g ea e manage ial disc e ion and scope o abuse. Bo h o hese de ini ions s em om he agency heo y pe spec i e o he i m. By adding he amily dimension o hese de ini ions, one may a gue ha he de ini ion by Bech , Bol on and Roell (2002), ocusing on egula ing la ge sha eholde s applies. Howe e , he e a e addi ional elemen s in he go e nance o amily i ms like al uism, amily and pe sonal ies, adi ions, as well as s ong ne wo ks (Luba kin, Ling and Schulze, 2003; Ke s de V ies, 1996), indica ing ha i may be ele an o add o he heo e ical pe spec i es in o he discussion and de ini ions o co po a e go e nance in amily i ms. The ela ional dimensions should be conside ed when se ing up go e nance s uc u es in hese i ms and o his pu pose I add he ne wo k heo y, including elemen s om he social capi al heo y, as addi ional heo e ical amewo ks in he discussion o amily i m go e nance. 13 1.3 Di e en Go e nance Models The co po a e go e nance li e a u e o en de ines co po a e go e nance mechanisms as owne ship s uc u e, boa d s uc u e and managemen incen i es (Shlei e and Vishny, 1997). How hese go e nance mechanisms a e used, and he ela ionship be ween hem, can be de ined as he go e nance model o go e nance s uc u e (Mus akallio, 2002). Di e en go e nance models may ep esen a beha io al dis inc ion and apply in di e en owne ship s uc u es. Con ac ual and ela ional go e nance models ep esen wo such models. 1) The con ac ual go e nance model Agency heo y iews he i m as a nexus o con ac s (Alchian and Demse z, 1972; Jensen and Meckling, 1976), whe e hese con ac s speci y he na u e o esidual claims as well as alloca ion o decision igh s (Fama and Jensen, 1983). In his agency con ex , con ac ual go e nance add esses he aspec s o he o mal con ol exe cised by he boa d o di ec o s wi h he aim o imp o ing s a egic decision-making (Mus akallio, 2002). This model s esses he impo ance o owne ship s uc u e because o i s in luence on boa d composi ion and boa d oles (Zah a and Pea ce, 1989). Bo h ex e nal and in e nal go e nance mechanisms a e used o mi iga e he agency p oblems by p o ec ing sha eholde s agains manage ial oppo unism (Jensen and Meckling, 1976). Howe e , amily i ms o en ely on in e nal go e nance mechanisms due o he ac ha he ma ke o co po a e con ol is no as a ailable o amily i ms and because o es ic ions on ade o hese sha es (Bennedsen, 2002). Key wo ds in he con ac ual go e nance model a e owne ship s uc u e, boa d s uc u e, boa d moni o ing and boa d counsel, agency p oblems and con ol mechanisms. 2) The ela ional go e nance model The ela ional go e nance model ocuses on he op imal use o he social capi al embedded in social ela ionships among he owne - amily and he managemen (Mus akallio, 2002). Whe he a amily i m is success ul depends on how i manages o eap he bene i s o long las ing ela ionships, sha ed isions and us among amily membe s, and loyal y and long adi ions (Ha ey, 1999a; Ouchi, 1980). Di e ences in i m pe o mance a e a esul o di e ences in he abili y o c ea e and use he social and human capi al in he i m (Nahapie and Ghoshal, 1998). G ano e e (1985) a gues ha he ela ional go e nance model can complemen he con ac ual go e nance o amily i ms wi h he ocus on us , sha ed isions, amily ins i u ions and social in e ac ion. Key wo ds in his model a e us , al uism, ela ional con ac ing, and pe sonal ne wo ks. 14 I is a gene al pe cep ion ha he o e all objec i e o co po a e go e nance mechanisms is o educe he agency p oblems h ough alignmen o objec i es be ween owne s and manage s, and he eby educe agency cos s. Howe e , he op imal usage o he di e en co po a e go e nance mechanisms depends on he agency con ex a i m ope a es wi hin. Fo his eason, he co po a e go e nance li e a u e o en di ides he di e en go e nance mechanisms in o in e nal and ex e nal ins umen s (Shlei e and Vishny, 1997). In e nal co po a e go e nance mechanisms o en men ioned a e boa d s uc u e, managemen incen i es, and owne ship s uc u e (Shlei e and Vishny, 1997), whe e he co po a e go e nance esea ch seems o ega d owne ship as a e y impo an in e nal mechanism. Howe e , owne ship in i sel also in ol es go e nance cos s such as cos s o con olling manage s, cos s o collec i e decision-making and cos s o isk bea ing (Hansmann, 1996), and he ela i e cos s a y wi h di e en o ms o owne ship. Di e en o ms o owne ship also ha e di e en cha ac e is ics ega ding go e nance mechanisms. The ex e nal co po a e go e nance mechanisms like p oduc compe i ion and he ma ke o co po a e con ol and akeo e s a e supposed o ha e a disciplining e ec on manage s, educing he need o in e nal go e nance s uc u es. E en hough mos esea che s ag ee ha p oduc ma ke compe i ion is a powe ul o ce owa d economic e iciency, many a e skep ical as o whe he his alone can sol e he p oblem o co po a e go e nance (Shlei e and Vishny, 1997; Bech , Bol on and Roell, 2002). The use o in e nal o ex e nal go e nance mechanisms can change o e ime and wi hin di e en business en i onmen s. This pape ocuses on how in e - ela ions be ween di e en in e nal go e nance mechanisms change wi h di e en owne ship and he uniqueness in he go e nance o amily i ms. Family i ms a e o in e es because hey seem o ha e g ea e ocus on owne iden i y and social aspec s compa ed o non- amily i ms wi h la ge block holdings, and hey may use o he go e nance mechanisms in hei go e nance s uc u e in o de o op imize he bene i s o being a amily i m. Family owne ship pe se is no necessa ily a solu ion o go e nance p oblems, bu in some con ex s a ela ional go e nance model can educe some o he go e nance p oblems in hese i ms. The s uc u e o his pape is as ollows: Sec ion 2 p esen s di e en heo e ical amewo ks, and how hese apply o he analysis o he go e nance o amily i ms. Sec ion 3 discusses ela ional and con ac ual go e nance models. In sec ion 4, I discuss he di e en ela ionships in amily i ms. Sec ion 5 p esen s a ela ional go e nance model and sec ion 6 has some concluding ema ks. 15 2.0 THEORETICAL FRAMEWORKS In his sec ion, I i s p esen some o he heo ies used in co po a e go e nance esea ch, hei ocus and hei use in he go e nance o i ms. The ea e I discuss how he di e en heo ies a e ele an in he go e nance o amily i ms and how hey may sol e some o he speci ic issues ha apply in hese i ms, including a discussion o he selec ion o he heo e ical amewo ks o his pape . 2.1 Di e en Theo ies, hei Focus and he Use in Go e nance Agency heo y is based on neoclassical economics, s udying he ela ionship be ween manage s and owne s and assuming limi ed a ionali y and sel -in e es ed beha io o human beings (Milg om and Robe s, 1992). I is conside ed he main heo e ical amewo k o co po a e go e nance esea ch, due o he ocus on sepa a ion o owne ship and con ol (Eisenha d , 1989; Zah a and Pea ce, 1989). Ne e heless, sepa a ion o owne ship and con ol is no always he main p oblem in he go e nance o i ms. Some imes he la ges p oblems a e exp op ia ion o mino i y sha eholde s (La Po a e al., 1997), manage ial en enchmen (Shlei e and Vishny, 1997), myopic al uism (Luba kin, Ling and Schulze, 2003), o esou ce sca ci y (P e e , 1982). In o de o cap u e he di e en go e nance issues, i may be alid o use o he heo ies in addi ion o agency heo y as heo e ical amewo ks o he analysis o co po a e go e nance in i ms (Eisenha d , 1989). Table I gi es an o e iew o some o he heo ies used in ea lie co po a e go e nance esea ch. Table I: Theo e ical F amewo ks in he Co po a e Go e nance Li e a u e Theo e ical amewo k: Focus: Use in go e nance: Agency heo y Minimize p oblems o Rela ionship be ween owne s sepa a ion o owne - and manage s, alignmen , ship and con ol con ac ual go e nance T ansac ion cos heo y Minimize ansac ion Ve ical in eg a ion, s a egic cos s alliances, ma ke s, hie a chy Ins i u ional heo y Fo mal and in o mal Pa ne ing, coope a ion and s uc u es, ins i u ional in e change, ne wo ks, ules, agg ega ed p e e ences no ms, alues and sys ems Resou ce dependency heo y Manage dependency Ne wo ks, boa ds, in a- i m o c i ical esou ces go e nance S ewa dship heo y Al uism, good s ewa d, Manage s a e us wo hy no alignmen p oblem s ewa ds, ela ional go e nance Social capi al heo y Resou ces c ea ed Ne wo ks and in e -o ganiza ional h ough ela ionships ela ionships Ne wo k heo y Ease ansac ions Ve ical and ho izon al ela ions in h ough ne wo ks ne wo ks (Sou ce o pa s o able I: Mus akallio, 2002) 22 Ad an ages wi h Family Owne ship in an Agency Theo y Pe spec i e A solu ion o incen i e p oblems Whe eas he neoclassical heo y o he i m igno es all incen i e p oblems wi hin i ms, he p incipal-agen heo y highligh s hese p oblems and leads o a iche and mo e ealis ic po ayal o he i m, bu lea es un esol ed he basic issue o de e minan s o i m bounda ies (Ha , 1995). In he co po a e go e nance li e a u e, concen a ed and amily owne ship a e seen as a solu ion o incen i e p oblems in i ms (Jensen, 1983; Jensen and Meckling, 1976). Shlei e and Vishny (1997), s a e ha when con ac s a e incomple e and manage s possess mo e expe ise han he sha eholde s, manage s ypically end up wi h esidual igh s o con ol. This gi es hem eno mous la i ude o sel -in e es ed beha io and esul s in highly ine icien ac ions. In closely held and amily i ms, he majo i y owne (o en he manage ) equen ly has mo e accu a e in o ma ion han he mino i y sha eholde s, c ea ing asymme ic in o ma ion among di e en g oups o sha eholde s (Ha , 1988). Ha (1988) demons a es ha i a manage has be e access o in o ma ion han ou side owne s, i may be op imal o ans e con ol o he manage . This implies ha he mo e impo an in o ma ion asymme ies a e he mo e common i is o ind concen a ed o amily owne ship because o he economic incen i es o manage ial owne ship. Agency heo y a gues ha unde condi ions o incomple e in o ma ion and unce ain y, which is he case in mos business se ings, wo agency p oblems a ise: he ad e se selec ion and he mo al haza d p oblem. Dealing wi h hese wo p oblems has been an impo an issue in he co po a e go e nance li e a u e o a numbe o yea s, and he li e a u e sugges s ha owne ship s akes seem o be he main solu ion o hese p oblems (Jensen, 1983; Jensen and Meckling, 1976). Jensen and Meckling (1976) a gue ha one solu ion o he mo al haza d p oblem is o g an a manage a long- e m incen i e con ac o align his in e es s wi h he in es o s, based on some e i iable pe o mance measu es, like sha ed owne ship, s ock op ions o h ea o dismissal. The op imal incen i e con ac is de e mined by he manage ’s isk a e sion, he impo ance o his decisions and his abili y o pay o he cash low owne ship up on . Since he speci ica ion o igh s gene ally is a ec ed h ough con ac ing, indi idual beha io in o ganiza ions, including he beha io o manage s will depend on hese con ac s (Jensen and Meckling, 1976). I can be a gued ha he e ec o alloca ing owne ship igh s apply o all o ms o concen a ed owne ship, bo h amily and non- amily closely held i ms, bu di e en elemen s may be emphasized in hese con ac s. 23 In line wi h agency heo y, as men ioned abo e, concen a ed o amily owne ship can sol e he mo al haza d and ad e se selec ion p oblem. This is because wi h pe sonal owne ship, he pe sonal incen i e o wo k ha d sol es he mo al haza d p oblem, whe eas he pe sonal incen i e o sell ou sol es he ad e se selec ion p oblem (o choosing he igh manage ). In addi ion, pe sonal owne ship should send a c edible signal o ex e nal in es o s, and he eby educe he ad e se selec ion p oblem o signaling quali y o in es o s (Thomsen and Pede sen, 2000). These mi iga ing mechanisms howe e , a e mos e icien in ounde i ms whe e he ounde is s ill ac i e. In amily i ms wi h descendan s o he ounde , he mo al haza d p oblem may be sol ed wi h concen a ed owne ship. The ad e se selec ion p oblem may no be sol ed, due o he ac ha he nex gene a ion is no sel -selec ed as he owne ship is inhe i ed. They can decide i hey wan o sell ou (Thomsen and Pede sen, 2000), howe e , selling ou may some imes c ea e a p oblem in amily i ms wi h long adi ions o amily owne ship and does no appea a plausible op ion. Main ain con ol and independence Con ol is ega ded o be one o he main incen i es o concen a ed owne ship. Be le and Means (1932, page 66) de ine con ol as ollows: “Since di ec ion o e he ac i i ies o a co po a ion is exe cised h ough he boa d o di ec o s, we may say o p ac ical pu poses ha con ol lies in he hands o he indi idual o g oup who has he ac ual powe o selec he boa d o di ec o s (o i s majo i y), ei he by mobilizing he legal igh o choose hem – con olling a majo i y o he o es di ec ly o h ough some legal de ice – o by exe ing p essu e which in luences hei choice”. Two main mo i a ions o la ge-block owne ship a e sha ed and p i a e bene i s o con ol (Holde ness, 2003). The sha ed bene i s o con ol a ise om highe moni o ing and con ol by a la ge-block sha eholde , gi ing a highe i m alue due o incen i es om his sha eholde . I his inc ease in alue is sha ed wi h he mino i y sha eholde s, i ep esen s a sha ed bene i o con ol, whe e all sha eholde s bene i om he e o s o he con olling sha eholde s. The p i a e bene i s o con ol a ise om block holde s’ incen i e o use hei o ing powe o enjoy co po a e bene i s wi hou sha ing wi h mino i y sha eholde s (Holde ness, 2003). Co po a e go e nance implica ions o a dominan owne ex ac ing “p i a e bene i s o con ol” a he expense o mino i y sha eholde s and i m pe o mance a e impo an (Fila o che and Mickiewicz, 2001). Di e en mi iga ing mechanisms apply o sol ing he ex ac ion o p i a e bene i s in closely held and amily i ms. 24 Bebchuk (1994, 1999) has de eloped a en -p o ec ion heo y, whe e i is sugges ed ha concen a ed owne ship is he bes a angemen when he p i a e bene i s o con ol a e la ge. Con olling sha eholde s will end o main ain a lock on con ol, due o he ac ha i als may be seeking o cap u e hese p i a e bene i s. In spi e o he agency cos s wi h amily and concen a ed owne ship, sha eholde s may esis a dilu ion o hei equi y s akes, because he alue o con ol igh s is g ea e han wha he con olling sha eholde could gain by selling he sha es o equi y in es o s (Fila o che and Mickiewicz, 2001). Families may be awa e ha hey could inc ease he p ice o hei s ocks by selling ou , bu a e eluc an o do so (Thomsen and Pede sen, 2000). In amily owned i ms (bo h public and non-public), he amily o en also ac s bo h as manage s and owne s, making la ge i m-speci ic in es men s in human capi al. This may be ano he eason o being eluc an o gi e up con ol (Maug, 1996). Close moni o ing I owne s ail o exe cise e ec i e con ol o e hei manage s, he manage s ha e an oppo uni y o engage in sel -dealing ansac ions, o en e e ed o as manage ial oppo unism. P oblems wi h asymme ic in o ma ion a e magni ied by lock-in, meaning ha i in es o s could wi hd aw hei in es men a will his would p o ide hem wi h p o ec ion om oppo unism on he pa o he i m’s owne s (Hansmann, 1996). Oppo unism (and he need o moni o ing) can be e y cos ly o owne s, and he educ ion o moni o ing cos s is said o be one o he easons o concen a ed and amily owne ship, because owne ship and con ol a e mo e aligned and agency cos s a e educed. F om an economic s andpoin , amily owne ship is ega ded as an e icien ins i u ion and James (1999) s a es ha amily loyal y may o e come he incen i e p oblems and inc ease he e iciency o i ms. Ne e heless, he e may also be oppo unism in i ms wi h combined owne ship and con ol. Owne - manage s may choose o exchange p o i s o o he bene i s, such as cu en o e u u e consump ion, o “on- he-job” non-pecunia y consump ion (Fama and Jensen, 1985; Demse z, 1983; James, 1999), indica ing a need o mi iga ing go e nance mechanisms also in hese i ms. In ma ke s wi h high ola ili y and unce ain y, concen a ed owne ship can be a be e way o eaching “hands-on” decisions. I may lead o mo e e icien and maybe e en be e decisions. This implies ha he noisie he en i onmen is, he g ea e he pay-o om close moni o ing can be, gi ing an incen i e o con ol. Hence, concen a ed and amily owne ship can be iable go e nance mechanisms in ola ile and noisy en i onmen s (Demse z and Lehn, 1985). 25 Al uism and social epu a ion Al uism and social epu a ion a e o en used as cha ac e is ics o amily i ms (Luba kin, Ling and Schulze, 2003; Ke s de V ies, 1996). Ke s De V ies (1996) also a gues ha amily i ms ha e a s ong sense o social esponsibili y owa ds socie y. Social con ol may in some cases ac as a sel -en o cing go e nance mechanism, whe e aspec s like collec i e goals and alues, us , sha ed ision and social epu a ion a e impo an elemen s (Ouchi, 1980; Jones e al., 1997). Membe s o amily uni s a e educa ed in he no ms o socie y, like he economic, poli ical and social wo ld a ound hem, as well as no ms o equali y and al uism (S ephens, 1963; James, 1999). In sec ion 4, I discuss he possible go e nance e ec s o hese ac o s. One can a gue ha al uism is one o he easons o main aining amily owne ship, in addi ion o he ad an ages o he amily go e nance sys em (James, 1999). The e ec i eness o a amily go e nance sys em, howe e , depends on he abili y o align he in e es s o amily manage s ac oss gene a ions, so ha hey ha e he incen i e o maximize i m alue. Also, he success o amily i m go e nance depends on he ho izon he p esen amily manage s ha e on in es men decisions. I decision make s ha e a ho izon ex ending beyond hei enu e, a i m should expe ience posi i e e ec s on hei in es men ac i i ies, because manage s need o conside he long- e m implica ions o hei consump ion and in es men decisions. Linking ac ions o amily manage s o o he amily membe s’ wel a e is disciplining, as manage s a e less likely o pu sue pe sonal in e es o e amily in e es (James, 1999; Kepne , 1983). The key o success in amily i ms lies in he s abili y o he amily sys em (James, 1999) whe e “ he amily’s s abili y becomes a sou ce o s eng h o he i m, bu he amily’s ins abili y becomes a sou ce o weakness” (Pollak, 1985, page 587). The e a e also agency p oblems in amily i ms, whe e con olling owne s’ pe cep ions and choices a e biased by hei al uism o amily membe s, he highe he al uism, he mo e di icul i is o choose op imal ac ions o he i m. No all con olling owne s su e om his myopic al uism, howe e , and hose who do no can enjoy he go e nance e iciencies associa ed wi h Ouchi’s (1980) concep o clan con ol. Myopic al uism can lead o employees’ oppo unis ic beha io , wi h hold-up and mo al haza d conduc ed by bo h amily and non- amily employees. Unlike mo al haza d, hold-up is based on ba gaining powe a he han in o ma ion asymme ies and amily membe s possess ba gaining powe due o amily ies (Luba kin, Ling and Schulze, 2003). The p e alence o amily i ms should indica e la ge go e nance ad an ages han disad an ages. 26 Po en ial Disad an ages wi h Family Owne ship Limi ed access o capi al (ex e nal equi y o deb ) “When o ganiza ions g ow, he limi ed inancial and manage ial esou ces o a ounding amily impose cons ain s on de elopmen . Al hough amily con ol may be a way o esol e agency p oblems, he lack o owne suppo o he new in es men esul s in a need o access capi al ma ke unding” (Fila oche , Lien and Piesse, 2003, page 9). Be le and Means (1932) conclude ha he la ge he company is, he mo e dispe sed he owne ship is. They a gue ha his is due o he need o aising new capi al in public ma ke s because when companies g ow and he need o in es men s in o ganiza ion speci ic asse s inc eases, he need o ex e nal capi al inc eases (Be le and Means, 1932). This implies ha amily owne ship has i s limi s in some indus ies, c ea ing a need o o he inancial a angemen s, ei he equi y o deb inancing (Shlei e and Vishny, 1997). Tigh con ol by en ep eneu ial amilies may also limi he abili y o seek capi al ou side hei pe sonal ne wo k (Ca ney and Gedaljo ic, 2002). Fi ms wi h coupled owne ship and con ol may ind i di icul o aise equi y on a o able e ms because he a m’s-leng h mino i y in es o s un he isk ha he majo i y owne s will use hei con ol igh s o ex ac p i a e bene i s a he mino i y in es o s’ expense (Ca ney and Gedaljo ic, 2002; La Po a e al., 1999b). Risk a e sion and need o di e si ica ion Risk and di e si ica ion a e a gumen s o dispe sed owne ship. One eason is ha an indi idual in es o ’s weal h is limi ed compa ed ela i ely o he size o some in es men s. Ano he eason may be ha he in es o wan s o di e si y he isk by in es ing in se e al i ms wi h small s akes in each. A hi d eason may be conce n o liquidi y, whe e a la ge s ake may be mo e di icul o sell in he seconda y ma ke s han smalle s akes (Bech , Bol on and Roell, 2002). Fama and Jensen (1983) discuss special ea u es o esidual claims in di e en o ganiza ional o ms as e icien app oaches o con olling special agency p oblems. Di e en o ganiza ional s uc u es may wo k in di e en en i onmen s depending on he ac i i y. Fama and Jensen (1983) de ine open co po a ions as mo e likely o su i e when he ac i i y has bene i s o isk sha ing, bene i s o specialized managemen , a g ea numbe o o ganiza ion-speci ic asse s o be pu chased, g ea weal h equi ed o bond con ac ual payo and low cos o sepa a ing decision managemen and decision con ol. These ac o s may a ou he open co po a e o m when he echnology in an ac i i y implies economies o scale. He e, sha eholde s ha e less p o ec ion om exp op ia ion han o he s akeholde s due o he ac ha hei in es men is “locked” (Shlei e and Vishny, 1997). 27 Asse s Speci ici y Williamson (1985) ega ds ansac ion cos s as a unc ion o asse speci ici y, unce ain y and equency, wi h asse speci ici y being he a ionale o a i m o exis . T ansac ions ha a e suppo ed by in es men s in du able ansac ion speci ic asse s, hese may ha e some “lock in” e ec s, whe e in es men s canno be edeployed o al e na i e uses wi hou a loss o p oduc i e alue. This app oach main ains ha some p ojec s a e easy o deb inance and ough o be inanced by deb , especially p ojec s o which physical asse speci ici y is low o mode a e. As asse speci ici y g ows, howe e , he p e-emp i e claims o he bondholde s agains he in es men a o d limi ed p o ec ion – because he asse s in ques ion ha e limi ed e-deployabili y. No only does he cos o deb inancing inc ease, bu he bene i s o close supe ision also g ow. The upsho is ha equi y inance, which a o ds mo e in usi e o e sigh and in ol emen h ough he boa d o di ec o s (o a la ge owne ) is he p e e ed inancial ins umen o p ojec s whe e asse speci ici y is g ea (Williamson, 1996). High asse speci ici y may c ea e a hold-up p oblem whe e a ew la ge owne s ha e he possibili y o exp op ia e o alloca e hese asse s in a non- a o able way o he mino i y owne s. This elemen can be ele an in con lic s be ween amily membe s in amily i ms, especially in con lic s among ounde amily descendan s. Dispe sed owne ship is one way o mi iga ing con lic s in i ms wi h high asse speci ici y because no single big owne can e-alloca e o sell he asse s on behal o he mino i y owne s, educing he isk o he indi idual owne . Limi ed access o esou ces and compe ence P e e (1982), s a es ha o ganiza ions a e no in e nally sel -su icien , and ha hey a e ex e nally in luenced because hey become dependen on he en i onmen ha supplies he di e en esou ces. The esou ce dependency heo y ocuses on wo main elemen s: The i s is he issue o ex e nal cons ain s, whe e he o ganiza ion needs o espond o he demands o he o ganiza ion ha con ols he c i ical esou ces. The o he elemen a gues ha manage s a emp o manage hei ex e nal dependencies, o ensu e su i al o he o ganiza ion, and also o acqui e mo e au onomy and eedom om ex e nal cons ain s (P e e , 1982). Dispe sed owne ship may be one way o secu ing access o c i ical esou ces in indus ies wi h high ba ie s o en y, whe he hese a e compe ence o capi al. The access o compe ence om mul iple owne s ei he h ough he boa d (Goods ein e al., 1994) o h ough o he channels, may hen con ibu e posi i ely o he i m. 28 C i ique o he use o Agency Theo y in Family Fi m Resea ch Agency heo y deals wi h po en ial p oblems o he agency ela ionship and how di e en ways o con ac ing and o ganizing a ec ou comes o his ela ionship (Mus akallio, 2002). Eisenha d (1989) s a es, ha he agency heo y add esses wo p oblems. One p oblem is when he goals o he p incipal and he agen con lic and he o he , is when he p incipal and agen ha e di e en a i udes owa ds isk, and hus p e e di e en ac ions. The agency heo y is he mos common heo y in co po a e go e nance esea ch, also in he analyses o co po a e go e nance in amily i ms. Howe e , he ac ha agency heo y pe cei es human beings as oppo unis ic a ional ac o s ac ing in a sel -in e es ed manne , has led se e al au ho s o a gue agains his iew. Pe ow (1990) a gues ha human beings do no inhe en ly beha e in a sel -in e es ed manne and ha he o ganiza ional se ings ha e an e ec on he human beha io . O he s claim ha he agency heo y does no ecognize ha social s uc u es a ec o ganiza ional beha io , he eby bypassing cen al issues in o ganiza ion heo y (Uzzi, 1997; G ano e e , 1985). G ano e e (1985) also s a es ha economic heo ies o o ganiza ions ha e an unde - socialized concep ion o human ac ion because hese heo ies igno e he impac o social ela ions and social s uc u es. O he s ocus on he e olu ion o ne wo k go e nance a guing ha his canno be explained by agency heo y due o di e en p incipal-agen ela ionships, as well as due o he ac ha he o mal con ol mechanisms do no apply in he same manne (La son, 1992; Uzzi, 1997; Jones e al., 1997). In spi e o he c i ique, one can a gue ha he agency heo y is a powe ul heo e ical amewo k in many esea ch con ex s. Howe e , in o de o analyse a b oade ange o go e nance p oblems in i ms, i may be alid o supplemen he agency heo y wi h o he heo ies. 2.4 Family Owne ship in a Ne wo k and Social Capi al Theo y Pe spec i e The concep o social capi al has become inc easingly popula in a wide ange o social sciences, including o ganiza ion s udies, because i can explain di e en ac o s’ ela i e success in a numbe o a enas, bo h on mac o and mic o le els. Fo his eason, social capi al heo y has been used o s udy na ions and communi ies (Fukuyama, 1995; Pu nam, 1993), in e - i m ne wo ks (Bake , 1990; Uzzi, 1997), alue c ea ion, economic pe o mance and en ep eneu ship (Bake , 1990; Nahapie and Ghoshal, 1998; La son, 1992), in a- i m ne wo ks (Tsai and Ghoshal, 1998), as well as amily ela ions (Coleman, 1988). 29 The e a e se e al de ini ions o social capi al depending on whe he he ocus is on subs ance, sou ces o he e ec s o social capi al. The de ini ions also a y depending on whe he he ocus is on ela ions be ween ac o s, he s uc u e o hese ela ions be ween ac o s, o bo h (Adle and Kwon, 2002). F om his, one can a gue ha social capi al can be seen as a esou ce ha ies ac o s oge he h ough ex e nal linkages, whe e he ac ions o indi iduals o g oups a e acili a ed by di ec o indi ec links o o he ac o s in social ne wo ks (Bu , 1992). In his iew, social capi al is s ongly in luenced by ne wo k heo y wi h an emphasis on social ne wo ks and can be ele an in he s udy o ne wo ks be ween i ms (Uzzi, 1997). Ano he way o iew he social capi al is h ough he collec i e ac o s’ in e nal cha ac e is ics wi h a ocus on he linkages among indi iduals o g oups wi hin an o ganiza ion, and speci ically on hose ea u es ha gi e cohesi eness and he eby acili a e he pu sui o collec i e goals (Adle and Kwon, 2002). This in e nal iew o social capi al may be ele an in he s udy o in a- i m ne wo ks (Tsai and Ghoshal, 1998), whe e he ela ionships be ween owne s, manage s and he boa d can be seen as some o hese ne wo ks. I can be di icul o dis inguish be ween he ne wo k and he social capi al heo y due o he pe cep ion ha social capi al is embedded h ough in e nal o ex e nal ne wo ks. The cen al p oposi ion o social capi al heo y is ha ne wo ks o ela ionships cons i u e aluable esou ces o he conduc o social a ai s, and ha much o he social capi al is embedded wi hin ne wo ks o mu ual acquain ance and ecogni ion (Bo dieu, 1986). Also, in pa s o ne wo k heo y, he social dimension is cen al. Social capi al cons i u es some aspec s o he social s uc u e and acili a es he ac ions o indi iduals wi hin he s uc u e (Coleman, 1988). I has been a gued ha social capi al inc eases he e iciency o ac ions due o ne wo ks o social ela ions, especially hose cha ac e ized by weak ies o s uc u al holes (G ano e e , 1973; Bu , 1992). Al hough he social capi al akes many o ms, i cons i u es some aspec s o he social s uc u e and acili a es he ac ions o indi iduals wi hin he s uc u e (Coleman, 1990). Nahapie and Ghoshal (1998) di ide social capi al in o h ee dimensions in hei analysis o social capi al: 1) he s uc u al dimension desc ibing he impe sonal connec ion be ween di e en ac o s in a social ne wo k, including ne wo k ies, ne wo k con igu a ion and app op iable o ganiza ion, 2) he cogni i e dimension e e ing o esou ces p o iding sha ed codes, language and na a i es, and 3) he ela ional dimension add essing he quali y o pe sonal ela ionships h ough us , no ms, obliga ion and iden i ica ion. Bo h ne wo k and social capi al elemen s a e closely ied oge he , and in his pape I ocus on how hese a ious elemen s a ec go e nance s uc u es in amily i ms. 30 E en hough he ne wo k and social capi al heo y ha e been used as amewo ks in esea ch on in e - i m go e nance, he use in co po a e go e nance esea ch is limi ed. Howe e , he e is one s udy ha inds ha social ies be ween boa d and CEO could con ibu e o boa d e ec i eness wi hou educing con ol o e managemen (Wes phal, 1999). Ano he s udy shows ha social ne wo ks based on boa d in e locks a ec s a egic alliance o ma ion, he eby enhancing us (Gula i and Wes phal, 1999). Huse (1993) combines economic and social app oaches in a s udy o he ela ionship be ween boa d o di ec o s and managemen by combining agency heo y wi h ela ional no ms (Macneil, 1980). One challenge wi h using he social capi al and ne wo k heo y as heo e ical amewo ks is ha he de ini ions o social capi al a e ague and y o cap u e oo many elemen s in he same amewo k. In addi ion, he social capi al heo y ends o ocus on he posi i e e ec s and pa ly igno ing he nega i e e ec s o sociabili y o indi iduals and g oups. Po es (1998) has iden i ied ou nega i e e ec s o social capi al. Fi s ly, he access o social ne wo ks becomes di icul o ou side s due o igh con ol om he inside s. Secondly, he e may be a ee- iding p oblem i less diligen g oup membe s en o ce demands backed by sha ed no ms. Thi dly, he social con ol in a g oup may educe indi idual au onomy and a ou h consequence may be ha he downwa d le eling o no ms leads hese g oups in opposi ion o he mains eam socie y. G ano e e (1985) a gues ha he us ollowing pe sonal ela ionships can c ea e he possibili y o mal easance and ha he highe he us , he g ea e he bene i om mal easance. Leana and Van Bu en (1999) s a e ha he s ong con e gen g oups may lead o poo decisions and ha i may hampe inno a ions. In gene al, one may a gue ha he social capi al and ne wo k li e a u e ocus mo e on he bene i s o social capi al han he disad an ages, wi h he cos s o achie ing hese bene i s being less emphasized. Howe e , in o de o ob ain he bene i s o social capi al and ne wo ks, a subs an ial amoun o esou ces, bo h manage ial and indi idual ini ia i es, a e needed (Mus akallio, 2002). Consequen ly, he cos side o es ablishing and main aining ne wo ks p o iding social capi al should be conside ed. In gene al one can a gue ha agency heo y s ems om inance li e a u e, wi h a con ac ual pe spec i e on he di e en go e nance mechanisms, whe eas he ne wo k and social capi al heo y s em om managemen and social ne wo k li e a u e, wi h g ea e emphasis on he ela ional issues in he go e nance o amily i ms. I can also be a gued ha hese heo ies ep esen wo di e en app oaches o he go e nance mechanisms in amily i ms. 31 3.0 FAMILY FIRM GOVERNANCE – VARIOUS GOVERNANCE MODELS In he p e ious sec ions, I ha e discussed possible heo e ical amewo ks o analyzing co po a e go e nance in amily i ms. In he agency heo y amewo k, amily owne ship is o en seen as a go e nance mechanism ha aims a educing agency cos s and whe e his is conside ed one o he easons o being amily owned. In his sec ion I ake amily owne ship as gi en and discuss go e nance models, wi hin he heo e ical amewo k o agency, ne wo k and social capi al heo y. I ocus on how amily i ms ope a e in di e en models, and which go e nance p oblems he a ious models may be able o sol e in a gi en en i onmen . 3.1 The Family Fi m In co po a e go e nance esea ch, concen a ed owne ship and block holdings ha e been cen al issues due o he possibili y o he majo i y sha eholde s exploi ing he mino i y sha eholde s in hese i ms. In amily i ms, he amily ends o ha e a high deg ee o con ol, ei he h ough la ge owne ship s akes o h ough s ong in luence on decisions. This implies ha amily i ms o en ha e he same challenges ega ding he possibili y o exploi ing mino i y sha eholde s as non- amily i ms. In addi ion, hey ha e he e ec s o all he o he unique cha ac e is ics o he amily i m. The amily i m is o in e es due o he p e alence o hese i ms, bu e en mo e so due o he impo ance o amily i ms in alue c ea ion in mos economies. One may ega d he amily i m as an ins i u ion, whe e beha io becomes ins i u ionalized by he o ganiza ional cul u e and whe e his cul u e is an impo an ac o de e mining he success o he amily business (Ha ey, 1999a). Al hough he e seems o be no common desc ip ion o wha cons i u es a amily i m, he e a e se e al elemen s ha a e unique o hese i ms compa ed o o he i ms, wi h he bonding by amily ies as possibly being he mos cha ac e is ic (Ge sick e al., 1997). Tagui i and Da is (1982) ha e es ablished a “ h ee-ci cle” model ocusing on he o e laps be ween owne s, manage s and amily membe s, whe e each indi idual seems o ha e one o mo e di e en oles in he business. In his model, hey ega d he amily i m as a amily business sys em, and om his pe spec i e one can a gue ha he go e nance sys em needs o go e n bo h he i m and he amily. Mus akallio (2002) has di ided he cha ac e is ics o amily i ms in o i e main ca ego ies. These a e: 1) endu ing exchanges, 2) emo ional dimension o he amily i m, 3) high amoun o con lic , 4) low mobili y o sha es and 5) mixed sel - in e es ed and al uis ic beha io . In addi ion, he e is o en a s onge ocus on owne iden i y in amily i ms compa ed o non- amily i ms. 38 Boa d s uc u e and boa d composi ion in amily i ms Boa d size a ies, depending on he objec i es o he boa d. Big boa ds ep esen a la ge esou ce base han small boa ds, bu he amily holds less powe (Wes head and Cowling, 1996). In amily i ms, he amily’s in e es s may domina e o e o he owne s’ in e es s. Weal h p ese a ion becomes impo an due o he concen a ion o pe sonal and amily weal h in owne -managed i ms (Ca ney and Gedaljo ic, 2003). The con olling amily may wan o main ain independence and con ol, and small in e nal boa ds ensu e ha he amily’s in e es s a e aken ca e o (Wes head and Cowling, 1996; Randøy and Down, 2002). Boa d composi ion is o en homogenous in amily i ms, wi h some e idence ha amily i ms ha e mo e inside di ec o s han o he i ms and ha he numbe o ou side di ec o s ends o inc ease in second and hi d gene a ion i ms (Cowling and Wes head, 1996). In amily i ms, he e is o en an owne -manage holding he CEO posi ion, p ese ing con ol o he i m and i s decisions (Ca ney and Gedaljo ic, 2003; Daily and Dal on, 1992). Boa d composi ion can be he ou come o ba gaining be ween he CEO and he es o he boa d, whe e he powe o he CEO is c ucial o he s uc u e and independence o he boa d (Mace, 1971; Lo sch and MacI e , 1989; Fila oche , Lien and Piesse, 2003). Boa d p ac ices and p ocesses in amily i ms Boa d p ac ices in amily i ms seem o be qui e simila among i ms o compa able s uc u e and size. The e seems o be a “copy” e ec among amily i ms whe e he line o hough migh be ha “wha wo ks o hem should wo k o us” (Løining, 2001). Boa d s uc u e a ec s boa d p ocesses and boa d p ac ices. One ele an ques ion is how hese p ocesses wo k in amily i ms wi h a high deg ee o inside boa d membe s e sus a high deg ee o ou side membe s. Some amily i ms do no ha e a boa d, some ha e a small o mal boa d consis ing o amily membe s, whe eas some i ms use he boa d as a esou ce base and ha e la ge boa ds (Wes head and Cowling, 1996). The in e es ing ques ion is how boa ds wo k in amily i ms wi h addi ional elemen s such as amily ies, emo ional issues, amily con lic s and sibling i al y. In cases whe e a i m needs access o c i ical esou ces, he choice o boa d size and boa d composi ion can be one way o o e come esou ce cons ain s. This can be done by inc easing he numbe o di ec o s, some imes s essing an inc ease in he numbe o ou side di ec o s; he eby a ec ing he way he boa d wo ks oge he (Zah a and Pea ce, 1989; Randøy and Down, 2002). An inc ease in ex e nal boa d membe s may weaken he amily’s in luence, which is in some cases an ad an age and in o he s a disad an age. 39 The Rela ionship be ween Boa d and Manage s in Family Fi ms In amily i ms owne s a e o en manage s and boa d membe s, which c ea es di e en go e nance issues and challenges compa ed wi h in es o owned i ms. One p oblem is how o use accu a e in o ma ion, ee o bias. Ano he is how o use he in o ma ion consis en ly conside ing he e ec s o amily ies and al uism (Luba kin, Ling and Schulze, 2003). Boa ds a e in some cases weak moni o s, maybe e en mo e so in amily i ms whe e i is di icul o main ain objec i i y. Bo h objec i i y and p oximi y ha e hei cos s and bene i s. Objec i i y may gi e less in o ma ion and ewe co ec i e ac ions, while p oximi y gi es mo e in o ma ion and can acili a e imely co ec ion. Con e sely, i may be di icul o make ough decisions due o close ela ional ies (Boo and Macey, 1999). In addi ion he e may be some special ea u es in amily i ms, which gi e managemen mo e con ol o e he boa d han in non- amily i ms. Pe ig ew (1992) poin s ou ou ac o s ha a e impo an in he ela ionship be ween he managemen and he boa d in amily i ms: 1) The op managemen ’s powe in he selec ion o boa d membe s, 2) he limi ed ime ou side di ec o s ha e a ailable, 3) he managemen ’s mo e accu a e in o ma ion abou he business, and 4) he limi ed independence o ou side di ec o s. These ac o s gi e he CEO e en mo e powe o e amily boa ds han non- amily boa ds, making he objec i e moni o ing ole mo e di icul o conduc . Family i m boa ds a e some imes iewed less as a go e nance mechanism and mo e as a op-le el s a egic g oup. Family membe s also se e as ac i e moni o s o hei manage s and he in o ma ion low be ween manage s and amily membe s se es as a con ol mechanism (Mish a e al., 2001). The Rela ionship be ween Owne s and Manage s in Family Fi ms Family i ms may p o ide a unique go e nance con ex , due o he amily’s desi e o owne ship, con ol and in ol emen in he business (Randøy and Goel, 2003). They can u ilize s a egic bene i s o highe inside owne ship and achie e supe io pe o mance. One a gumen o amily leade ship is ha amily ai s like us , al uism, and pa e nalism encou age an a mosphe e o lo e and commi men owa ds he business and educes agency cos s (James, 1999). In amily i ms, owne s and manage s o en ha e g ea in luence on i m alue h ough he posi ion and powe hey wield wi hin he i m. Good co po a e go e nance should enable owne s o exe cise con ol o e managemen (Eisenha d , 1989). In his espec , ounde amily owne ship may be a subs i u e co po a e go e nance mechanism ha can eplace o he moni o ing mechanisms, such as di ec moni o ing by owne s o a compe i i e ma ke o co po a e con ol (Randøy and Goel, 2003). 40 Fama and Jensen (1983) sugges ha he long- e m na u e o amily ela ionships is ad an ageous in moni o ing and disciplining manage s, and ha amily ai s a e impo an . On he o he hand, he d awback o amily i ms migh be ha hey ha e di icul ies in accep ing p o essional manage s capable o esponding o new echnology and inc eased compe i ion. The implica ion is ha he selec ion and dismissal o he CEO becomes a signi ican challenge (Gomez-Mejia e al., 2001). Chandle (1990) a gues ha he pe sonalized cha ac e o a amily business is mani es ed in op managemen , whe e selec ion is on he basis o amily ies ins ead o p o essional expe ise. Lack o manage ial capaci y may limi he abili y o compe e in e na ionally due o a lack o moni o ing and coo dina ion capabili ies needed o manage geog aphically dis an and dispe sed ac i i ies. Mish a e al., (2001) ask whe he amily owne ship makes inancial sense and whe he hese i ms ha e a go e nance ad an age o e widely held i ms. They ind a posi i e ela ionship be ween ounding amily con ol and i m alue due o a long- e m ho izon and he po en ial o educe he mo al haza ds due o he combina ion o owne ship and con ol. They also ind ha ou side di ec o s do no imp o e co po a e go e nance in ounding amily con olled i ms, whe e amily alues, like us and al uism, can c ea e a commi men o long- e m alue c ea ion. T us among amily membe s and managemen is conside ed impo an o he amily business’ success, whe eas lack o us may be a h ea o he iabili y o a amily i m (Ke s deV ies, 1993, 1996; Walsh 1994). One ques ion wo h pu suing is whe he us is exogenous o success o no . I may be di icul o ind a iables o measu ing us , consequen ly making i ha d o de e mine he e ec o us in i ms. Gomez-Mejia e al. (2001), s a e ha amily bonds be ween p incipal and agen impac beha io di e en om economic a ionali y. In a amily-con ac ing si ua ion, a ela ional con ac be ween he i m and he agen (a amily membe ) in ol es a common bond and a se o mu ual expec a ions ha a e mo e likely o be based on emo ions han a non- amily ela ional con ac . This may include pa en -child dynamics, gene a ional en y and sibling i al y. Manage ial en enchmen may also be a p oblem in amily i ms, whe e execu i es hold on o hei jobs pas he poin whe e hei s ewa dship is bene icial o he i m. In hese cases, execu i es will y o neu alize in e nal con ol mechanisms o ensu e sel -p ese a ion and amily s a us leads o biased judgmen abou he app op ia eness o execu i e decisions. CEO e mina ion is di icul in amily i ms and o ganiza ional consequences o CEO dismissal a e g ea e when he eplaced CEO is a amily membe (Gomez-Mejia e al., 2001). 41 5.0 FAMILY FIRM GOVERNANCE – A RELATIONAL GOVERNANCE MODEL Family owne ship pe se is no a solu ion o go e nance p oblems, bu in some con ex s a ela ional go e nance model wi h emphasis on in o mal, social con ol ha egula es he ela ionship be ween di e en s akeholde s, can be a solu ion o some o he go e nance p oblems in hese i ms. This model ocuses on he op imal use o social capi al embedded in social ela ionships among he owne - amily membe s and he managemen (Mus akallio, 2002). The po en ial exis s o enhancing some o he ad an ages o being a amily i m and mi iga ing some o he disad an ages. I amily i ms a e able o eap he bene i s o long las ing ela ionships, sha ed ision and us among amily membe s, as well as loyal y and long adi ions, hey may expe ience ad an ages wi h his owne ship s uc u e (Ha ey, 1999a; Ouchi, 1980). Bu , owne ship in i sel also in ol es go e nance cos s such as cos s o con olling manage s, cos s o collec i e decision-making and cos s o isk bea ing (Hansmann, 1996). The ela i e cos s a y wi h di e en o ms o owne ship. In addi ion, he e is a cos o main aining ne wo ks ha needs o be aken in o conside a ion (G ano e e , 1985). One can expec ha mos amily i ms employ bo h con ac ual and ela ional modes o go e nance, and ha hese models can bo h complemen and supplemen each o he . Table IV illus a es how a ela ional go e nance model may esol e some go e nance p oblems in amily i ms wi hin a con ex cha ac e ized by us and sha ed isions. Incen i e p oblems a e o en explained by he sepa a ion o owne ship and con ol, wi h he challenge being o ind incen i es o make he manage s ac in he in e es o he sha eholde s (Jensen, 1983; Jensen and Meckling, 1976). In amily i ms, one o he main cha ac e is ics is he coupling be ween di e en oles, whe e amily membe s end o hold one o mo e posi ions in he i m, c ea ing a highe deg ee o in e ac ion be ween he a ious unc ions. These s ong ne wo ks and ela ions ha e he po en ial o sol ing some o he incen i e p oblems (alignmen ), manage ial oppo unism and in o ma ion asymme y (including mo al haza d and ad e se selec ion) h ough mo e in ol emen and a highe deg ee o in o ma ion sha ing. Howe e , o his o happen he e should be a deg ee o us , sha ed isions and posi i e ela ions among he amily and manage s, as well as be ween he a ious amily membe s. One may expe ience incen i e p oblems in amily i ms when he e is con lic and lack o us and sha ed isions, especially in la ge i ms wi h many owne s. This si ua ion gi es manage s mo e powe o e he i m. Family owne ship alone does no sol e incen i e p oblems; i is how he amily manages o ope a e and go e n he i m ha can make a di e ence. The possibili y hen a ises o enhancing he ad an ages o amily owne ship. 42 In amily i ms, agency p oblems a e no only a esul o sepa a ion o owne ship and con ol, bu also o con olling sha eholde s who in some cases exp op ia e non-con olling sha eholde s (La Po a e al., 1997; Bennedsen and Wol enzon, 2000). This can be done by amily sha eholde s aking cash ou h ough ans e p icing o selling asse s below he ma ke p ice o o he manage -owned businesses (Shlei e and Vishny, 1997). In coun ies wi h good legal p o ec ion, he exp op ia ion o mino i y sha eholde s is less likely. Howe e , in coun ies wi h weak legal p o ec ion, his exp op ia ion may ake place (La Po a e al., 1999). In amily i ms he e is also he isk o la ge amily owne s ex ac ing p i a e bene i s, ei he by using hei con olling igh s o pu sue p ojec s ha bene i hemsel es a he han o he in es o s, o amily manage s en enching hemsel es and s aying in he job oo long (Shlei e and Vishny, 1997). Some o hese agency p oblems can be sol ed i he amily i m is cha ac e ized by us , ha mony and sha ed isions, c ea ing he possibili y o es ablishing common p io i ies and goals o he i m and lowe ing he isk o some amily membe s wan ing o ex ac bene i s. In addi ion, amily i ms may choose non- amily membe s om a close ne wo k o di e en oles in he i m, which can be a ec i ying and adjus ing ac o in some ela ionships, and educe he possibili y o exp op ia ion. No mally al uism is ega ded as one o he posi i e e ec s o amily owne ship, whe e he mix u e o business and non-business goals a e pe cei ed o ac as sel -en o cing go e nance mechanisms (Ouchi, 1980; Jones e al., 1997). Howe e , in some amily i ms he con olling owne s’ choices and pe cep ions a e biased by hei al uism owa ds o he amily membe s, making i di icul o ake op imal ac ions o he i m. This myopic al uism can also lead o hold-up p oblems, whe e amily membe s possess ba gaining powe due o amily ies (Luba kin, Ling and Schulze, 2003). In amily i ms he e is also he isk o amily manage s s aying in he job oo long, o ha hey educe i m alue due o lack o managemen capabili ies, especially in i ms un by descendan s o he ounde (Ge sick e al., 1997). One way o mi iga ing he nega i e e ec s o al uism is o use non- amily esou ces om close ne wo ks in some o he oles in he amily i m, whe e he ex e nal esou ces can ac as an adjus ing ac o in con en ious issues. T us , sha ed isions and ha mony in amily ela ions can also mi iga e he nega i e e ec s o myopic al uism by accen ua ing a common desi e o inc ease wel a e o all amily membe s (James, 1999; Kepne , 1983). In amily i ms wi h a la ge numbe o owne s, he possibili y o inding a capable CEO wi hin he amily inc eases. Wi h many smalle amily owne s, he ba gaining powe o each amily owne may be educed, educing he hold-up p oblem in hese i ms (Luba kin, Ling and Schulze, 2003). 43 Table IV: Go e nance p oblems po en ially sol ed in a con ex cha ac e ized by us and sha ed isions Po en ial go e nance Incen i e P i a e Myopic Manage ial Managemen In o ma ion p oblems in amily i ms: P oblems Bene i s Al uism Oppo unism Capabili ies Asymme y Possible ela ional go e nance mechanisms in amily i ms: Family couplings and oles: Family owne and CEO + + + Family CEO and boa d membe s + + + Family owne and on he boa d + + Se e al i m oles held by amily + + + O he s om ne wo k (non- amily) + + + + + P e alence o us High le el o us wi hin amily + + + + + Low le el o us wi hin amily - - - - - Sha ed isions Sha ed isions in place + + + + + + Sha ed isions no in place - - - - - - Social in e ac ion Ha mony in amily ela ions + + + + + High le els o con lic - - - - - Family ins i u ions In o mal s uc u es / p ocesses + + + Fo mal s uc u es / p ocesses Family size La ge amoun o amily owne s + + Small amoun o amily owne s + + Fi m age Younge i m un by ounde + + + Olde i m un by descendan s + Posi i e signs (+) indica e a posi i e e ec on go e nance p oblems Nega i e signs (-) indica e a nega i e e ec on go e nance p oblems No signs indica e ha he e is no e ec on go e nance p oblems The e seems o be no consensus on wha ” he bes ” owne ship s uc u e is, o wha cons i u es good o bad co po a e go e nance mechanisms. Howe e , he e a e easons o belie e ha he op imal go e nance mechanisms depend on cul u e and indus y s uc u e wi hin a coun y, he le el o legal p o ec ion, as well as se e al i m-speci ic ac o s. Fo his eason, he ela ional go e nance mechanisms may enhance he ad an ages o being a amily i m in some en i onmen s, whe eas in o he en i onmen s his may no be he case. Some o he key elemen s ha should be in place in o de o make he op imal usage o a ela ional model a e us , sha ed isions and ha mony in he a ious amily ela ions (no always he case). Va ious amily ins i u ions, like amily mee ings o councils, may imp o e some o he in e ac ions, bu he main issue in op imal amily i m go e nance is whe he he e a e posi i e ela ionships and a mosphe e be ween he amily membe s. 44 6.0 CONCLUDING REMARKS In some cases he amily i m can be ega ded a “social ins i u ion” in addi ion o a go e nance mechanism. I ha e ocused on how in e - ela ions be ween di e en in e nal co po a e go e nance mechanisms change wi h di e en owne ship s uc u es and he uniqueness in he go e nance o amily i ms. Family i ms a e o in e es because hey ep esen a special case o closely held i ms wi h g ea e ocus on social aspec s compa ed o non- amily i ms wi h la ge block holdings. The usage o go e nance model, ei he a con ac ual o a ela ional model, a ec s he way a i m ope a es, i s s a egic choices, i s decision p ocesses and he balance o powe , and ul ima ely i s inancial pe o mance. In amily i ms, he use o a mo e ela ional go e nance model implies a se o di e en mechanisms o selec ing manage s and boa d membe s. This a ec s he ela ionship be ween he owne s, manage s and boa d membe s. As discussed in sec ion ou , he addi ional ac o s o amily ies, social ela ions and ne wo ks o en p e alen in amily i ms can be ega ded as social capi al. I a gue ha he social capi al embedded in hese ela ions canno easily be aded and ha i makes a di e ence in he go e nance o amily i ms e sus non- amily i ms. Fi ms do no necessa ily exclusi ely choose ei he a con ac ual o a ela ional go e nance model bu may emphasize some elemen s mo e han o he s wi hin he di e en models. As a esul , he con ac ual and ela ional go e nance models may complemen and supplemen each o he in he go e nance o i ms wi h an inc eased ocus on he social capi al embedded in he ela ionships in amily i ms. P e ious esea ch has o a la ge ex en been ocused on he ela ionship be ween owne ship s uc u e and inancial pe o mance. The e is a demons able need o mo e esea ch on how go e nance models a ec he way amily i ms ope a e and make decisions. I ha e discussed ad an ages and disad an ages o amily owne ship and how amily i ms deal wi h a ious elemen s in hei choice o go e nance models and mechanisms. I a gue ha he go e nance model is a esul o he agency con ex he i m ope a es wi hin as well as he ela ionship be ween i s go e nance mechanisms speci ically he owne ship s uc u e, he boa d, and managemen incen i es. I a gue ha ela ional go e nance mechanisms may enhance he ad an ages o being a amily i m in some en i onmen s i us , sha ed isions and ha mony in he a ious amily ela ionships a e p e alen . In o de o ge a be e pic u e o co po a e go e nance in amily i ms, i may be aluable o d aw om o he heo e ical amewo ks, in addi ion o agency heo y, o analyse e ec s o social ela ions and ne wo ks in hese i ms. 45 REFERENCES: Adle P.S. and S. Kwon, 2002, “Social capi al: P ospec s o a new concep ”, Academy o Managemen Re iew, 27(1), pp. 17-40 Alchian, A.A. and H. 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Jensen, 1985, “O ganiza ional o ms and in es men decisions”, Jou nal o Financial Economics 14, pp. 101-119 Fila oche , I., Y.Lien and J.Piesse, 2003, “Co po a e Go e nance and Pe o mance in Publicly Lis ed, Family-Con olled Fi ms: E idence om Taiwan”, Managemen Cen e Resea ch Pape s, Resea ch Pape 018, King College London Fila oche , I. and T. Mickiewicz, 2001, “Owne ship Concen a ion, “P i a e Bene i s and Con ol” and Deb Financing”, Pa o he ACE-Pha e p ojec P98-1048-R “Co po a e Go e nance, ela ional in es o s, s a egic es uc u ing and pe o mance in Hunga y and Poland” Fudenbe g D., D.M. K eps and E.S. Maskin, 1990, “Repea ed Games wi h Long- un and Sho - un Playe s”, Re iew o Economic S udies 57, pp. 555-573 Fukuyama, F., 1995, T us , New Yo k Gedaljo ic E. and D.M. Shapi o, 2002, “Owne ship S uc u e and Fi m P o i abili y in Japan”, Academy o Managemen Jou nal 45(3), pp. 565-576 Ge sick, K.E., J.A. Da is, McCollom Hamp on, M.M. and I. Landsbe g, 1997, “Gene a ion o gene a ion: Li e cycles o amily business”, Bos on, MA: Ha a d Business School P ess Goods ein, J., K. Gau am and W. Boeke , 1994, “The e ec o boa d size and di e si y on s a egic change,” S a egic Managemen Jou nal 15, pp. 241-250 54 55 Pape Two THE EFFECT OF INDUSTRY NETWORKS ON FAMILY OWNERSHIP K is in Walle ik Copenhagen Business School 2009 Abs ac Co po a e owne ship s uc u es a e concen a ed in mos pa s o he wo ld. O en hese i ms a e con olled by amily, ei he he ounde o he descendan s o ounde . Economic heo ies a ibu e concen a ed owne ship o incen i e e iciency, small-scale p oduc ion and poo in es o p o ec ion (e.g. Demse z, 1983; La Po a e al., 1998). In his pape I ocus on an al e na i e explana ion: owne ship s uc u es come in clus e s wi h s ong posi i e eedback e ec s. In pa icula , I p opose ha closely held and amily i ms end o clus e in indus ies, egions and na ions. In a clus e , he amily i m combines he lexibili y and incen i es o pe sonal owne ship wi h economies o scale and scope. S ong pe sonal ne wo ks, us and epu a ion help o e come capi al a ioning and hold-up p oblems, which o he wise gi e widely held i ms a compe i i e ad an age. In s ong ne wo ks, in e locking di ec o a es, amily ies, iendships and ade associa ions ein o ce he syne gies be ween i ms. The go e nance mode comes o be mo e ela ional a he han ma ke based. A he same ime, he clus e ed i ms main ain su icien au onomy and dis ance o be able o compe e and adjus quickly o changes in he economic en i onmen . Thus clus e ing complemen s some o he cha ac e is ics o amily i m go e nance emphasized in he amily business li e a u e. This pape also deals wi h how “wi hin- i m” ela ions and go e nance modes may ha e an e ec on “be ween- i m” ela ions and modes o go e nance. Keywo ds: Indus y ne wo ks, ela ional go e nance, amily owne ship, social capi al 56 1.0 INTRODUCTION Family owne ship is a e y common owne ship s uc u e in mos coun ies (Shlei e and Vishny, 1986) and se e al s udies ha e in es iga ed he cha ac e is ics o his special case o he closely held i m (Ami and Villalonga, 2006; Ande son and Reeb, 2003; Ke s de V ies, 1993, 1996; James, 1999; Luba kin, Ling and Schulze, 2003; Mish a e al., 2001; Mus akallio, 2002; Kepne , 1983). Family i m esea ch, howe e , has o a la ge ex en been conduc ed on how amily i ms di e om o he i ms, wi h less ocus on why amily businesses di e , and wha he consequences o hese di e ences migh be in a co po a e go e nance pe spec i e. In he co po a e go e nance li e a u e, some s udies ocus on easons o dispe sed owne ship (Be le and Means, 1932; Jensen and Meckling, 1976) and o he s udies ocus on easons o concen a ed o amily owne ship (La Po a e al., 1999; Zhou, 2001), mainly using agency heo y as he heo e ical amewo k. He e, amily owne ship is seen as he solu ion o alignmen and incen i e p oblems in i ms. Family owne ship is explained by and ega ded as a means o mi iga ing agency p oblems and educing agency cos s. I has also been s a ed ha some na ions and indus ies ha e a highe equency o amily i ms han o he s (Thomsen and Pede sen, 2000; La Po a e al., 1999). One possible explana ion may be ha he owne ship s uc u e is also a esponse o he en i onmen in which i ms ope a e, and ha amily owne ship is a mo e iable solu ion in some con ex s. These con ex ual ac o s can be i m speci ic (size, age, capi al s uc u e, asse speci ici y), indus y speci ic (capi al in ensi y, compe i ion), o na ion speci ic elemen s (public policy, axes, legal and inancial ma ke s). La Po a e al. (1999) conclude ha he owne ship s uc u e is a esponse o he domes ic legal en i onmen s, and ha concen a ed owne ship is a esponse o poo in es o p o ec ion and law en o cemen in hese coun ies (La Po a e al., 1998, 1999). Howe e , in coun ies wi h good in es o p o ec ion and law en o cemen , concen a ed and amily owne ship is also he mos p e alen owne ship s uc u e (Bøh en and Ødegå d, 2001), suppo ing he idea ha he e a e o he de e minan s o amily owne ship in addi ion o i being a esponse o he business en i onmen . I a gue ha i ms a e embedded in a wide social and indus y con ex whe e s ong social and indus y ne wo ks can enhance amily owne ship in some en i onmen s. Addi ional elemen s like incen i es, moni o ing, and al uism, as well as i m, indus y and na ion speci ic ac o s mus be aken in o accoun . I use ne wo k heo y as an addi ional amewo k in o de o cap u e o he dimensions missed by he agency heo e ic iew. The idea is ha he e a e o he mechanisms a ec ing amily owne ship ha oppose o concen a ed owne ship in gene al (e.g owne iden i y, adi ions and ela ions). 57 In his pape , I wan o ex end he adi ional iews o de e minan s o amily owne ship, and in es iga e whe he he le el o amily owne ship wi hin ce ain indus ies can be explained by a phenomenon in be ween he i m le el (mic o) and he indus y/na ion le el (mac o). Could he e be a “clus e le el” in be ween, whe e s ong indus y ne wo ks a e ega ded as de e minan s o amily owne ship, in addi ion o i being a solu ion o incen i e p oblems? I combine a se o heo ies o b oaden he iew on “why amily i ms” and he possible consequences o his owne ship s uc u e wi h ega d o modes o ope a ion. I discuss a possible ela ionship be ween amily i ms (Ami and Villalonga, 2006; Ande son and Reeb, 2003) and social and comme cial indus y ne wo ks (Rosen eld, 1996, 1997; G ano e e , 1985). Fo his pu pose, I de ine amily i ms as i ms wi h “ amily owne ship s akes” in he ange o 20% o mo e, o ha he amily has in luence h ough CEO o Chai , which is in line wi h he s onges de ini ion in Ami and Villalonga (2006). Some indus ies a e cha ac e ized by ha ing a la ge po ion o amily i ms. In some cases his has been he ue o gene a ions. I a gue ha o indus ies o emain cha ac e ized by amily i ms o e ime he e should be a g ow h o new eme ging ounde amily i ms in hese indus ies. This implies ha some o he i ms will be in he ounde phase whe e ounde is he en ep eneu , whe eas o he i ms a e in he second o hi d gene a ion, mo e in line wi h he adi ional de ini ion o amily i ms. I a gue ha s ong ne wo ks enhance es ablishmen o new amily i ms indica ing ha i may be ele an o include hese i ms in o he de ini ion o amily i ms. I is di icul o dis inguish he cause and e ec o s ong ne wo ks and amily owne ship. One ques ion is whe he amily i m go e nance c ea es ne wo ks o i i is he o he way a ound. Ano he ques ion is whe he amily i ms emain in indus ial ne wo ks because hey a e success ul, o whe he hey a e success ul due o hese s ong ne wo ks and he e o e can emain amily owned. One can a gue ha i ms need o be es ablished in o de o en e in o s ong in e - i m ne wo ks, bu om a ne wo k pe spec i e i can be a gued ha s ong ne wo ks only os e he es ablishmen o amily i ms i he ne wo k is cha ac e ized by amily i ms. I ea amily owne ship as endogenous, ocusing on how s ong social and comme cial ne wo ks can enhance amily owne ship in some en i onmen s. I a gue ha s ong ne wo ks and ela ions help amily i ms o e come some esou ce cons ain s making i possible o emain and de elop as amily i ms in a long e m pe spec i e. I also a gue ha he e ec s o ne wo ks a e s onge in amily owned i ms when compa ed o non- amily 58 closely held i ms. This is due o he special elemen s like owne iden i y, us , amily ies (bo h social and gene ic), adi ions and long e m ela ionships, in addi ion o he ela ional go e nance s uc u e in hese i ms. E en hough he agency heo y is he mos p e alen heo e ical amewo k o desc ibing owne ship s uc u e and co po a e go e nance (Jensen, 1983), o he heo ies ha e been used. In his sec ion I discuss he elemen s in Table I as a amewo k o he pape . My main ocus howe e , will be on ne wo k e ec s on amily owne ship in some indus ies (las column in Table I). Se e al o he a gumen s in a ou o amily owne ship also apply o concen a ed owne ship in gene al bu I a gue ha some o he elemen s in Table I a e e en mo e ele an in amily owned i ms. In his pape , I mainly ocus on he posi i e elemen s in amily i ms, al hough amily i m con lic s may be e en deepe and s onge han in non- amily i ms. Table I: De e minan s o Family Owne ship in Di e en Theo e ical F amewo ks Possible De e minan s o Family Owne ship: Reduce Agency P oblems Response o En i onmen S ong Social Ne wo ks Key wo ds: Reduc ion o agency cos s Fi m speci ic ac o s: Social capi al embedded and imp o ed inancial *Fi m age in s ong ne wo ks in pe o mance by: *Fi m size clus e s acili a e: *Aligning in e es s be ween *Capi al s uc u e *"Thick us " owne s and manage s *Asse speci ici y *Complex ansac ions *Sol ing incen i e p oblems Indus y speci ic ac o s: *Access o esou ces *Reducing moni o ing cos s *Capi al in ensi y *Es ablishmen new i ms *Reducing oppo unism *Compe i ion *Agglome a ion bene i s *Sha ed bene i s o con ol *Vola ili y *Ne wo k ex e nali ies *Al uism *Ba ie s o en y *In e locking boa ds *Social epu a ion and con ol Na ion speci ic ac o s: *Co-ope a ion *Go e nance e iciencies *Legal s uc u e *Focus on human capi al *Long- e m ho izon *Accoun ing ules *Rela ional go e nance *Be e in es men s *Capi al ma ke s *T ans e o in o ma ion *S ewa dship *Regula ions *Sha ed isions Possible Agency heo y Resou ce dependency Ne wo k/social capi al heo e ical: S ewa dship heo y Agency heo y Ins i u ional heo y amewo ks: T ansac ion cos heo y Clus e heo y Some Be le & Means (1932); Fama P e e (1982); Fila oche , G ano e e (1985); Po e e e ences: & Jensen (1983); Jensen & Lien and Piesse (2003); (1990), Mus akallio (2002); Meckling (1976); Shlei e & Ca ney & Gedaljo ic (2002); Sco (2001); Bu (1992); Vishny (1997); James (1999); Shlei e & Vishny (1997); Rosen eld (1996, 1997); La Po a e al. (1997, 1998); La Po a e al., (1999); Doe inge & Te kla (1995); Ami & Villalonga (2006); Demse z & Lehn (1985); Coleman (1988); Pu nam Ande son & Reeb (2003); Williamson (1975, 1979); (1995); Bo dieu (1986); Donaldson & Da is (1991) Thomsen & Pede sen (2000) Aguile a & Jackson (2003) 59 1.1 Family Owne ship as Mechanism o Reduce Agency P oblems Agency heo y ocuses on economic a ionali y and educ ion o agency cos s wi h an assumed “in-buil ” con lic be ween manage s and owne s, leading o incen i e p oblems and exploi a ion o mino i y sha eholde s (Jensen and Meckling 1976; Shlei e and Vishny, 1997). Agency heo y deals wi h p oblems o agency ela ionships and how di e en ways o con ac ing and o ganizing a ec he ou comes o ha ela ionship (Mus akallio, 2002). Eisenha d (1989), s a es ha agency heo y add esses wo p oblems ha may occu in agency ela ionships: 1) The p oblem o con lic ing goals be ween he p incipal and he agen and 2) he di e en a i udes owa ds isk be ween p incipal and agen ha makes hem p e e di e en ac ions. In agency heo y, amily owne ship is pe cei ed as a solu ion o hese agency p oblems due o alignmen be ween owne s and manage s. In gene al, agency p oblems can be di ided in o wo ca ego ies (Ami and Villalonga, 2006; La Po a e al., 1997), whe e agency p oblem II seems o be he mos p e alen in amily i ms. Agency P oblem I: Con lic o in e es be ween owne s and manage s The classic agency p oblem in i ms wi h dispe sed owne ship is sepa a ion o owne ship and con ol, whe e alignmen o owne s and manage s is an impo an issue (Jensen and Meckling, 1976). In hese i ms, he main conce n is exp op ia ion o unds by he manage s, which can be seen as he classic “S ong Manage s, Weak Owne s” (Roe, 1994) case, whe e he e is a need o incen i es o ensu e ha manage s wo k in he in e es o sha eholde s (Shlei e and Vishny, 1997). Agency P oblem II: Con lic o in e es be ween la ge and mino i y sha eholde s In closely held and amily i ms, agency p oblems a e no necessa ily a esul o sepa a ion o owne ship and con ol, bu o con olling sha eholde s no always ac ing in he in e es o non-con olling sha eholde s wi h a po en ial exp op ia ion o mino i y sha eholde s (La Po a e al., 1997, Shlei e and Vishny, 1997; Bennedsen and Wol enzon, 2000). Exp op ia ion o unds can be accomplished by sha eholde s aking cash ou h ough ans e p icing, selling asse s below ma ke p ice o o he manage -owned businesses, manage s using hei con ol igh s o pu sue p ojec s ha bene i hem a he han in es o s, o manage s en enching hemsel es and s aying in he job oo long (Shlei e and Vishny, 1997). Family con ol may be ca ied ou h ough de iance be ween cash low igh s and o ing igh s, by mul iple sha e classes, o by o he o ing ag eemen s (Ami and Villalonga, 2006). In addi ion, amily in luence implies in luence on managemen decisions, ei he by being he manage o h ough 60 o he means (Ami and Villalonga, 2006). In some amily i ms, he e is also he isk o con lic s be ween amily membe s, whe e mino i y sha eholde s su e because o sub- op imal in es men s and a lowe alue o asse s (James, 1999). The bene i s o con ol o e co po a e esou ces play, a cen al ole in mode n hinking abou inance and co po a e go e nance. The amoun o p i a e bene i s o con ol, ha con olling sha eholde s can ex ac om companies hey un, is cen al in he li e a u e on in es o p o ec ion (Dyck and Zingales, 2004). Va ious coun ies ha e di e en legal ules and le els o in es o p o ec ion, whe e common law coun ies a e judged o ha e he bes legal sys em in his espec (La Po a e al., 1998, 1999). La Po a e al. (1999), s a e ha he exp op ia ion o mino i y sha eholde s applies especially in coun ies wi h weak legal p o ec ion, whe e concen a ed owne ship is mo e common. In mos coun ies exp op ia ion o mino i y sha eholde s canno be done wi hou legal consequences. Some o he ins i u ions ha can help cu b p i a e bene i s a e high accoun ing s anda ds, legal p o ec ion o mino i y sha eholde s, law en o cemen , p oduc ma ke compe i ion, a high le el o di usion o he p ess and a high a e o ax compliance (Dyck and Zingales, 2004). S ic in es o p o ec ion and law en o cemen , wi h he likelihood o a mone a y o epu a ion loss o a con olling pa y who is in a posi ion o ex ac p i a e bene i s, is disciplining (Neno a, 2003). Also co po a e cha e p o isions, akeo e laws and egula ions a e impo an o ensu e ha he con ol p emium is sha ed wi h mino i ies in he e en o con ol ans e (Neno a, 2003). Consequen ly, he alue o con ol-block o es is expec ed o dec ease ela i e o he s ic ness o he legal en i onmen . Neno a (2003) has made a c oss-coun y compa ison o dual-class i ms in 18 coun ies ocusing on he o e- alue o p i a e bene i s and inds ha he alue o con ol-block o es is an impo an pa o i m alue and ha his a ies ac oss coun ies. This s udy inds ha he alue o he con ol-block o es in Scandina ian and Anglo-Saxon coun ies is close o ze o, ha con ol-block o es a e alued a mo e han a qua e o ma ke capi aliza ion in B azil, Chile, F ance, I aly, Mexico and Sou h Ko ea, and ha Ge manic coun ies ha e alues ha all in be ween hese le els (Neno a, 2003). Dyck and Zingales (2004) ha e made an in e na ional compa ison o p i a e bene i s o con ol among 39 coun ies and 393 con olling block sales, inding ha p i a e bene i s a e ha d o obse e and quan i y, bu ha he e a e wo possible me hods in measu ing p i a e bene i s o con ol: 61 1) Use p i a ely nego ia ed ans e s o con olling blocks in public i ms (Ba kley and Holde ness, 1989), o 2) use he exis ence o mul iple sha e classes wi h di e en o ing igh s. Dyck and Zingales (2004) ind ha No way, Uni ed Kingdom, Uni ed S a es and Finland a e among he low p i a e bene i coun ies, wi h a block p emium as pe cen o i m equi y o 3% o less. O he coun ies ha e a con ol p emium o 25% o equi y alue, and he sample in he s udy shows an a e age o 14% con ol p emium. C oss coun y di e ences also a ise because o o he indus y di e ences and some indus ies ha ing la ge p i a e bene i s han o he s (Demse z and Lehn, 1985). Le els o p i a e bene i s ex ac ed migh be endogenous o he size o he con olling block, whe e la ge sha eholde s ha e less o an incen i e o dilu e mino i y sha eholde s because hey in e nalize o a g ea e deg ee he ine iciency hey gene a e. Dyck and Zingales (2004) a gue ha i he acqui e s o he con olling block al eady owned a la ge s ake in he i m be o ehand, hey migh be willing o pay a p emium only because hey in e nalize a ac ion o he inc ease in he secu i y ia hei oeholds (G ossman and Ha , 1980), which may he case o amily i ms. Neno a (2003) s a es, ha he low alue o con ol-block o es in Scandina ian coun ies seems su p ising conside ing he ci il o igin o law. One explana ion o his phenomenon could be ha con olling pa ies a e law-abiding because epu a ion and social s a us ha e a disciplining e ec on hei beha io , discou aging mino i y abuse (Agnblad e al., 2001). Scandina ian coun ies seem o ha e s onge employees and social democ a ic p essu e compa ed o many o he coun ies. Roe (2003) s a es ha , his p essu e may explain why owne ship has no sepa a ed om con ol. He a gues ha social democ acy a ec s owne ship in wo ways: 1) The concen a ed owne s ha e s onge incen i es han “Be le-Means manage s” o a oid gi ing up oo much in sha eholde alue o social p essu es, and 2) i he concen a ed owne is p og essi e wi h a social conscience, he poli ical au ho i ies and o e s may p e e he incumben o e someone else who migh g ab con ol. In No way, he basic egula o y ool o mino i y p o ec ion is he p inciple o equal p opo ional igh s o e e y s ockholde , and no co po a e cha e can o e ule his igh (Bøh en and Ødegå d, 2001). The e is a wide se o egula ions o p e en he un ai ans e o weal h om small o la ge sha eholde s. A lagging sys em in o ms small in es o s when owne ship igh s a e ans e ed o he i m’s la ge in es o s, whe e h esholds o 5%, 10%, 20%, 33%, 50%, 67% and 90% o ou s anding cash low o o ing igh s a e o be no i ied o he i m and o Oslo S ock Exchange. Bøh en and Ødegå d (2001) conclude ha he No wegian egula o y amewo k p o ec s s ockholde s as a g oup, and small s ockholde s as a subg oup. 62 Se e al s udies a gue ha concen a ed owne ship is an impo an mechanism o educing agency p oblems in i ms wi h sepa a ion be ween owne ship and con ol (Jensen and Meckling, 1976; Shlei e and Vishny, 1997; Jensen 1983; Fama and Jensen, 1985; Demse z, 1983; James, 1999). The a ious s udies ocus on di e en ac o s, bu one main a gumen is ha owne ship concen a ion sol es oppo unism and incen i e p oblems due o he alignmen o in e es s be ween owne s and manage s. In owne -manage i ms James (1999) a gues ha i he amily loyal y o e comes he incen i e p oblems, amily owne ship may also sol e he agency p oblems ha a e a esul o con lic s o in e es be ween la ge and small sha eholde s. Summa izing why amily owne ship can educe agency p oblems: 1) I sol es incen i e p oblems Dealing wi h he wo p oblems o mo al haza d and ad e se selec ion has been an impo an issue in he co po a e go e nance li e a u e o a numbe o yea s, and owne ship s akes ha e been pe cei ed o be he main solu ion (Jensen, 1983; Jensen and Meckling, 1976). Family owne ship is seen as sol ing incen i e p oblems, pe sonal incen i es o wo k ha d a e assumed o sol e mo al haza d p oblem, and pe sonal incen i es o sell sha es should sol e he ad e se selec ion p oblem. 2) I educes moni o ing cos s Oppo unism is cos ly o mino i y owne s (Hansmann, 1996). Reduc ion o moni o ing cos s is one eason o concen a ed owne ship because wi h aligned owne ship and con ol agency cos s a e educed. Family owne ship is ega ded as an e icien ins i u ion, whe e amily loyal y may o e come incen i e p oblems and inc ease e iciency o he i m (James, 1999). Howe e , he e may also be oppo unism in owne -manage i ms and manage s can choose o exchange p o i s o o he bene i s, like cu en o e u u e consump ion (Fama & Jensen, 1985; Demse z, 1983; James, 1999). 3) The bene i s o con ol Con ol is ano he impo an incen i e o concen a ed owne ship. Two main mo i a ions o la ge-block owne ship: sha ed bene i s o con ol and p i a e bene i s o con ol (Holde ness, 2003). Bebchuk (1994, 1999) sugges s ha concen a ed owne ship is good when p i a e bene i s o con ol a e la ge. In spi e o agency cos s wi h amily owne ship, sha eholde s may esis dilu ion o hei equi y s akes. Families may be awa e ha hey could inc ease he p ice o hei s ocks by selling ou bu a e eluc an o do so (Fila o che and Mickiewicz, 2001). 63 4) Families make be e in es men s due o long- e m ho izon Social epu a ion and al uism a e cha ac e is ic o amily i ms and easons o , in addi ion o ad an ages o amily go e nance sys ems, main aining amily owne ship. The e ec i eness o amily go e nance, howe e , depends on he abili y o align in e es s o amily manage s ac oss gene a ions. I he decision make s ha e a ho izon ex ending beyond hei enu e, hey ha e he incen i e o maximize i m alue h ough in es men ac i i ies (James, 1999). Linking he ac ion o amily manage s o o he amily membe s’ wel a e is disciplining and manage s a e less likely o pu sue pe sonal in e es o e amily in e es (James, 1999; Kepne , 1983). I has been a gued ha social con ol and social esponsibili y ac as sel -en o cing go e nance mechanisms wi h us , sha ed ision and social epu a ion as suppo ing ac o s (Ke s de V ies, 1996; Ouchi, 1980). 1.2 Family Owne ship as Response o he Business En i onmen Agency heo y mainly ocuses on incen i e and alignmen p oblems in he analyses o owne ship. O he heo ies, like ansac ion cos o esou ce dependency heo y, hey ocus on asse speci ici y, ansac ion cos s, as well as access o human, manage ial, and capi al esou ces. F om hese o he pe spec i es one can ega d i m-, indus y-, and na ion-speci ic ac o s as he main easons o di e en owne ship s uc u es in a ious indus ies (Thomsen and Pede sen, 2000). Many o hese easons o amily owne ship also apply o o he closely held i ms and in he ollowing sec ions I discuss how ne wo ks and owne iden i y may di e en ia e amily i ms om o he i ms. Fi m speci ic ac o s: T ansac ion cos s a ec p o i abili y, owne ship and go e nance s uc u e in i ms. Williamson (1979) s a es, ha one may expec he owne ship s uc u e ha minimizes hese ansac ion cos s. In his app oach, in es men p ojec s a e examined in e ms o hei asse speci ici y cha ac e is ics, whe e di e en owne s ha e di e en alues and he p essu e on p o i maximiza ion can be la ge in i ms wi h dispe sed owne ship han in amily i ms (Williamson, 1979, 1985). Sepa a ion and specializa ion o isk bea ing and managemen oge he wi h alloca ion o isk (Fama and Jensen, 1983) can hen allow i ms o und la ge i m-speci ic asse s. One would expec i ms wi h la ge in es men s in hese asse s o ha e dispe sed owne ship s uc u e (Thomsen and Pede sen, 2000). 70 Mesqui a and Lazza ini (2008) a gue ha ela ional go e nance o ho izon al ies makes i easie o es ablish a common agenda when i ms a e in he same indus y o ma ke segmen . They ind suppo o he hypo heses ha ho izon al ela ional go e nance has a posi i e e ec on sou cing o collec i e esou ces and p oduc inno a ions. They also a gue ha ela ional go e nance in e ical ies can a enua e con ac ual haza ds occu ing in complex buye -supplie a angemen s and a ec he e iciency o coo dina ing in e dependen assembly sys ems among pa ies, suppo ing he hypo hesis ha e ical ela ional go e nance has a posi i e e ec on manu ac u ing p oduc i i y. They ind ha bo h e ical and ho izon al ela ionships can enhance collec i e e iciency. 2.2 Ins i u ional Theo y – “Isomo phism” Ins i u ional heo y is conce ned bo h wi h o mal and in o mal s uc u es in ins i u ions and could help explain why some en i onmen s ha e mo e amily i ms han o he s. Jeppe son (1991) de ines ins i u ions as any social pa e n cha ac e ized by a s anda d sequence o in e ac ions. Family i ms mee his de ini ion. Ins i u ions can also be seen as go e nance s uc u es based on ules, no ms, unde s andings and ou ines (Ma ch and Olsen, 1989). In addi ion, ins i u ionalism de ines go e nance by pa ne ing, coope a ion and in e change, and can be ega ded as closely allied wi h ne wo k heo y (O’Toole, 1997). I ind ha he ne wo k heo y is mo e applicable because i also includes social and ela ional dimensions in amily i ms, like owne iden i y and amily ies. Sco (2001) s a es ha much o he wo k by ins i u ional heo is s has been spen on documen ing he in luence o social and symbolic o ces on o ganiza ional s uc u e and beha io and ha sociological ins i u ionalism emphasizes indi idual beha io wi hin ins i u ions. He also a gues ha beha io mus be explained on a si ua ional basis wi h each con ex being di e en (Sco , 2001). DiMaggio and Powell (1983, 1991), on he o he hand, ask why o ganiza ions a e so simila . They a gue ha once a se o o ganiza ions eme ges as a ield, a ional ac o s make hei own o ganiza ions inc easingly simila as hey y o adap ; hey call his endency owa d homogenei y “isomo phism”. They a gue ha isomo phism can be di ided in o: 1) Compe i i e isomo phism a ising om ma ke o ces and 2) ins i u ional isomo phism a ising om compe i ion o poli ical and o ganiza ional legi imacy (DiMaggio and Powell, 1983, 1991). 71 Acco ding o DiMaggio and Powell (1983, 1991), ins i u ional isomo phism has h ee di e en mechanisms: 1) P essu es o con o m o bes p ac ice (coe ci e), 2) educed unce ain y by imi a ing success ul pee s (mime ic) and 3) socializa ion o pe sonnel o iew ce ain ypes o s uc u es as legi ima e (no ma i e). In his pe spec i e, a ious o ms o p essu e inc ease he homogenei y o o ganiza ional s uc u es. Aguile a and Jackson (2003) use ac o -cen e ed ins i u ionalism o explain c oss-na ional di e si y o co po a e go e nance. They ocus on he in e play o ins i u ions and i m-le el ac o s and how di e en con igu a ions o ins i u ions suppo di e en so s o in e ac ions among s ake-holde s in co po a e go e nance. This s udy a gues ha in e - i m ne wo ks a e a pa o i ms’ capi al and ha he s uc u e o in e - i m ne wo ks in luences i ms’ beha io h ough access o c i ical esou ces and in o ma ion. Aguile a and Jackson (2003) p opose ha in coun ies wi h a high deg ee o o e lapping ne wo ks, capi al ends o pu sue s a egic in e es s owa ds he i m and exe cise con ol ia commi men . This s udy ega ds in e - i m ne wo ks mo e a eason o di e en co po a e go e nance sys ems han as a possible de e minan o a ious owne ship s uc u es. The ollowing wo sec ions b ie ly p esen cha ac e is ics o indus y ne wo ks and clus e s as he basis o discussing how ne wo ks may a ec amily owne ship in some indus ies. This does no include a comple e analysis o he de elopmen o clus e s, bu mo e a e iew o how i ms inside clus e s can gain om ne wo k ex e nali ies and agglome a ion bene i s esul ing om s ong social and indus ial ela ions in hese ne wo ks, wi h he po en ial o enhancing amily owne ship. 2.3 Indus y Ne wo ks and Clus e s The e has been a deba e on how o de ine an indus y clus e , how o iden i y a clus e , and wha ac ually d i es he de elopmen o clus e s (LeVeen, 1998). Doe inge and Te kla (1995) de ine an indus y clus e as “geog aphical concen a ions o indus ies ha gain pe o mance ad an ages h ough co-loca ion (Doe inge and Te kla, 1995, page 225). This de ini ion is in line wi h agglome a ion economics (LeVeen, 1998). Po e (1990) ocuses on he compe i i e ad an age a i m can gain by being pa o an indus y clus e whe e ela ed and suppo ing indus ies ha e been o g ea in e es . Acco ding o Po e (1990), he incen i e o clus e ing is a compe i i e ad an age, wi h he main ypes o clus e s being e ical and ho izon al clus e s. Ve ical clus e s a e linked h ough buye -selle ela ionships 72 whe eas ho izon al clus e s sha e a common ma ke o skilled labo , p oduc s, echnology o na u al esou ces (Po e , 1990; LeVeen, 1998). This de ini ion ocuses bo h on esou ces and ela ions be ween di e en pa icipan s in he ma ke place. Jacobs and De Man (1996) on he o he hand, ocus on quali y o i m ne wo ks and coope a ion in addi ion o geog aphical and e ical/ho izon al ela ionships be ween sec o s. They b ing ne wo k ex e nali ies and social ela ions in as elemen s in hei de ini ion o clus e s. Rosen eld (1997) also includes he social and in e ac ion aspec by ocusing on communica ion and dialogue in his de ini ion o clus e s. This de ini ion is “a geog aphically bounded concen a ion o simila , ela ed o complemen a y businesses, wi h ac i e channels o business ansac ions, communica ions and dialogue, ha sha e specialized in as uc u e, labo ma ke s and se ices, and ha a e aced wi h common oppo uni ies and h ea s” (Rosen eld, 1997, page 10). Rosen eld (1996) a gues ha an e icien social in as uc u e is equi ed in o de o acili a e exchange o in o ma ion and ha his in o ma ion low is impo an o he de elopmen o an e ec i e clus e . In addi ion o in o ma ion, he s a es ha he e should be us and sha ed isions in o de o c ea e dynamic and e ec i e clus e s (Rosen eld, 1996). Gi en his con ex , I ocus on he ne wo ks p e alen in indus ial clus e s and how hese ne wo ks may a ec he p opo ion o amily owne ship in some indus ies. P io o discussing hese issues, I p esen some iews on he d i ing o ces wi hin ne wo ks and indus ial clus e s. Mos esea che s ag ee ha i ms will clus e because hey ecei e some bene i s bu he ac o s c ea ing hese bene i s ha e been deba ed (LeVeen, 1998). Doe inge and Te kla (1995) claim ha , he d i ing o ces unde pinning clus e s a e posi i e ex e nali ies. Acco ding o his iew, loca ion si es a e a esul o coincidences o may esul om cos ad an ages om immobile ac o s. Po e (1990) ocuses on compe i ion as he d i ing o ce behind he de elopmen o di e en clus e s whe e compe i ion be ween i al i ms o ces hem o emain inno a i e and compe i i e. This gene a es ela ed “spin-o ” i ms and s imula es inc eased R&D, wi h he esul ha clus e s become mu ually ein o cing sys ems. Ve ical in eg a ion gene a es new i ms o ill a gap in he ma ke , whe eas ho izon al clus e ing gene a es a demand o p oduc s and se ices in ela ed indus ies. This c ea es oom o de elopmen in a clus e . T ans e o labo wi hin a clus e con ibu es o inc eased compe i ion and s imula es inno a ion h ough exchange o knowledge (Po e , 1990). 73 In con as , Doe inge and Te kla (1995) ocus on agglome a ion bene i s ( he bene i s i ms can ob ain when loca ed nea each o he due o economies o scale and ne wo k e ec s) as a key d i ing o ce in he clus e . They s a e ha i ms in a clus e ha e lowe anspo a ion and ansac ion cos s, as well as be e access o skilled labo . In addi ion, exchange o in o ma ion, knowledge and echnology among ela ed i ms can c ea e a social in e ac ion and in as uc u e ha enhances clus e ing p ocesses (Rosen eld, 1996, 1997). A social in as uc u e acili a ing echnology and knowledge ans e is bene icial o all i ms bu may be e en mo e so o smalle specialized i ms illing eme ging niches in he ma ke . On his basis, one may a gue ha he social in as uc u e s eng hens and enhances he g ow h o clus e s (Doe inge and Te kla, 1995; Rosen eld, 1996, 1997; LeVeen, 1998) and ha hese ne wo k and knowledge ex e nali ies a e c ucial o he de elopmen o clus e s. The social in as uc u e may in luence owne ship and go e nance s uc u es, gi ing posi i e o nega i e e ec s on he u he de elopmen o a clus e . To sum up, one can di ide clus e e ec s in o: 1) Compe i ion e ec s wi hin which clus e s de elop (Po e , 1990) and 2) ne wo k e ec s wi h a social app oach (Rosen eld, 1996, 1997). The li e a u e seems o ag ee ha : 1) Clus e s a e dynamic (Doe inge and Te kla, 1995), ha 2) e en hough he geog aphical and spa ial p oximi y is impo an , he e is no clea de ini ion o he app op ia e geog aphical scope o a clus e (LeVeen, 1998; Rosen eld, 1996; Jacobs and DeMan, 1996), ha 3) he in e dependen and dynamic ela ionships c ea e clus e s, no only indus y concen a ion (Doe inge and Te kla, 1995; Rosen eld, 1997) and, las bu no leas , ha 4) he ole o he social in a-s uc u e is impo an in de ining indus y clus e s (Rosen eld, 1996). 74 3.0 HOW CAN NETWORKS AFFECT FAMILY OWNERSHIP IN AN INDUSTRY? T ansac ion cos heo y has been dominan in he ield o in e - i m go e nance esea ch, wi h emphasis on economies o scale and ansac ion cos s (Williamson, 1975). Ouchi (1980) a gues ha ansac ion cos heo y does no cap u e all go e nance o ms because i does no add ess he social con ol aspec in long- e m coope a i e a angemen s and he need o add he dimension o social mechanisms. As discussed, ne wo ks a e an impo an pa o he de elopmen and sus ainabili y o clus e s and can be de ined as he social pa o clus e s. This aises some pe inen ques ions. Can hese ela ions and ne wo ks also explain amily owne ship and he sus ainabili y o amily i ms? Is i a coincidence ha some o he indus ies ope a ing in s ong clus e s ha e a high deg ee o amily owne ship? Can we assume hose amily i ms a e “ us ing o ganiza ions” ha ein o ce his e ec ? 3.1 Ne wo ks and Family Owne ship G ano e e (1985) a gues ha social ela ions be ween i ms a e e y impo an when assessing “ma ke s” e sus “hie a chy”, whe e powe in “ma ke ” ela ions and social connec ion in i ms a e impo an elemen s. He s a es ha a s able ne wo k o ela ions media es complex ansac ions and gene a es s anda ds o beha io be ween i ms, e lec ing “ma ke s” ins ead o “hie a chy”. F om a ansac ion cos pe spec i e, Williamson (1975) a gues o “ma ke ” o “hie a chy” s uc u es as al e na i es o media ing ansac ions, whe e “ma ke s” a e cha ac e ized by compe i ion and epea ed games, and “hie a chies” ocus on ansac ion cos s and economies o scale. Ouchi (1980), howe e , a gues o a hi d o m o go e nance he calls he “clan” o m. This o m is based on goal cong uence by means o di e en social mechanisms, and is pe cei ed o educe oppo unis ic beha io and lowe ansac ion cos s be ween pa ies (Ouchi, 1980). S ong clus e s a e cha ac e ized by in e -o ganiza ional go e nance, alling somewhe e be ween ma ke and hie a chy con ol, and may i in o Ouchi’s (1980) “clan” concep . Ring and Van de Ven (1992) ha e a gued ha a ansac ion cos pe spec i e on in e - i m go e nance does no add ess he e ec s o social ela ions in epea ed ansac ions be ween i ms, due o i s ocus on cos educ ion. Nahapie and Ghoshal (1998) analyse how esou ce c ea ion wi hin ne wo ks can help i ms gain ad an ages, concen a ing on he in e ela ed de elopmen o social and in ellec ual capi al as key esou ces. They ind ha he c ea ion and sha ing o aci knowledge ep esen s such an ad an age. By ex ending hese iews o include amily i ms as a e ile g ound o de eloping aci knowledge, one may a gue ha some o 75 he ad an ages wi h amily i m go e nance (wi hin i m ela ions) ease ansac ions be ween i ms and enable hem o emain amily owned. I a gue ha he p e alence o amily owne ship in indus y clus e s depends bo h on social and comme cial ne wo ks. One example o an indus y cha ac e ized by s ong indus ial clus e s and high ac ion o amily i ms is he wo ldwide shipping indus y. No wegian shipping has a high deg ee o amily i ms, i has s ong comme cial and social ne wo ks, and i is ega ded o be a e y comple e clus e (Beni o e al., 2003; Jenssen, 2003). In addi ion o he adi ional shipping ela ed ac i i ies, including mo e han ou housand in e na ionally compe i i e i ms, he e is also a s ong oil p oduc ion and oil se ice sec o wi h se e al ela ed indus ies in No way (Wijnols e al., 2003). The s eng h o his clus e is o be oo ed in he la ge numbe o shipping companies, whe e a majo i y o hese a e amily i ms and se e al o which ha e been amily-owned o gene a ions. Re e and Jacobsen (2001) ind ha he ma i ime clus e s ha e highe pe o mance, highe g ow h and p oduc i i y, and highe sala ies han o he indus ies in No way. They also ind ha clus e i ms ha e highe inno a ion capaci y, highe comme cializa ion a es, highe spin-o ac i i y and dynamism o change. Se e al clus e -mapping s udies ha e been conduc ed wo ldwide and he Eu opean clus e -mapping p ojec (Appendix I) iden i ies many clus e s wi h long- e m us based ela ionships and high deg ees o collabo a ion and en ep eneu ial ac i i y (Eu opean Commission, 2002). I is in e es ing ha amily owne ship is so p e alen in his speci ic indus y wo ldwide, in spi e o he ac ha i is cha ac e ized bo h by high capi al in ensi y and high isk (G ani sas, 2005). These elemen s a e o en men ioned in he li e a u e as a gumen s o dispe sed owne ship in o de o sp ead isk and as a esul o di icul ies wi h aising enough capi al (Ca ney and Gedaljo ic, 2002). Some segmen s o he shipping ma ke a e also cha ac e ized by high asse speci ici y, making i mo e di icul o deb inance he asse s, which could be ano he a gumen o dispe sed owne ship. In o he segmen s o he shipping ma ke , howe e , he e is a high deg ee o asse s angibili y wi h low asse speci ici y, and a global esale ma ke . This makes i easie o deb inance he ope a ions due o a highe deg ee o colla e al and i ms can emain amily owned in spi e o high capi al in ensi y. This indus y is also ex emely ola ile due o la ge p ice a ia ions in eigh a es and p ices o new and second-hand ships (S op o d, 1997). Vola ile en i onmen s ha e been used as one a gumen o amily owne ship due o gains om close moni o ing (Demse z and Lehn, 1985; Pede sen and Thomsen, 1998, 1999). I is plausible ha his close moni o ing can be an e icien way 76 o deal wi h he unce ain y in he ma ke , leading o mo e imely ma ke decisions. Based on his, amily owne ship can be a iable go e nance mechanism in hese en i onmen s in which shipping i ms ope a e (Demse z and Lehn, 1985; Pede sen and Thomsen, 1998, 1999). In addi ion, in es men s in shipping a e long- e m in es men s, and i well wi h he con en ion ha amily i ms a e in a posi ion o make be e in es men decisions due o hei long- e m hinking, hei long adi ions, as well as he al uism p e alen in hese i ms (James, 1999). Many amily i ms in he ma i ime clus e ha e a long his o y in he indus y and ha e been able o es ablish long- e m pe sonal and comme cial ela ions. The e o e, in addi ion o he abo e-men ioned a gumen s o amily owne ship, long his o y and adi ions may po en ially ha e esul ed in his owne ship s uc u e. In he shipping indus y, he e is a high deg ee o in es men in o he i ms in he same indus y, co-in es men s o pa ne ships, enabling i ms o o e come p oblems o capi al in ensi y and isk. This makes i possible o amily i ms o ake pa in capi al in ensi e and high- isk p ojec s wi hou abso bing all he isk, hus s eng hening he indus y ne wo ks and he chance o emain amily owned. I a gue ha amily owne ship can be a o able in shipping due o ne wo ks, mel ing o clus e s h ough in e locking boa ds, knowledge ans e and social ela ions. In e locks secu e access o c i ical esou ces and compe ence h ough boa d membe s o manage ial posi ions and gi e aluable insigh in o o he pa s o he indus y (Løining, 2001). In addi ion, he posi i e e ec o clus e s on inno a ion and alue c ea ion may well inc ease as coope a ion and in e - dependency inc ease. Family owne ship also seems p e alen in o he clus e s, whe e he Cali o nian wine clus e , he No wegian u ni u e indus y, he I alian ex ile indus y, as well as he I alian ce amique indus y, may be examples o his. In sec ion 3.2, I p esen some p oposi ions ega ding ne wo ks and amily owne ship. One may a gue ha amily owne ship is endogenously de e mined by exogenous changes in he en i onmen , whe e s ong indus y and social ne wo ks a e a pa o his en i onmen . Demse z and Lehn (1985) a gue ha manage ’s owne ship is no exogenous bu is an endogenous a iable de e mined by di e en a iables e lec ing he business en i onmen , i m cha ac e is ics, di e ences in manage ial con ac ing en i onmen , and he i m’s pe o mance. Gugle and Weigand (2003) ind ha manage ial owne ship is endogenous, in line wi h indings in Himmelbe g e al. (1999). 77 My in e es is in he in e ac ion be ween amily owne ship and ne wo ks, wi h ocus on us and owne iden i y (assuming no la ge con lic s) o en ound in amily i ms e sus closely held i ms in gene al. I a gue ha s ong ne wo ks can enable i ms o de elop and emain amily owned, i his is he goal, bu also ha new i ms can de elop and become amily i ms due o hese ne wo ks. The s a ing poin o he analysis is an indus y ne wo k wi h a la ge po ion o amily i ms. I assume ha hese ne wo ks u he os e he c ea ion o amily i ms, and ha his con ibu es o main ain his owne ship s uc u e in some indus ies. The e a e also s ong indus y clus e s cha ac e ized by dispe sed owne ship s uc u es. These ypically a e cases whe e he i m, indus y and na ion speci ic elemen s a e s onge han he ne wo k e ec s, o ha he ounding amily, manage s o inside s wan he i m o become widely held o a ious easons (Helwege e al., 2007). 3.2 Indus y Ne wo ks and Family Owne ship - P oposi ions Hansmann (1996) s a es ha he op imal owne ship s uc u e in any gi en en i onmen is he s uc u e ha minimizes ansac ion cos s o gi en ac i i ies. This is one explana ion o why some owne ship s uc u es a e mo e dominan han o he s in pa icula indus ies. Pede sen and Thomsen (1998) ha e made a s udy ha ocuses on indus y dis ibu ion o di e en s uc u es and cha ac e is ics. They ind s ong indus y e ec s due o i m size, ola ili y, g ow h a es, capi al and R&D in ensi y. They also ind s ong na ion e ec s h ough he egula ion o he inancial sec o , axa ion o pe sonal owne ship, and owne ship egula ion. In be ween he mic o le el ( i ms) and he mac o le el (na ion/indus y), I a gue ha he e is a clus e le el ha can explain ”clus e e ec s” on owne ship s uc u e. Reasons o hese e ec s and he possibili ies hey c ea e include knowledge o people, p oduc s and ma ke s. Assuming an unde lying d i ing o ce o emain amily owned, s ong ne wo ks can be one way o achie ing his objec i e. Fac o s like social capi al, ela ional con ac ing, us , common knowledge and al uism may ease es ablishmen o con ac s be ween pa ies making i easie o es ablish new i ms. O he ne wo k e ec s may help amily i ms o e come esou ce cons ain s, inc ease he ma ke po en ial and business oppo uni ies, and spa k inno a ion. Building on hese p oposi ions, I p esen some possible explana ions o why indus y clus e s may enhance amily owne ship. The e a e challenges wi h cause and e ec o ne wo ks and amily owne ship, bu in a ne wo k pe spec i e I a gue ha ne wo ks os e c ea ion o amily i ms. 78 Easie o es ablish new i ms due o social and comme cial ela ions Rosen eld (1997) s a es, ha many e ec i e clus e s a e loca ed in small in e - ela ed indus ies. He emphasizes he ole o social in e ac ion and i m coope a ion in de e mining he dynamic na u e o a clus e , whe e social in as uc u e is an impo an dimension in acili a ing echnology and knowledge ans e . Loca ion speci ic ac o s may be o impo ance o s a -up i ms when ounde s a s a business in a amilia indus y close o a amilia labo pool o o he esou ces. E ec i e clus e s mus also include us and a sha ed ision in o de o be dynamic (Rosen eld, 1996). Fu he mo e, implemen a ion o social ela ionships o exchange wi h business pa ne s may educe unce ain y wi hin he gi en business en i onmen (G ano e e , 1985) and may mi iga e isk a e sion, low a es o in es men in business de elopmen , and esou ce sca ci y. Social ne wo ks and ela ions can educe unce ain y ei he h ough common R&D p ojec s o o he comme cial ag eemen s and gi e a compe i i e ad an age. Ne wo ks ease es ablishmen o new i ms and he eby con ibu e o he g ow h o small, eme ging amily i ms in an indus y. New i ms may be in compe i ion wi h exis ing amily i ms, bu hey also con ibu e o new amily i ms. P oposi ion 1: Ne wo k ex e nali ies ease es ablishmen o new ounde amily i ms. Easie access o capi al due o social ne wo ks and us Access o capi al is impo an , especially in capi al-in ensi e indus ies whe e he e is a need o ein es con inuously o emain compe i i e, and whe e s ong ne wo ks can ease his access. Access o deb inancing depends o a la ge ex en on colla e al wi hin i ms, whe e asse speci ici y is an impo an ac o . T us and s ong ela ions be ween he ounde and he local ”bank ma ke ” may acili a e access o and educe cos o deb inancing because i dec eases he isk a e sion on he pa o banks. T us , long- e m ela ions and social ne wo ks may also gi e easie access o p i a e equi y ma ke s because in es o s us he ounde . This capi al is especially impo an o small, eme ging, non-lis ed i ms. In addi ion, en u e capi al is impo an o inancing g ow h, whe e s ong ne wo ks and us a e c i ical ac o s. I is c ucial o i ms o main ain ex ensi e con ac s and build in ellec ual capi al wi hin hei indus y. Ven u e capi alis s a e o en specialis s in assessing en u es and hei ounde s. The social capi al hese ac o s b ing in is essen ial o enhancing compe i i eness and he g ow h o i ms in he clus e (h p://encyclopedia. he eedic iona y.com). 79 Fi ms in capi al-in ensi e indus ies, ope a ing in coun ies wi h well-de eloped inancial ma ke s, will end o ha e dispe sed owne ship. This is no always he case, because s ong ne wo ks wi h a high deg ee o social capi al may enable amilies o emain amily owned also in hese indus ies. P oposi ion 2: S ong us ing ne wo ks enhance amily owne ship h ough easie access o capi al. Easie access o human esou ces due o social ne wo ks and us No mally, esou ce dependency (P e e , 1982) is used as an a gumen o dispe sed owne ship, whe e his owne ship s uc u e is assumed o gi e access o he igh ype o human esou ces. Howe e , ano he means o secu ing esou ces is dense ne wo ks, which a e o en ound wi hin clus e s. Acco ding o G ano e e (2005), social ne wo ks play a key ole in mos labo ma ke s. P ospec i e employe s and employees p e e o lea n abou one ano he om pe sonal sou ces whose in o ma ion hey us , e e ed o as social capi al (Lin, 2001). Ano he esou ce base is in e locking boa ds whe e ne wo ks a e impo an sou ces o e e ences. This may also help he es ablishmen o s a egic alliances and pa ne ships (Gula i and Wes phal, 1999). Løining (2001) uses lea ning, knowledge ans e , in o ma ion and coo dina ion as key concep s when discussing e ec s o boa d in e locking. Family i ms o en expe ience a sca ci y o human esou ces a le els o manage o boa d membe . S ong social ne wo ks mi iga e his sca ci y due o he possibili y o ec ui men om pe sonal ne wo ks whe e us , con idence and pe sonal e e ences a e elemen s. One could a gue ha he gain om social ne wo ks is highe in amily i ms compa ed o o he i ms due o amily ies, adi ion and long e m ela ions, ac o s ha con ibu e o a highe le el o us . P oposi ion 3: Robus ne wo k s uc u es imp o e amily i ms’ access o human esou ces. Inc eased solidness and su i al a e G ano e e (2005) a gues ha social s uc u e and ne wo ks ha e a powe ul impac on he ex en and sou ce o inno a ions, he di usion o hese inno a ions, as well as he economic ou come. Pede sen and Thomsen (1998) ind some e idence ha p o i ma gins inc ease he scope o inside owne ship and ha concen a ed owne ship is p e alen in high ma gin indus ies. When pu in he con ex o clus e heo y, do new i ms es ablish hemsel es in hese indus ies, ein o cing he e ec o his owne ship s uc u e? Resea ch has no es ablished whe he he p esence o la ge owne s imp o e i m pe o mance o no 86 ela ionships de eloped h ough yea s, e en gene a ions. Tha is why non- amily i ms may no be able o eap he bene i s o s ong ne wo ks in he same manne . P oposi ion 5a: Family i ms, in ela ion o non- amily i ms, can ake be e ad an age o en ep eneu ial oppo uni ies due o manage ial e iciency in hese ne wo ks P oposi ion 5b: Family i ms, in ela ion o non- amily i ms, can ake be e ad an age o en ep eneu ial oppo uni ies due o “ hick us ” in hese ne wo ks Bene i s o amily i ms in ne wo ks due o ela ional go e nance The choice o go e nance model depends on agency con ex , coun y and business en i onmen . Some go e nance sys ems nu u e and p o ec i m and asse speci ic in es men s (Macey, 1998), while o he s do no . Boo and Macey (2004) ind ha ake-o e en ep eneu s a e dynamic and in en i e, and ha ela ional in es o s a e c ucial o in es men s in i m speci ic asse s. They ind ha I aly, wi h i s weak capi al ma ke s and en u e capi al, has lou ished because in es o s and en ep eneu s ha e inno a ed a ound de iciencies in i s co po a e go e nance sys em by u ilizing closely held i ms. They elimina e agency ela ionships by using amily owne ship, p o iding s ong incen i es o manage s o make i m speci ic human and capi al in es men s necessa y o de elop specialized skills, knowing ha hey will no be exploi ed (Boo and Macey, 2004). In de ini ions o clus e s, he ocus is on he quali y o i m ne wo ks, co-ope a ion, ho izon al and e ical ela ionships, social in e ac ion wi hin he ne wo ks, as well as sha ed isions and us (Rosen eld, 1996, 1997; Jacobs and De Man, 1996). These ea u es should enhance compe i i eness h ough posi i e ex e nali ies, whe e amily owne ship can be one o he ac o s ha gi e ise o hese posi i e ex e nali ies. A ne wo k o ela ionships be ween i ms is a hi d al e na i e o he ma ke s and hie a chies in p e ious li e a u e (Coase, 1937; Williamson, 1975). In a ne wo k pe spec i e, economic ac ions and ins i u ions a e embedded in social s uc u es and in e ac ions (G ano e e , 1985), whe e social capi al among supplie s and cus ome s c ea es a compe i i e ad an age and alue (Coleman, 1990). Ouchi (1980) a gues o a “clan” o m based on goal cong uence. Family i ms may be acili a o s o social mechanisms, wi h a educ ion in oppo unis ic beha io and lowe ansac ion cos s as esul . 87 S ong ne wo ks a e cha ac e ized by us and con idence among pa ne s, educing he cos s o con ol and coo dina ion (La son, 1992). These ne wo ks can mi iga e some o he nega i e elemen s in amily owne ship because hey ep esen a iable, s ong ne wo k ou side he amily ne wo k. Engagemen in a ne wo k, including he p ospec o social epu a ion, can also mi iga e amily con lic s, myopic al uism and manage ial en enchmen . I may also educe he ex ac ion o p i a e bene i s and he exp op ia ion o mino i y sha eholde s. In ac , i may be easie o ob ain capi al om his ne wo k because he sha eholde s know he people and he business hey a e in es ing in. These ne wo ks a e o en based on compe ence and knowledge o he indus y. The clus e ep esen s a pool o manage ial esou ces and po en ial boa d membe s ha can sol e his p oblem o some amily i ms. In e locking di ec o a es can be a aluable sou ce o in o ma ion and new in luences (Bu , 1992), enhancing inno a ion and compe i i eness. This implies ha he choice o go e nance model ( he ela ionship be ween owne ship, boa d and managemen ) a ec s he way i ms deal wi h he ne wo ks in he speci ic indus y in which hey ope a e. Rajan and Zingales (1997, 1998) de ine i ms as “a nexus o speci ic in es men s: a combina ion o mu ually specialized asse s and people”, and ecognize ha a i m is a complex s uc u e ha canno be ins an aneously eplica ed. This de ini ion is consis en wi h “ he economic essence o a i m: a ne wo k o speci ic in es men s ha canno be eplica ed by he ma ke ” (Zingales 1997). In a discussion o go e nance s uc u e in clus e s and indus ies, he b oade de ini ion o he i m by Rajan and Zingales (1997, 1998) i s in o agglome a ion economics, as well as ne wo k and knowledge ex e nali ies. They ocus on mu ually specialized pa ies belonging o he i m (wo ke s, supplie s o cus ome s), highligh ing he impo ance o ne wo ks (Rajan and Zingales, 1997, 1998). The s eng h o ne wo ks and ela ions also in luences he choice o go e nance models, whe e i ms make use o a mo e “ ela ional” o a “con ac ual” go e nance model depending on hese ac o s. A con ac ual go e nance sys em has i s basis in agency heo y. I ega ds i ms as a nexus o con ac s (Alchian and Demse z, 1972; Jensen and Meckling, 1976) wi h he ocus on alignmen o in e es s be ween owne s and manage s (Fama and Jensen, 1983). This model s esses owne ship because o i s in luence on boa d composi ion and boa d ole (Zah a and Pea ce, 1989). Key wo ds a e boa d and owne ship s uc u e, boa d moni o ing and counsel, agency p oblems and con ol. A ela ional go e nance model ocuses on op imal usage o he social capi al embedded in social ela ionships be ween he owne amily 88 membe s and he managemen (Mus akallio, 2002). Whe he a amily i m is success ul o no depends on how i manages o eap he bene i s o long las ing ela ionships, sha ed ision and us among amily membe s, as well as loyal y and long adi ions (Ha ey, 1999a; Ouchi, 1980). Di e ences in pe o mance a e a esul o di e ences in he abili y o c ea e and use he social and human capi al in he i m (Nahapie and Ghoshal, 1998). G ano e e (1985) a gues ha he ela ional go e nance model can complemen he con ac ual go e nance o amily i ms, wi h he ocus on us , sha ed ision, amily ins i u ions and social in e ac ion. Family i ms in s ong clus e s a e in an agency con ex whe e some go e nance p oblems like oppo unism, incen i e p oblems, capi al and akeo e ma ke s a e aken ca e o . They ocus on dynamic ela ions and lexibili y, whe e us wi hin he g oup is pe cei ed as sol ing he incen i e p oblems. Boa d membe s a e ec ui ed om ne wo ks, and boa ds a e ega ded as a esou ce base and men o ing unc ion mo e han a con olling unc ion. Clus e s mel in o each o he h ough in e locking di ec o a es and s a egic alliances. In an agency con ex , whe e a clus e has a s ong ne wo k o i ms and ela ional capi al in a amily owne ship s uc u e, a ” ela ional go e nance model” may be he mos app op ia e. He e, he social capi al is embedded in ela ionships be ween amily and managemen o be ween amily i ms. Con e sely, a con ac ual go e nance model may apply in an agency con ex wi h weak ne wo ks among i ms and a non- ela ional owne ship s uc u e. Vola ili y in he indus y, p oduc compe i ion and he legal and inancial en i onmen all a ec he choice o model, and i ms should choose a go e nance model e lec ing hei needs. I a gue ha amily i ms use a mo e ela ional go e nance model due o s ong ne wo ks and ela ional capi al, enhancing exis ing ad an ages o he amily owne ship s uc u e. Consequen ly, a ela ional go e nance model can con ibu e o enhanced inno a ion and compe i i eness in i ms and ein o ce he s eng h o ne wo ks in clus e s. P oposi ion 6: Family i ms bene i mo e han non- amily i ms om ne wo ks when he ela ional go e nance model is applied 89 5.0 CONCLUDING REMARKS In his pape , I ha e ocused on an al e na i e explana ion o amily owne ship. I ha e used ne wo k heo y o supplemen agency heo y o c ea e a b oade pic u e o possible de e minan s o amily owne ship. I ha e p oposed ha amily i ms end o clus e in indus ies, egions and na ions, combining lexibili y and incen i es o pe sonal owne ship wi h economies o scale and scope. Fu he mo e, s ong pe sonal ne wo ks, us and epu a ion help o e come capi al a ioning and hold-up p oblems, and in e locking di ec o a es, amily ies, iendships and ade associa ions ein o ce syne gies be ween i ms. I ha e p oposed ha s ong social and indus ial ne wo ks change he a io o amily i ms in an indus y, because o he social capi al embedded in hese ela ions. Wi hin s ong social and indus ial ne wo ks, I ha e a gued ha i is easie o es ablish new companies due o he ela ional capi al. Fu he mo e, I a gue ha amily i ms ha e easie access o capi al and human esou ces due o social ne wo ks and us , and ha hey ha e a highe a e o inno a ion and su i al hanks o hei ne wo k ies. I main ain ha amily i ms gain mo e om being in s ong indus ial clus e s han non- amily i ms due o he “ hick us ” he amily ep esen s in a ious ela ions. Finally, I pos ula e ha hese bene i s a e a esul o he owne -manage ela ions as well as he bene i s o he go e nance s uc u es in amily i ms. In amily i ms he go e nance mode ends o be mo e ela ional a he han ma ke based. A he same ime, he clus e ed i ms main ain su icien au onomy and dis ance o be able o compe e and adjus quickly o changes in he economic en i onmen . Thus clus e ing complemen s he cha ac e is ics o amily i m go e nance emphasized in he amily business li e a u e. The No wegian shipping clus e – which ha bou s mo e han 4000 in e na ionally compe ing i ms –is a ele an illus a ion. The No wegian ma i ime clus e is conside ed o be e y comple e; i is cha ac e ized by a high p opo ion o amily i ms ha ha e s ong social and indus ial in e locks. I is he e o e no coincidence ha so many o he wo ld’s shipping i ms ha e managed o coexis and h i e in clus e s ha emain la gely o ganized a ound closely held i ms. In o de o b oaden ou knowledge o he de e minan s o amily owne ship, u he esea ch should empi ically es he p oposi ions pu o h in his pape , speci ically esea ch in o he ela ionship be ween he p opo ion o amily owne ship and he social and indus ial ne wo ks in an indus y. One c ucial challenge in his endea o will be he iden i ica ion o ele an p oxy a iables o us , as well as measu es o s ong social and comme cial ne wo ks in di e en indus ies. 90 REFERENCES: Aguile a R.V and G. Jackson, 2003, “The c oss-na ional di e si y o co po a e go e nance: Dimensions and de e minan ”, Academy o Managemen Re iew 28(3), pp. 447-465 Agnblad, J., E. Be glo , P. Hog eld and H. S anca , 2001, “Owne ship and con ol in Sweden: S ong owne s, weak mino i ies, and social con ol”, In: Ba ca F. and M. 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Lank, 1998, “The Family Business: I s go e nance o sus ainabili y”, New Yo k: Rou ledge New on, K., 1997, “Social Capi al and Democ acy”, Ame ican Beha io al Scien is 40, pp. 575-586 102 1.0 INTRODUCTION Family owne ship has been, and s ill is, he mos p e alen owne ship s uc u e in he shipping indus y in many coun ies. Pede sen and Thomsen (1997) compa e owne ship pa e ns in wel e Eu opean coun ies and ind ha amily owne ship is mo e p e alen in he shipping and e ail indus ies. G ani sas (2005) s a es ha G eek shipping adi ionally has been a amily a ai , whe e capi al came om e ained ea nings, bank loans and p i a e in es o s linked o he amily h ough pe sonal ela ionships. Ha la is and Theo okas (2004), s a e ha bo h B i ish and G eek amp-shipping i ms emain i s and o emos amily i ms. The e is also a high deg ee o amily owne ship in he No wegian shipping indus y. Di e en shipping na ions ha e di e en legal s uc u es, company laws, accoun ing and ax ules, bu in spi e o his, owne ship s uc u es seem o be qui e simila wi hin his speci ic indus y, ac oss na ions. Acco ding o G ani sas (2005) “G eeks con ol abou 28 pe cen o he wo ld's lee , making G eece by a he bigges ship-owning coun y, ollowed by Japan, No way and he Uni ed S a es”. In hese na ions, ma i ime indus y seems o be an impo an pa o bo h alue c ea ion and ma ke capi aliza ion. In G eece, se e al shipping companies ha e gone public (G ani sas, 2005). In No way, ma i ime i ms ep esen app oxima ely 30% o all publicly aded companies and many o hem ha e a high deg ee o amily owne ship. The shipping indus y has a high deg ee o amily owne ship in spi e o he ac ha many o he cha ac e is ics o his indus y do no i in o he gene al heo y on amily owne ship. Some indus y a gumen s agains amily owne ship a e high isk, high capi al in ensi y and limi ed access o capi al (Pede sen and Thomsen, 1998; Gomez-Mejia e al., 2001). Ma i ime indus y is isky due o ola ile p ices and e y capi al in ensi e (S op o d, 1997; G ani sas, 2005). Consequen ly, a high deg ee o amily owne ship in his indus y is in con adic ion o adi ional a gumen s agains amily owne ship. O he cha ac e is ics o he ma i ime indus y a e in line wi h ea lie s udies on he e ec s o indus y speci ic ac o s. Shipping in es men s a e long- e m in es men s and may i well in o he long- e m ho izon o amily i ms (James, 1999). The ma i ime indus y is a highly cyclical indus y wi h la ge a ia ions in p ices on onnage and eigh a es (S op o d, 1997). The e may be a gain o close moni o ing in his speci ic indus y because o he ola ili y and may, pa ly explain he p e alence o amily owne ship. This is in line wi h Demse z and Lehn (1985) and Pede sen and Thomsen (1998), who s a e ha amily owne ship, can be bene icial in ola ile and “noisy” en i onmen s. 103 Ma i ime indus y has been cha ac e ized as ha ing s ong ne wo ks among pa icipan s in he indus y (Minsaas e al., 2000). These ne wo ks can be comme cial ne wo ks based on pa ne ships, co-in es men s and co-ope a ion, o hey can be pe sonal ne wo ks and ela ions. Ha la is and Theo okas (2004) a gue ha he s eng h and iabili y o amp-shipping i ms a e due o ne wo ks on a local, na ional o in e na ional le el. Fu he mo e, hey s a e ha hese ne wo ks a e based on us and a pa icula business cul u e ha was de eloped in he ma i ime egions whence hey came, cen e ed on amily i ms in ol ed in in e na ional business. The No wegian shipping indus y is also pe cei ed o ha e s ong pe sonal and comme cial ne wo ks. Boa d in e locks is one way o es ablishing and main aining pe sonal ne wo ks and may he e o e be used as a p oxy o social ne wo ks. Indus ial ne wo ks may be ope a ed h ough in es men s in o he i ms in he same indus y o co- in es men s wi h o he pa ne s. I a gue ha hese in es men s can be used as p oxies o comme cial ne wo ks. Indus y a ilia ion is an impo an con ex ual ac o a ec ing owne ship, whe e elemen s like capi al in ensi y, ola ili y and isk a e cen al elemen s. In addi ion, modes o ope a ion and how i ms o ganize hemsel es o o e come esou ce cons ain s in a ious indus ies may a ec i ms’ owne ship s uc u e. One in e es ing ques ion is why some i ms choose o be amily owned and o he s choose o become widely held (Helwege e al., 2007). Ano he in e es ing ques ion is why i di e s be ween indus ies (Demse z and Lehn, 1985). I a gue ha indus y e ec s like he numbe o i ms in an indus y (indica ing compe i ion and/o clus e ) and he in e locks among pa icipan s h ough in es men s and collabo a ion can be de e minan s o amily owne ship in some indus ies. I ind suppo o some o hese ac o s. One eason o his may be ha i ms a e able o emain amily owned in spi e o high isk, capi al in ensi y and esou ce sca ci y as a esul o ne wo ks, bu also inhe i ed expec a ions, loyal y and adi ions may be among he d i ing o ces o de elop and emain amily owned. The ac ha so many shipping i ms a e amily owned wo ldwide is in e es ing. I he e o e use his indus y as a “case” o analyse how social and comme cial ne wo ks a ec amily owne ship. My o e all ques ion is why amily owne ship is mo e p e alen in some indus ies han o he s; especially in he shipping and ma i ime sec o , and which elemen s ha in luence his owne ship s uc u e. In o de o analyse his, I ask wo main esea ch ques ions: 1. Is amily owne ship de e mined by i m o indus y speci ic cha ac e is ics? 2. A e s ong social and comme cial ne wo ks de e minan s o amily owne ship? 104 2.0 THEORETIC VIEWS ON FAMILY FIRMS Family i m esea ch o en uses agency heo y o unde s and and explain amily i ms, and i o en gi es a e y posi i e po ai o amily i m go e nance (Luba kin, Ling and Schulze, 2003) since amily i ms a e ega ded as an e icien agency con ex and ins i u ion (James, 1999; Randøy and Goel, 2003). In ne wo k and social capi al heo y, he ocus is on he social aspec s o he amily i m as an ins i u ion, wi h us and pe sonal ela ions as possible de e minan o amily owne ship. By using a heo e ic lens de i ed om bo h agency and ne wo k heo y, wi h elemen s om social capi al heo y, we may be able o expand he unde s anding o de e minan s o amily owne ship in di e en con ex s and en i onmen s. 2.1 Family Owne ship in an Agency Theo y Pe spec i e F om an agency heo y pe spec i e he easons o amily owne ship a e o en analyzed wi h a ocus on mi iga ing agency cos s (Fama and Jensen, 1983), including bo h ad an ages and disad an ages wi h his owne ship s uc u e. Ch isman e al. (2005) sugges ha one challenge acing amily business esea ch is how o iden i y he dis inc ions o amily i ms and o de e mine whe he hese dis inc ions s em om amily in ol emen o no . In his con ex , agency cos s, and especially al uism, a e cen al elemen s. In amily i m esea ch, al uism is pe cei ed o be impo an , bu he e ec s o al uism a e no ce ain. I seems o be unclea unde wha condi ions al uism educes agency cos s (Van den Be ghe and Ca chon, 2003) and unde wha condi ions i may inc ease agency cos s (Schulze, Luba kin and Dino, 2003). In he co po a e go e nance li e a u e, he exp op ia ion o sha eholde s o en e e ed o as sel -dealing o unneling, has been cen al (Djanko e al., 2006). Speci ically, hose who con ol a i m, ei he manage s o con olling sha eholde s, can use hei powe o di e co po a e weal h o hemsel es, wi hou sha ing wi h o he in es o s (Shlei e and Vishny, 1997). This abili y o di e weal h has also been e med “p i a e bene i s o con ol” (Ha 1995). In addi ion o sel -dealing, ano he impo an issue is he legal in es o p o ec ion ha shapes he abili y o inside s o exp op ia e ou side s (La Po a e al. 1997, 1998). Djanko e al. (2006) p esen a measu e o legal p o ec ion o mino i y sha eholde s agains exp op ia ion by co po a e inside s, wi h ocus on how easy i is o con olling sha eholde s o exp op ia e weal h in di e en legal s uc u es (Djanko e al., 2006). La Po a e al. (1997, 1998, 1999), s a e ha amily owne ship is a esponse o weak capi al ma ke s o poo legal p o ec ion. Ne e heless, amily owne ship is also p e alen in coun ies wi h good in es o p o ec ion (Bøh en and Ødegå d, 2001), which indica es addi ional de e minan s o amily owne ship. 105 Family i ms a e pe cei ed o be a low agency con ex due o lowe moni o ing cos s (Jensen and Meckling, 1976; Fama and Jensen, 1983) and alignmen be ween owne s and manage s (Mish a e al., 2001; Luba kin, Ling and Schulze, 2003). They unde s and he business and make as decisions (Ande son and Reeb, 2003) and an ex ended ho izon ac oss gene a ions gi es incen i es o maximize i m alue h ough in es men s (James, 1999). I has also been s a ed ha hey make la ge i m speci ic in es men s in human capi al (Thomsen and Pede sen, 2000), ha hey a e be e a dealing wi h in angible asse s (Goel and Randøy, 2002), and ha hey a e sui able in ola ile en i onmen s due o close moni o ing (Demse z and Lehn, 1985). O he a gumen s in a ou o amily i ms a e sha eholde iden i y (Gedaljo ic and Shapi o, 2002) and ela ions o capi al ma ke s (Ellul, Gun ay and Lel, 2006). Disad an ages o amily owne ship a e said o be isk a e sion due o high s akes in one i m (Daily, Dal on and Rajagopalan, 2003; Demse z and Lehn, 1985), ex ac ion o p i a e bene i s (Fila oche and Mickiewicz, 2001; Ande son and Reeb, 2003), limi ed access o capi al (Ca ney and Gedaljo ic, 2002) and low liquidi y o sha es (Gugle , 2001). Con olling mino i y sha eholde s (C onquis and Nilsson, 2002; Be gs øm and Rydq is , 1990) ha e also been ega ded as nega i e e ec s o amily owne ship, in addi ion o amily managemen and lack o manage ial compe ence (Gomez-Mejia e al., 2001; Shlei e and Vishny, 1997), as well as gene a ional con lic s in amily i ms (McConoughy, Ma hews and Fialko, 2001). 2.2 Family Owne ship in a Ne wo k and Social Capi al Theo y Pe spec i e Ne wo k heo y ocuses on social epu a ion, us , knowledge and social ela ions (G ano e e , 1985; Bu , 1992), in addi ion o epea ed games, ne wo k ex e nali ies and agglome a ion bene i s (Doe inge and Te kla, 1995; Fudenbe g e al., 1990). I emphasizes bo h he comme cial and he social cha ac e is ics o hese ne wo ks. By using ne wo ks in he go e nance o i ms, ocus is also on e ical and ho izon al ela ionships wi h di e en ypes o ies ma e ing in di e en business en i onmen s (Mesqui a and Lazza ini, 2008). Social capi al heo y ocuses on he e ec s o esou ces embedded in ela ionships, and he e o e he e is an inc easing use o his heo y also in amily i m esea ch (A egle e al. 2007). I will ocus on he social capi al embedded h ough social and comme cial ne wo ks (o en ound in clus e s), including us and no ms wi hin amily i ms, bu also be ween amily i ms. One impo an issue is how o de ine social capi al and whe he i should be ega ded as exogenous o no . Wi h his in mind, I discuss how he unde lying social capi al in s ong ne wo ks may ha e an e ec on amily owne ship, and how i a ies be ween indus ies. 106 Some gene al cha ac e is ics o social capi al in ne wo ks Pu nam de ines social capi al as “ ea u es o social o ganiza ions such as ne wo ks, no ms and social us ha acili a e coo dina ion and coope a ion o mu ual bene i ” (Pu nam, 1995, page 67). O he s a gue ha social capi al can be de ined as an asse embedded in social ela ions and ne wo ks (Bo dieu, 1986; Leana and Van Bu en, 1999), whe eas Bake (1990) and Tsai and Ghoshal (1998) ocus on in e - i m and in a- i m ne wo ks in hei discussions. F om his, he e seems o be consensus ha social capi al includes bo h he social ne wo ks and he esou ces ob ained h ough hese ne wo ks (Mus akallio, 2002). In o de o bene i om he social capi al, he e should be some couplings be ween di e en ne wo ks. Nahapie and Ghoshal (1998) s a e ha he ela ional dimension o social capi al is an asse , c ea ing and le e aging esou ces h ough pe sonal ela ionships, us , no ms, sanc ions, us wo hiness, obliga ions, expec a ions, iden i y and iden i ica ion. Coleman (1988, 1990) emphasizes he impo ance o he s eng h o social ies be ween membe s in a social ne wo k, a guing ha s ong ies gi e a highe le el o social capi al in a g oup. G ano e e (1973), on he o he hand, a gues ha weak ies inc ease in o ma ion lows be ween o he wise disconnec ed social g oups. Consequen ly, he ocus is also on in o ma ion ans e be ween g oups. Bu (1992) has ex ended his iew by showing how “s uc u al holes” can be used o c ea e in o ma ion and con ol, and c ea e a compe i i e ad an age. Many economis s end o ocus on us when hey alk abou social capi al (Knack and Kee e , 1997). Coleman (1988, 1990) s a es, ha social capi al is embedded in he ela ionships be ween wo o mo e ac o s. He men ions h ee o ms o ela ionships ha con ain social capi al: 1) obliga ions, expec a ions and us wo hiness, 2) in o ma ion channels and 3) no ms and sanc ions (Coleman, 1990). Pu nam (1993) s esses ha “ne wo ks and no ms” unc ion as a p e equisi e o us , and hus us appea s as an ou come o no ms and ne wo ks. Acco ding o Ro h and Schule (2006), he de ini ion by Pu nam (1993) is a mix be ween psychological ( us and no ms) and beha iou is ic (ne wo ks) indica o s. To sepa a e hese concep s, New on (1997) sugges s di iding he dimensions o social capi al in o i s componen s: us , no ms and ne wo ks. By doing so, New on (1997) a gues ha one can a oid mul icollinea i y and a oid ha he weigh ing o he di e en indica o s becomes unclea . In my analyses o he a ious ne wo ks, I assume ha us is an impo an de e minan o he sus ainabili y and de elopmen o hese ne wo ks and ha his applies o bo h he “be ween- i m ne wo ks” and he “wi hin- i m ne wo ks”. 107 Does he social capi al in amily i ms di e om o he o ganiza ions? Social capi al heo y has been used o s udy amily ela ions (Coleman, 1988) and i has been ega ded as a compe i i e ad an age o amily i ms (A egle, 2007). Elemen s in his heo y i in o some o he pe cep ions o amily i ms and hei go e nance, and one may say ha he “so ” side o amily i ms can be seen in a social capi al pe spec i e. I may explain elemen s such as poli ics (Be and and Schoa , 2006), social ne wo ks and epu a ion (Coleman, 1988, 1990; G ano e e , 1985; Bu 1992), us , no ms and alues (Ouchi, 1980; Jones e al., 1997), cul u al inhe i ance (Min z, 2005), nepo ism (Be and and Schoa , 2006), al uism (James, 1999; Kepne , 1983) and social esponsibili y (Ke s de V ies, 1993, 1996). A egle e al. (2007) a gue ha amily i ms’ success comes om hei social capi al, which is he combina ion o in e nal and ex e nal ela ionships. This gi es he i m a powe ul ne wo k, which is le e aged, o en unconsciously, o bene i he business (A egle e al., 2007). The in e nal social capi al can be a us ing ela ionship and a cul u e o con idence be ween he execu i es and wo k o ce, o close ela ionships wi hin a g oup ha acili a es in o ma ion ci cula ion and moni o ing (A egle e al, 2007). New on (1997) de ines “ hick us ” as he us gene a ed by amily ne wo ks and by li ing in close-kni communi ies, and ha his is an impo an pa o he social capi al in amily i ms. Ex e nally, social capi al can be close ela ionships wi h supplie s o o he impo an pa icipan s in he business en i onmen (Rosen eld, 1996, 1997). By measu ing a i m’s social capi al, we may ob ain a clea e pic u e o i s in angible esou ce and how amily i ms manage and in es in hese esou ces (A egle e al., 2007; Goel and Randøy; 2002; Thomsen and Pede sen, 2000). Family i m li e a u e ocuses on us , al uism, goal cong uence, social mechanisms and kin ne wo ks (Ouchi, 1980) wi h al uism seemingly e y cen al. Human beings do no always ac in a pu ely sel -in e es ed manne , and social capi al can be cha ac e ized by being join ly owned by membe s in a ne wo k. One implica ion is ha social capi al canno be aded easily and i is di icul o ans e o o he s (Nahapie and Ghoshal, 1998). This is in line wi h A egle e al. (2007), who a gue ha amily i ms ha e a social capi al ha non- amily i ms canno imi a e. They also s a e ha his unique social capi al comes om he amily’s social capi al, and ha hese i ms should manage his speci ici y p oac i ely in o de o de elop a sus ainable compe i i e ad an age (A egle e al., 2007). Social capi al may also be a esul o long his o y and adi ions, bo h in he amily i m and be ween amily i ms ha ha e been in he business o a long ime. Can his social capi al be one eason o amily owne ship? 108 3.0 NETWORKS AND FAMILY OWNERSHIP - HYPOTHESES Pas esea ch sugges s ha se e al ac o s a ec owne ship s uc u es in i ms (Demse z and Lehn, 1985; Gugle and Weigand, 2003). These ac o s can be i m speci ic elemen s like i m age, size, capi al s uc u e and asse speci ici y (Williamson, 1979), indus y speci ic elemen s like capi al in ensi y, compe i ion, ola ili y and ba ie s o en y (Thomsen and Pede sen, 2000), o na ion speci ic ac o s like legal s uc u e and accoun ing ules (La Po a e al., 1999). Some o hese ac o s may explain amily owne ship, whe eas o he s may no . Ne e heless, he e seems o be some o m o ag eemen ha he de e minan s o owne ship s uc u e depend on he con ex he i m ope a es wi hin. This has he consequence ha di e en owne ship s uc u es may be op imal in di e en en i onmen s. The unde lying d i ing o ces o amily owne ship may be ha he amily wan s he i m o emain amily owned o hey may wan o p ese e con ol o he i m, o a ious easons. In o de o ob ain his objec i e, he i m needs o be compe i i e, inno a i e and inancially sound. Va ious i ms choose di e en s a egies o emain amily owned, whe e comme cial and social ne wo ks may be one such s a egy. F om his, I a gue ha s ong ne wo ks can be addi ional de e minan s o amily owne ship in some indus ies because o amily ies, adi ions and al uism, in addi ion o he dense ne wo k he amily in i sel ep esen s. These di e en ne wo ks may wo k in an i e a i e p ocess, po en ially ein o cing each o he in he ollowing sequence: Fig 1: Po en ial couplings be ween ne wo ks, social capi al and amily owne ship Ne wo ks Social capi al wi hin i ms and/o Social capi al be ween i ms S onge Ne wo ks Comme cial ne wo ks and/o Social Ne wo ks Family Owne ship p Social capi al is cap u ed om embedded esou ces in social ne wo ks, and can be conside ed as an asse in ne wo ks (Lin, 1999; Bo dieu, 1986; Coleman, 1988). This social capi al can be “wi hin- i m social capi al”, whe e bo h social and amily ies a e p e alen , s eng hening he ela ions be ween he di e en pa ies. I may also be “be ween- i m social capi al”, which s eng hens he social ela ions be ween i ms wi h he possibili y o media ing complex ansac ions and u he enhance he ne wo ks and business oppo uni ies among he pa ies. 109 Comme cial ne wo ks may be mo i a ed by isk educ ion, enhanced business and inancial oppo uni ies, access o new ma ke s, o hey may help i ms o e come capi al es ain s. Social and pe sonal ne wo ks can gi e access o in o ma ion, media e complex ansac ions, inc ease he le el o us in ela ions, o be mo i a ed by social con ol. Va ious ne wo ks can be bene icial o all i ms. The ques ion is whe he ne wo ks gain amily i ms mo e because o he special cha ac e is ics o amily ies (bo h social and gene ic) e sus o he social ela ions. Lin (1999) s a es ha a p emise behind he no ion o social capi al is ha i is an in es men in social ela ions wi h an expec ed e u n, and ha his in es men gi es access o he esou ces embedded in he ne wo ks (Bu , 1992; Bo dieu, 1986; Lin 1982). Taking he concep o social capi al one s ep u he e eals ha he e a e elemen s in his heo y ha co espond wi h he li e a u e on indus ial clus e s, some imes ega ded as s ong indus ial ne wo ks. Jacobs and DeMan (1996) ocus on he quali y o i m ne wo ks, coope a ion, ne wo k ex e nali ies and social ela ions in clus e s. Rosen eld (1997) includes social aspec and in e ac ion, ocusing on communica ion and dialogue in his de ini ion o clus e s. Rosen eld (1996) also a gues ha an e icien social in as uc u e is equi ed o acili a e exchange o in o ma ion, and ha he e should be us and sha ed ision o c ea e dynamic and e ec i e clus e s (LeVeen, 1998). I is ou side he scope o his pape o analyse de e minan s o clus e s, bu I ask whe he i is a coincidence ha some indus ial ne wo ks also ha e a high deg ee o amily con olled i ms, wi h s ong posi i e eedback e ec s. 3.1 E ec s o Indus y Ne wo ks on Family Owne ship: The Hypo heses I a gue ha s ong social and comme cial ne wo ks in clus e s enhance amily owne ship due o a highe deg ee o social capi al embedded in hese ne wo ks. Howe e , he e is a challenge wi h e e se causali y, whe e he ques ion is wha is he cause and wha is he e ec o amily owne ship. Demse z and Lehn (1985) a gue ha manage ial owne ship is an endogenous a iable de e mined by di e en a iables e lec ing i m cha ac e is ics, he business en i onmen , di e ences in he manage ial con ac ing en i onmen , as well as pe o mance. Also Himmelbe g e al. (1999) a gue ha bo h manage ial owne ship and pe o mance a e endogenously de e mined by exogenous (and only pa ly obse ed) changes in he i m’s con ac ing en i onmen . I ea owne ship as endogenously de e mined by exogenous changes in he i m’s en i onmen . Howe e , social capi al may no be exogenous, bu a unc ion o amily owne ship due o adi ions and long las ing ela ionships. I now p esen h ee hypo heses on some o he unde lying mechanisms de e mining amily owne ship. 110 Po e (1990) a gues ha compe i ion in clus e s is impo an because i o ces i ms o emain compe i i e and inno a i e, and ha e ical in eg a ion gene a es new i ms and ho izon al clus e ing gene a es a demand o p oduc s and se ices in ela ed indus ies. In addi ion, some indus ies a e cha ac e ized by s ong ho izon al o e ical ies among he pa icipan s in he ma ke place (Po e , 1990), a ec ing he ela ionships and means o ope a ion in di e en ma ke s (Mesqui a and Lazza ini, 2008). I a gue ha s ong clus e s can enhance he es ablishmen o new ounde amily i ms in hese indus ies, bu also enable exis ing amily i ms o de elop and emain amily owned due o compe i i eness in hei ope a ing ma ke s. Hypo hesis 1: The e is a posi i e ela ionship be ween he numbe o i ms in an indus y and amily owne ship due o he possibili y o inc eased ade among he i ms in a clus e Access o capi al, isk a e sion, di e si ica ion and liquidi y a e a gumen s agains amily owne ship, (Ca ney and Gedaljo ic, 2002; Fama and Jensen, 1983; Bech , Bol on and Roell, 2002). Howe e , s ong ho izon al and e ical indus y ne wo ks may media e complex ansac ions (Macneil, 1980) and ease he access o new ma ke s o echnologies. Mesqui a and Lazza ini (2008) ind ha bo h e ical and ho izon al ela ionships can enhance collec i e e iciency h ough ei he manu ac u ing p oduc i i y, sou cing o collec i e esou ces o p oduc inno a ions. I a gue ha by engaging in s ong indus ial ne wo ks h ough a “comme cial in as uc u e”, amily i ms can o e come esou ce cons ain s and inc ease compe i i eness, enabling hem o de elop and emain amily owned o e ime. Hypo hesis 2: The e is posi i e ela ionship be ween comme cial ne wo ks in an indus y and amily owne ship due o educed isk and be e access o capi al and business oppo uni ies In many amily i ms, access o human esou ces is ano he c ucial ac o , whe e s ong social and pe sonal ne wo ks can be an impo an esou ce base o secu ing access o bo h manage ial and boa d compe ence (Løining, 2001). In hese ela ions, us , con idence and pe sonal e e ences a e impo an ac o s and can be e e ed o as social capi al (Lin, 2001). Løining (2001) a gues ha boa d in e locks can ease he p ocesses o lea ning, knowledge ans e , in o ma ion sha ing and coo dina ion among i ms, and ha he e may a copy e ec among i ms ega ding boa d membe s and how hey o ganize hemsel es. In his pape I a gue ha a “social in as uc u e” con aining us and social ela ions can enhance amily owne ship in some indus ies due o he access o esou ces and inc eased compe i i eness. Hypo hesis 3: The e is posi i e ela ionship be ween social ne wo ks in an indus y and amily owne ship due o us and inc eased access o in o ma ion and human esou ces 111 3.2 No wegian Ma i ime Indus y – Some S ylized Fac s Many elemen s a ec business en i onmen s, and amily owne ship may be a mo e iable s uc u e in some en i onmen s han in o he s. My da a shows a highe deg ee o amily owne ship in i ms belonging o he indus y clus e s in he u ni u e and ma i ime indus y. I ask whe he s ong ne wo ks can be an addi ional explana ion o amily owne ship by using he No wegian ma i ime indus y as an illus a ion. This indus y has long adi ions, s ong ne wo ks, and i has a high deg ee o amily owne ship. I do no ega d he social capi al in his speci ic indus y as a coincidence, bu mo e a esul o long- e m social ela ions. Cha ac e is ics o he Ma i ime Indus y in Gene al The ma i ime indus y is ex emely ola ile due o la ge p ice a ia ions in eigh a es and he p ices o new and second-hand igs and ships, whe e he second-hand alues o onnage may a y up o 70% be ween peaks and h ows (S op o d, 1997). This indus y is sensi i e o changes in business en i onmen s, poli ical con lic s, in e es a es, exchange a es, oil p ices, commodi y p ices o o he ac o s a ec ing global supply and demand (S op o d, 1997). Vola ile en i onmen s ha e been used as one a gumen o amily owne ship (Pede sen and Thomsen, 1998). Consequen ly business en i onmen s may be one eason o amily owne ship in his indus y wo ldwide, in con adic ion o he po olio heo y. High isk and high capi al in ensi y also cha ac e izes his indus y (G ani sas, 2005). These elemen s a e o en men ioned in he li e a u e as a gumen s o dispe sed owne ship, in o de o sp ead isk and due o di icul ies wi h aising enough capi al (Ca ney and Gedaljo ic, 2002). In many segmen s o his ma ke , he e is a high deg ee o asse angibili y, making i possible o deb inance in es men s due o colla e al (S op o d, 1997), which may enable amilies o emain in con ol in spi e o high capi al in ensi y. As men ioned, he ma i ime sec o is e y cyclical wi h g ea isks in some pe iods and cash es ain s may become a p oblem o some i ms in pa s o he cycle, especially i hey a e o ced o sell in e y low pe iods. Timing is he key o success (S op o d, 1997), whe e decisions on when o buy o sell onnage and wha kind o eigh con ac s o en e , a e impo an . The long- e m pe spec i e o amily i ms may imply ha hey make decisions wi hou conside ing he sho - e m implica ions as much, because hey plan on being in he business o a long ime. Many amilies know he business well, hey know ha ma ke s will u n and calcula e he isk o be bea able in a long- e m pe spec i e. They may ha e hedging s a egies whe e hey do no ob ain he maximum om a good ma ke , bu hey educe he downside o poo ma ke s. 118 4.3 Sample Cha ac e is ics – Summa y S a is ics Table III a), b) and c) p o ide summa y s a is ics o he da a used in my analyses. This da ase consis s o 167 i ms in he pe iod 1996-2005, gi ing 1165 i m-yea obse a ions (n=1165). Table III a) is a summa y o means, s anda d de ia ions and maximum and minimum alues o he mos impo an a iables in he ull sample. Table III b) compa es means be ween amily and non- amily i ms on key a iables. Table III c) is a compa ison o amily/non- amily i ms in shipping e sus amily/non- amily i ms in non-shipping indus ies. Table IV is a simple co ela ion ma ix o some o he a iables in he sample. Table III a) Summa y S a is ics o Full Sample (n=1165 i m-yea obse a ions) Va iable Obse a ions Mean S d. De . Min Max Family Owne ship 1165 15.411 20.649 0 90 Founde Owne ship 1165 8.731 16.571 0 90 Descendan Owne ship 1165 6.680 15.559 0 66 Tobin’s q 1165 1.811 2.878 .052 82.816 Ma ke Capi aliza ion 1152 4116.849 17800.52 0 339385.8 Re u n on Asse s -ROA 1165 .763 18.142 -100 79.645 Re u n on Equi y -ROE 1165 5.929 40.313 -100 200 Indus ial Owne ship 1164 .532 .499 0 1 Boa d In e locks 1165 .641 .480 0 1 To al Asse (mill.NOK) 1165 6292.931 24104.58 10 288979 Fi m Age Ln 1164 3.669 .930 1.386 5.472 Deb Ra io % 1165 29.234 23.350 0 165.151 Equi y Ra io % 1165 43.606 21.445 -65.151 179.239 Deb o Equi y Ra io % 1162 .768 8.608 -187.855 192.714 Sales o Asse s Ra io % 1165 100.104 73.463 0 500 Sales (mill. NOK) 1157 5175.89 23750.09 0 393298 P o i be o e Tax % 1153 2.831 39.099 -100 200 Boa d Owne ship 1150 23.467 24.051 0 99.03 La ges 3 Owne s % 1146 47.548 20.205 4.1 100 Boa d Size 1165 6.468 1.812 3 11 Mul iple-sha e Classes 1165 .0807 .2724 0 1 Tobin’s q is a ma ke e alua ion o he i m, and in my sample he e is one i m, Op icom, ha has a Tobin’s q o 82.82 in he yea 1999. This is due o an ex eme alua ion o he i m his yea . Op icom has no deli e ed acco ding o expec a ions and in he end o he pe iod hese alues a e close o a e age. In he yea s be ween 1996 and 2005 wi h he excep ion o 1999, Tobin’s q a ies be ween 0.52 and 21.57 (Op icom). I ha e unca ed e u n on asse s and e u n on equi y o gi e a minimum o -100% and a maximum o +200%. A ew cases had ex eme ou lie s, whe e wo examples we e i ms in he R&D phase wi h e y nega i e p o i and no sales, and one example whe e income was booked as inancial income (an o sho e company) and low sales. These ou lie s ga e ex eme alues (- 30.000% and +60.000%) on some o he a iables, and a e limi ed o p o ide a mo e no mal dis ibu ion. 119 Table III b): Compa ison o Means in Family and Non- amily Fi ms Means: To al obs.: 1131 Family Fi ms 1) Obse a ions: 450 Non- amily i ms 1) Obse a ions: 681 Family Owne ship 36.513*** 1.610 Founde Owne ship 19.891*** 1.218 Descendan Owne ship 16.622*** .392 Tobin’s q 1.672*** 1.770 Re u n on Asse s -ROA 2.235 -.106 Re u n on Equi y -ROE 5.666 6.332 Indus ial Owne ship .560 .517 Boa d In e locks .740*** .576 To al Asse (mill. NOK) 2866.01 8559.881 Fi m Age Ln 3.347*** 3.547 Deb Ra io % 31.917*** 27.639 Equi y Ra io % 46.639*** 41.305 Deb /Equi y Ra io % 1.488 .280 Sales/Asse s Ra io % 86.550*** 108.843 Boa d Owne ship % 33.815*** 16.648 La ges 3 owne s % 48.799*** 46.596 Boa d Size 5.920*** 6.868 Mul iple-sha e Classes .138*** .037 1) Based on main de ini ion o amily i ms (de ini ion 1): ei he minimum 20% owne ship, o CEO/Chai 2) Wilcoxon anksum signi icance es s due o some bina y a iables ha a e no no mally dis ibu ed 3) Signi icance le els a e ma ked i he e is a signi ican di e ence be ween Family and Non- amily. As e isks deno e s a is ical signi icance a 1% (***) le el Table III b), shows ha amily i ms ha e a signi ican ly highe deb and equi y a io. This may be due o a highe deg ee o colla e al and a solid balance shee , which makes i possible o deb inance ope a ions and s ill emain in con ol. The sales o asse s a io is signi ican ly lowe in amily e sus non- amily i ms, gi ing signi ican ly highe capi al in ensi y in amily i ms. This is he opposi e o wha p e ious li e a u e s a es, bu can be explained by he high ep esen a ion o ma i ime i ms in he sample. These i ms a e e y capi al in ensi e and ha e a high deg ee o amily owne ship (Table I). Boa d owne ship, block holdings and he use o mul iple-sha e classes a e signi ican ly highe in amily i ms, in line wi h he pe cep ion ha amily i ms wan o emain in con ol h ough boa d con ol and o ing igh s. In No way, 1/3 o he o es gi e a “nega i e con ol” and enables amilies o block impo an decisions ha equi e 2/3 majo i y, like he issuing o new sha es o change o s a u es. The le el o o al asse s is la ge in non- amily i ms indica ing ha hese i ms a e la ge han he amily i ms in he sample. Tobin’s q is signi ican ly highe in non- amily i ms, which may be due o a pe cep ion ha amily i ms a e less willing o ake a isk, ha e lowe liquidi y in sha es o ha non- amily i ms a e be e in go e ning i ms. ROA and ROE do no u n ou signi ican ly di e en be ween amily and non- amily i ms. Indus ial owne ship is qui e simila in amily and non- amily i ms, indica ing ha hese in es men s a e no jus dependen on owne ship, bu also on which indus y hey belong o. Boa d in e locks on he o he hand, a e signi ican ly highe in amily e sus non- amily i ms. 120 Table III c): Compa ing means o Shipping Family/Non- amily Fi ms and Non-shipping Family/Non- amily Fi ms Table III c), is a ou -way able combining owne ship and indus y by using bina y a iables on amily i m (1=yes and 0=no) and shipping indus y (1=yes and 0=no). SHIPPING: NON-SHIPPING: Means To al obs.: 1138 Family Fi ms 1) Obse a ions: 166 Non- amily Fi ms 1) Obse a ions: 56 Family Fi ms 1) Obse a ions: 284 Non- amily Fi ms 1) Obse a ions: 625 Family Owne ship 44.835*** 2.220 31.649*** 1.555 Founde Owne ship 13.510** 1.695 23.621*** 1.175 Descendan Owne ship 31.325*** .524 8.028** .380 Tobin’s q 1.053*** 1.160 2.034*** 1.824 Re u n on Asse s -ROA 4.827 -1.447 .719 .014 Re u n on Equi y -ROE 8.366 -1.109 4.088 6.998 Indus ial Owne ship .892*** .679 .366*** .502 Boa d In e locks .964*** .625 .609 .571 To al Asse s, mill.NOK 4124.333*** 1170.008 2130.518*** 9222.013 Fi m Age Ln 3.898*** 3.776 3.026*** 3.526 Deb Ra io % 41.071*** 45.540 26.566** 26.035 Equi y Ra io % 44.500 34.674 47.888*** 41.899 Deb /Equi y Ra io % 2.622*** 1.279 .826*** .190 Sales/Asse s Ra io % 53.899*** 81.559 105.635 111.288 Boa d Owne ship % 39.498*** 42.005 30.493*** 14.376 La ges 3 owne s % 53.711*** 58.911 45.928 45.493 Boa d Size 5.807*** 6.339 5.986*** 6.915 Mul iple-sha e Classes .247*** 0 .074 .040 1) Based on main de ini ion o amily i ms (de ini ion 1): ei he minimum 20% owne ship, o CEO /Chai 2) Wilcoxon anksum signi icance es s due o some bina y a iables ha a e no no mally dis ibu ed 3) Signi icance le els a e ma ked i he e is a signi ican di e ence be ween Family and Non- amily. As e isks deno e s a is ical signi icance a 1% (***) and 5% (**) le el I will i s make some commen s on he di e ences be ween amily and non- amily i ms in he shipping indus y, and he ea e make a ew commen s o he non-shipping sample. Tobin’s q e lec s he unning sha e p ices o smalle in es o s, wi h he possibili y o discoun s on sha es wi h la ge sha eholde s and less liquidi y. In he shipping indus y, Tobin’s q is signi ican ly lowe in amily i ms compa ed o non- amily i ms, indica ing a discoun on sha es in he amily i ms in his speci ic indus y. This may be a esul o a high deg ee o amily in luence and con ol h ough he use o mul iple-sha e classes. On he o he hand, he e is a posi i e accoun ing e ec (ROA/ROE) o amily i ms in shipping, bu his di e ence is no signi ican . I has been s a ed ha amilies o en ha e a longe planning ho izon and ha i could be ha hey a e able o make be e in es men decisions due o his long- e m iew (James, 1999). One e ec o his may be ha amilies sac i ice sho - e m p o i s o long- e m e u n. Ano he elemen may be ha his is an old indus y, wi h a specialized in as uc u e whe e di e en pa ies ha e had ime o adjus o his ma ke , and hence make be e s a egic decisions. A hi d elemen may be good ma ke knowledge. 121 In he shipping indus y, boa d in e locks and indus ial owne ship a e signi ican ly highe in amily i ms compa ed wi h non- amily i ms. This may be explained by he al eady exis ing owne ship and ne wo k s uc u e in he indus y o i may be de i ed om a need o ge ing access o human esou ces o capi al, whe e co-in es men s o pa ne ships can be a way o ge a ound high capi al in ensi y. Ano he explana ion could be ax incen i es, whe e limi ed pa ne ships a e one way o educing axes. In addi ion, i may con ibu e o educed isk o i can be a way o ge ing in con ol o he supply chain. To al asse s and capi al in ensi y a e signi ican ly highe in amily i ms and i seems as i hese amily i ms ha e mo e asse s on hei own books. This may be because hey ope a e in di e en segmen s o he ma ke o hey wan o be in con ol o ope a ions by con olling he asse s. Family i ms ha e highe equi y and deb o equi y a ios, enabling hem o deb inance hei in es men s and s ill emain in con ol. The amily i ms in shipping ha e lowe boa d owne ship, block holdings and boa d size han non- amily i ms, bu hey a e s ill able o emain in con ol due o use o dual-sha e classes, which is s ill ex ensi ely in use in amily i ms in his speci ic indus y. Di e ences be ween amily and non- amily i ms in “non-shipping indus ies” a e less in e es ing because his “non-shipping g oup” consis s o se en e y di e en indus ies. I only commen on some igu es whe e indus ial owne ship is he mos in e es ing di e ence. I is now signi ican ly lowe in amily i ms, which is he opposi e o he indings in he shipping indus y. Boa d in e locks do no u n ou signi ican ly di e en be ween he wo g oups. Tobin’s q is now highe in amily i ms, bu i is di icul o compa e due o la ge indus y di e ences ega ding ma ke and asse alua ion in he non-shipping g oups. Howe e , he e a e di e ences among indus ies due o di e en asse angibili y and R&D in ensi y. In he “non-shipping g oup”, ROA is s ill highe in amily i ms. ROE is lowe in amily i ms compa ed wi h non- amily i ms, bu his is also di icul o compa e due o indus y di e ences. To al asse s a e now signi ican ly highe in non- amily i ms, in line wi h p e ious esea ch, which ocuses on elemen s like capi al in ensi y and isk (Ande son, Mansi and Reeb, 2003). Accoun ing igu es may also be di icul o use when compa ing di e en indus ies. Va ious indus ies may use di e en accoun ing measu es due o la ge a ia ions in le els o u no e , ma gins o le e age (www.wikipadia.com). Re u n on asse s and equi y is an indica ion o he e iciency in he alloca ion o esou ces and may show how good i ms a e in con e ing in es men s o p o i . Di e en indus ies ha e di e en measu es o his, and di e en owne s may ha e di e en goals o hese measu es. Some owne s a e conce ned wi h sho - e m p o i s, whe eas o he s a e mo e long- e m o ien ed. 122 Table IV: Co ela ion Ma ix Shipping Family Fi m N- Fi ms Indus ial Owne ship Boa d In e lock To al Asse s Fi m Age Deb - Equi y Sales- Asse s Boa d Owne ship Dual sha e Class Shipping 1.000 Family Fi m 0.341*** 1.000 N-Fi ms 0.335*** 0.257*** 1.000 Indus ial Owne ship 0.305*** 0.032 0.144*** 1.000 Boa d In e lock 0.246*** 0.153*** 0.083*** 0.277*** 1.000 To al Asse s -0.060** -0.120*** 0.082*** 0.158*** -0.066** 1.000 Fi m Age 0.171*** -0.088*** 0.035 0.266*** -0.021 0.131*** 1.000 Deb -Equi y 0.086*** 0.066** 0.051 0.008 0.043 0.001 0.031 1.000 Sales-Asse s -0.266*** -0.143*** -0.194*** -0.131*** -0.077*** -0.066** -0.025 -0.083*** 1.000 Boa d Owne ship 0.340*** 0.343*** 0.052 0.090*** -0.026 -0.153*** -0.011 0.096*** -0.113*** 1.000 Dual-sha e Classes 0.189*** 0.173*** 0.233*** 0.215*** 0.090*** 0.082*** 0.186*** 0.018 -0.130*** -0.003 1.000 As e isks deno e s a is ical signi icance a he 1% (***) o 5% (**) le el. Table IV p o ides a co ela ion ma ix o some o he key a iables. Shipping, amily i ms, indus ial owne ship and boa d in e locks a e o main in e es in he analyses o a possible ela ionship be ween amily owne ship and s ong ne wo ks in di e en indus ies. The e is a s ong co ela ion be ween shipping and amily i ms, numbe o i ms in he indus y, indus ial owne ship and boa d in e locks. This is in line wi h indings in Table I and Table II, and he summa y s a is ics in Table III c). Shipping is also posi i ely co ela ed wi h i m age, he deb o equi y a io, boa d owne ship and dual-sha e classes. This indica es an indus y wi h many i ms in he same indus y and a high deg ee o comme cial and social ne wo ks. Shipping has a s ong nega i e co ela ion wi h sales o asse s and o al asse s. By analyzing co ela ions be ween amily i ms and he o he a iables, I ind ha he e is a nega i e co ela ion be ween amily i ms and o al asse s, i m age and sales o asse a io. This may imply ha capi al in ensi y in gene al does no sui amily i ms, in line wi h p e ious esea ch. Family i ms and N- i ms (numbe o i ms) a e signi ican ly posi i ely co ela ed, indica ing ha amily i ms emain in indus ies con aining many i ms in he same indus y. Family i ms a e also posi i ely co ela ed wi h con olling mechanisms like boa d owne ship and dual-sha e classes, also in line wi h p e ious esea ch (C onquis and Nilsson, 2003), in addi ion o he boa d in e locks a iable. The e is a signi ican and posi i e co ela ion be ween N- i ms, indus ial owne ship and boa d in e locks, wi h he excep ion o capi al in ensi y measu ed by sales o asse s, being nega i e. I will now u n o he eg ession analyses o see whe he I ind suppo o s a ing ha indus y con ex and comme cial and social ne wo ks a e impo an de e minan s o amily owne ship in some indus ies, and ha his may con ibu e o a be e unde s anding o he con ex ual ac o s in amily i m esea ch. 123 5.0 EMPIRICAL FINDINGS The analysis so a shows a highe deg ee o amily owne ship, boa d in e locks and indus ial owne ship in ma i ime i ms compa ed wi h o he indus ies (Table II and III c). This sec ion discusses possible easons o he high deg ee o amily owne ship in his speci ic indus y. I ask whe he amily owne ship is de e mined by i m o indus y speci ic cha ac e is ics, o i i also could be explained by s ong social and comme cial ne wo ks. These ques ions indica e ha I am mo e in e es ed in he “be ween- i m” e ec s han he “wi hin- i m” e ec s. I ocus on he long lines and ega d amily owne ship as he o iginal o m o he i m, also assuming ha his does no change conside ably o e ime. Taking his in o accoun , my main ocus will be on he c oss-sec ional analyses as o dina y leas squa e and logis ic eg ession models. Himmelbe g e al. (1999) a gue ha ixed e ec es ima o s should be used when examining he ela ionship be ween manage ial owne ship and i m pe o mance. Howe e , a key assump ion o jus i ying he use o he panel da a app oach is ha manage ial e o is a andom a iable dependen on yea - o-yea changes in manage ial owne ship (Zhou, 2001). Fu he mo e, Zhou (2001) shows ha manage ial owne ship is subs an ially di e en ac oss i ms, bu ha i changes slowly om yea o yea wi hin a i m, indica ing ha when he be ween- i m a ia ion is subs an ial and he wi hin- i m a ia ion is small, c oss-sec ional a ia ion is emo ed by i m ixed e ec s. In my sample, he a ia ions in amily owne ship ac oss i ms a e la ge han he yea - o-yea a ia ions wi hin i ms, in line wi h Zhou (2001). My sample shows a yea ly a e age educ ion in amily owne ship o 1% ( om amily o non- amily) wi h a 5% educ ion o he whole pe iod 1996-2005. Du ing his 10-yea pe iod, 22 i ms change s a us om amily o non- amily and one i m changes s a us om non- amily o amily i m. (Appendix III shows changes in he i s 50 i ms in my sample). Due o he ac ha he e a e some yea - o-yea changes in amily owne ship in gene al (Appendix III), I un a ixed e ec panel da a model o he whole sample. In his s udy, my main in e es is he “be ween- i m” e ec s and o his eason, I ind ha he panel da a model does no gi e he whole pic u e. The e a e subs an ial di e ences be ween indus ies ega ding changes in amily owne ship, and he ma i ime i ms show a consis en amily owne ship s uc u e o e he sample pe iod. A e age a ia ions in amily owne ship in his indus y a e -0.5%, which is smalle han he a e age changes o he whole sample. In he u he analyses o ne wo ks and amily owne ship, I will ocus on c oss sec ional OLS and logis ic eg ession models. 124 5.1 Models This da ase con ains 167 No wegian lis ed i ms in he pe iod om 1996 o 2005, wi h an a e age o 7.5 yea s, p esen ing 1165 i m-yea obse a ions. I will apply di e en eg ession equa ions whe e he main di e ences a e whe he he dependen a iables a e con inuous o bina y. All eg ession models include a obus es clus e ed by i m in o de o con ol o se ial co ela ion and he e oskedas ici y. I i s es ima e a model including all indus ies by using a obus o dina y leas squa es (OLS), clus e ed by i ms, and I include he same model wi h a ixed e ec panel da a model. I hen un a obus OLS- eg ession model, sepa a ing he di e en indus ies. Finally, I un a obus logis ic eg ession model, wi h di e en de ini ions o amily i ms. I un he analyses on he shipping indus y wi hou including o sho e. The eason o excluding o sho e i ms is ha he e a e wo la ge s a e-owned oil companies in his g oup. In addi ion, he o sho e indus y is ai ly young and has no had he oppo uni y o build he same s ong ne wo ks h ough se e al gene a ions o amily owne ship. The OLS and panel da a models (and Tobi ) a e based on con inuous dependen a iables (pe cen age amily owne ship). To make a clea de ini ion o amily i ms, I add dummy a iables o ou de ini ions o amily i ms, using a logis ic eg ession model o analyzing hese e ec s. In my logis ic eg ession models, he bina y dependen a iable is based on a leas 20% amily owne ship o CEO/Chai (s onges de ini ion in Ami and Villalonga, 2006). I un he models wi h dummy a iables on amily, ounde o descendan owne ship as well as on amily in luence, wi h one being yes and ze o no. Indus ial owne ship is used as a p oxy o comme cial ne wo ks and boa d in e locks as a p oxy o social ne wo ks. The eg ession equa ions used a e: (see Appendix I o he de ini ion o he a iables used) 1) OLS and panel da a eg essions on amily owne ship in % (Table V) Family Owne ship = (Numbe o i ms) + (Social and indus ial ne wo k a iables) + (Con ol a iables) + (Yea dummy Va iables) 2) OLS eg ession on amily owne ship in % di ided by indus y (Table VI a) and VI b)) Family Owne ship = (Indus y) + (Social and indus ial ne wo k a iables) + (Con ol a iables) + (Yea dummy a iables) + (In e ac ion e ec s) 3) Logis ic eg essions on amily i ms and amily in luence (Table VII) Family Fi m = (Indus y) + (Social and indus ial ne wo k a iables) + (Con ol a iables) + (Yea dummy a iables) + (In e ac ion e ec s) 125 5.2 OLS and Panel Da a Reg essions on Family Owne ship - All Indus y G oups In he OLS eg essions, I un a obus es clus e ed by i m in o de o con ol o se ial co ela ion and he e oskedas ici y. I ha e 1165 i m-yea obse a ions on 167 i ms ha I clus e by i m, and ge 166 g oups. In hese eg essions, I use amily owne ship in gene al as my dependen a iable and I analyse gene a ional e ec s by di iding in o ounde and descendan amily owne ship. In he ixed e ec panel da a model, I use he same de ini ions o amily owne ship and I es o he same independen a iables as in he OLS eg essions. Table V is a c oss-sec ional and ixed e ec panel da a eg ession on amily owne ship in gene al, wi h no es ic ions on owne ship le el, ocusing on he main e ec s o he independen a iables. Table V does no dis inguish be ween di e en indus ies, bu ocuses on indus y e ec s in gene al, whe e he numbe o i ms in each indus y is one de e minan . The a iable N- i ms is a p oxy o he s eng h o an indus y in he sample bu may also e lec he compe i ion in a ious indus ies. Indus ial owne ship and boa d in e locks in he same indus y a e included as independen a iables, measu ing he s eng h o ne wo ks. In his OLS eg ession I ind ha he numbe o i ms, N- i ms, in an indus y has a posi i e e ec on amily owne ship, bu i only has a signi ican e ec on descendan owne ship. Fu he mo e, boa d in e locks ha e a signi ican and posi i e e ec on descendan owne ship. This may indica e ha i i ms su i e he i s s a -up phase wi h s ong compe i ion, hey gain om being in an indus y wi h many pa icipan s. The e a e la ge a ia ions be ween di e en indus ies depending on whe he hey ope a e in a global, local o na ional ma ke , which may imply ha indus ies ope a ing in a global ma ke a e less ulne able o local compe i ion. To al asse s and sales o asse s ( he capi al needed o a gi en olume o sales) show a nega i e e ec on amily owne ship. This is in acco dance wi h Ca ney and Gedaljo ic (2002), who s a e ha capi al in ensi y and limi ed access o capi al a e alid a gumen s agains amily owne ship. My indings a e in line wi h his on a gene al basis, looking a all indus ies oge he . Ne e heless, he e a e a ia ions be ween he di e en indus ies which will be discussed la e . As ea lie men ioned, amily owne ship ends o be ai ly s able (see Appendix III) and “be ween- i m” e ec s a e mo e in e es ing han “wi hin- i m” e ec s, indica ing ha ime- se ies a e less in e es ing in he analyses o he indus y e ec s on amily owne ship. I he e o e mainly ocus on c oss-sec ional analyses, bu I ha e included a panel da a model 126 because he e a e some a ia ions in amily owne ship when looking a he whole sample. Table V also includes a ixed e ec panel da a model o amily, ounde and descendan owne ship (explaining li le o descendan owne ship), using he same independen a iables as in he OLS- eg ession. In he ixed e ec panel da a model, he e a e 165 g oups wi h an a e age 6.9 yea s pe i m, gi ing 1143 i m-yea obse a ions. The andom e ec panel da a model was ejec ed by unning he Hausman es , wi h he excep ion o ounde owne ship. The ixed e ec panel da a model shows s onge indus y e ec s han he c oss-sec ional OLS- eg ession model. The numbe o i ms in he same indus y now has a highly signi ican posi i e e ec bo h on amily and ounde owne ship bu is o no signi icance o descendan owne ship. Indus ial owne ship now shows a signi ican posi i e e ec a he 5% le el on amily owne ship and a he 10% le el on descendan owne ship, bu no e ec on ounde owne ship. This may indica e ha in es men s in o he i ms in he same indus y make i possible o emain amily owned ac oss gene a ions. Howe e , he e may be an endogenei y p oblem in his ela ionship. The ques ion is whe he amily i ms in es mo e in o he i ms due o a s onge balance shee and s onge ne wo ks, o i hey a e able o emain amily owned due o hese in es men s, hence educing isk and o e coming capi al es ain s. Fo shipping he las elemen may be ele an due o he speci ic indus y cha ac e is ics. I will discuss he po en ial p oblems wi h e e se causali y and endogenei y la e in he pape . I pa ly ind suppo o he hypo hesis ha he numbe o i ms in an indus y has a posi i e e ec on amily owne ship. Howe e , i is di icul o sepa a e he e ec s o indus y and he i m speci ic ac o s in his ela ionship. One can a gue ha many i ms in an indus y inc ease he ade be ween i ms in he same indus y as a esul o bo h ho izon al and e ical ela ions. Some i ms a e compe i o s bu hey may also be complemen a y and he e o e gain om inc eased ade among hemsel es, hence, ounde s can gain om he exis ence o hese ade ela ions. The ques ion is whe he hese ela ions in an indus y enable i ms o emain amily owned compa ed wi h selling ou hei s akes and become widely held. Table V p esen s eg essions wi h N- i ms as one a iable, including se e al indus y g oups wi h la ge in e nal di e ences. As can be seen om he co ela ion ma ix in Table IV, he e is a s ong co ela ion be ween N- i ms and he shipping indus y. In he ollowing sec ion, I spli hese N- i ms in o eigh indus y g oups (see Table I). I ocus on shipping and how he indus y s uc u e (compe i ion/clus e ) in his speci ic indus y a ec s amily owne ship. 127 Table V: OLS Reg essions on Family, Founde and Descendan Owne ship in % (N-Fi ms ep esen ing he numbe o i ms in all indus ies) This able epo s he esul s o he eg essions on amily owne ship, including all indus ies, he ne wo k a iables and he con ol a iables. Family owne ship is owne ship in pe cen o amily, ounde o descendan . Ne wo k a iables a e he numbe o i ms in each indus y (N- i ms measu e o s eng h o clus e ), indus ial owne ship in same indus y g oup (bina y) and boa d in e locks in he same indus y. Con ol a iables a e i m age (log), i m size measu ed by o al asse s, deb o equi y and equi y a io e lec ing inancing s uc u e and sales o asse s a io measu ing capi al in ensi y. Yea dummy is a bina y a iable wi h one o each yea o sample pe iod (1996-2005) and is no epo ed. The columns 1, 2 and 3 show esul s om he OLS- eg ession model and he columns 4, 5 and 6 epo he ixed e ec panel da a model. I epo he un-s anda dized coe icien s wi h - alues in pa en heses. As e isks deno e s a is ical signi icance a he 1% (***), 5% (**) o 10% (*) le el. Dependen Va iables: O dina y Leas Squa es Model Fixed E ec Panel Da a Model Family Founde Descendan Family Founde Descendan Owne ship Owne ship Owne ship Owne ship Owne ship Owne ship (1) (2) (3) (4) (5) (6) Independen Va iables: N- i ms 0.25* 0.06 0.19*** 0.24*** 0.25*** -0.01 (1.96) (0.55) (2.88) (3.28) (3.28) (-0.13) Indus ial owne ship 1.27 0.31 0.96 6.68** 3.75 2.93* (0.37) (0.14) (0.38) (2.16) (1.19) (1.81) Boa d In e lock 5.00 -1.92 6.92*** 1.66 3.88 -2.22* (1.60) (-0.84) (3.60) (0.68) (1.55) (-1.73) To al Asse s -0.00*** -0.00*** -0.00*** 0.00 0.00 -5.85e06 (-3.91) (-3.05) (-3.08) (1.07) (1.22) (-0.32) Fi m Age Ln 0.52 -5.01*** 5.53*** -8.36*** -8.74*** 0.38 (0.39) (-5.43) (5.09) (-7.37) (-7.55) (0.64) Sales/Asse s -0.48** -0.15 -0.03*** -0.01 -0.01* 0.00 (-2.06) (-0.78) (-2.78) (-1.15) (-1.67) (1.05) Equi y a io 0.06 -0.04 0.10* -0.00 -0.00 -0.00 (0.87) (-0.89) (1.75) (-0.23) (-0.20) (-0.04) Deb /Equi y 0.08 0.04 0.05 0.03 0.03 0.01 (1.46) (1.03) (0.78) (1.51) (1.08) (0.78) Fi m yea s 1143 1143 1143 1143 1143 1143 R-squa ed 0.12 0.15 0.31 F-s a is ics 3.20*** 4.17*** 2.61*** Wi hin-R-sq 0.17 0.18 0.02 Hausman Chi-sq 34.29*** 14.65 26.68** 134 6.0 DISCUSSION AND CONCLUSION My main objec i e o his pape is o analyse he e ec s o indus y and indus y ne wo ks on amily owne ship. Di e en con ex ual elemen s a ec i ms and hei owne ship s uc u e, and I es how i m and indus y speci ic elemen s as well as di e en ne wo ks a ec amily owne ship, especially in he shipping indus y. My indus y and i m speci ic a iables a e in line wi h ea lie esea ch, using agency heo y as he heo e ical amewo k. In addi ion, I use he ne wo k and social capi al heo y, whe e I de ine some p oxy a iables o clus e s and social and comme cial ne wo ks. I use he numbe o i ms in an indus y as a p oxy o compe i ion and clus e s, indus ial owne ship as a p oxy o comme cial ne wo ks, and boa d in e locks as a p oxy o social ne wo ks. By using hese a iables, I ind ha he numbe o i ms in an indus y has a posi i e e ec on amily owne ship. I also ind ha bo h social and comme cial ne wo ks ha e a signi ican and posi i e e ec on amily owne ship, whe e social ne wo ks a e mos signi ican in some cases and comme cial ne wo ks in o he s. Impo an issues in hese ela ions seem o be con ol and in ol emen in i ms in he same indus y. Indus y a ilia ion is commonly used as a con ol a iable in empi ical pape s on owne ship and i m pe o mance, bu no ha o en as a de e minan o di e en owne ship s uc u es. Pede sen and Thomsen (1998) analyse he ela ionship be ween indus y and co po a e owne ship s uc u e and ind ha he indus y e ec is s onge o some owne ship ca ego ies han o he s. They ind ha shipping has a high deg ee o amily and majo i y owne ship and s a e ha his may be due o angibili y o asse s and deg ee o colla e al. Demse z and Lehn (1985) a gue ha he s uc u e o co po a e owne ship a ies in ways ha a e consis en wi h alue maximizing and s a e ha he noisie he en i onmen is, he g ea e he pay-o o moni o ing; hence some indus ies ha e mo e concen a ed and amily owne ship. Pede sen and Thomsen (1998) also ind e idence ha indus y a ilia ion has a signi ican e ec on owne ship s uc u e a e con olling o na ional di e ences. By using one na ional con ex , I am able o analyse di e ences in owne ship s uc u e be ween indus ies in he same legal s uc u e. I he e o e ocus mo e on he c oss-sec ional analyses. These c oss- sec ion analyses show a s ong indus y e ec on amily owne ship in he shipping indus y. O he indus ies ( om Table I) a y be ween ha ing a posi i e o nega i e e ec on amily owne ship, bu none o hem a e consis en ly signi ican ly posi i e, as he case is in shipping. I un he same analyses wi h o he indus ies as in e ac ion a iables (no epo ed), bu no o he indus y has he same e ec o ne wo ks on amily owne ship as he shipping indus y. 135 Shipping i ms ha e long adi ions in No way. Many o hese i ms ha e oo s going back decades in his o y, wi h s ong social and indus y ne wo ks due o se e al gene a ions in he indus y. A he same ime i is a highly compe i i e global p oduc ma ke , equi ing he igh long- e m s a egic decisions, whe e many shipping i ms ha e pu sued a di e si ica ion s a egy in o o he segmen s, like he o sho e ma ke (O sho e & Shipping, n .1, 2006). In his pape I ind suppo o he hypo heses ha he e is a posi i e ela ionship be ween he numbe o i ms in an indus y and amily owne ship. I also ind a posi i e e ec o indus y ne wo ks on amily owne ship in shipping, bu whe he he e ec is s onge om he social o comme cial ne wo ks depends on he in es men le el and ype o boa d in e locks. Is i so ha amily owne ship is a mo e iable owne ship s uc u e in his speci ic indus y and ha owne s and manage s make social and comme cial a angemen s o emain amily owned? I his is he case, why is i impo an o emain amily owned and no become widely held? T adi ionally, ship owne s ha e been ega ded as comme cially o ien ed business people, and al uism has no been used as a common cha ac e is ic on his indus y. Ne e heless, old adi ions and his o y, s ong pe sonal and amily ne wo ks wi h an “inhe i ed expec a ion” and obliga ion o s ewa d he i m could be mo i es o emaining amily owned, in addi ion o inancial easons. Families a e ied oge he h ough “gene ic ies” and one could expec hese bonds o inc ease he le el o us in hese ela ionships, wi h a posi i e e ec on amily owne ship in some cases. On he o he hand, con lic s in amily i ms may be mo e e en emo ional and des uc i e o he i m due o hese s ong ies. This has been de ined ou side he scope o his pape . The use o mul iple sha e classes is signi ican ly highe in amily i ms in he shipping indus y (Table III c) indica ing ha amilies wan o emain in con ol, wi h he possible e ec o educed liquidi y o he sha es. I a gue ha amily owne ship is possible due o social and comme cial a angemen s in ne wo ks in spi e o high isk and capi al in ensi y in shipping, assuming an unde lying d i e o emain amily owned. 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Family i m Founding amily owns mo e han 20%, a amily membe is CEO o a amily membe is Chai o he boa d. This is he main de ini ion wi h yes=1 o his de ini ion o amily i m and no=0 o his de ini ion 5. Founde Family Fi m Founde owns mo e han 20%, o a amily membe is CEO o Chai . Bina y yes=1 and no=0 o his de ini ion. 6. Descendan Family i m Descendan owne ship is 20%, o descendan is CEO o Chai Bina y yes=1 and no=0 o his de ini ion. 7. Founde Responsible o s a up and de elopmen o i m. Sou ces a e annual epo s, VISMA Bizweb da abase and Web sea ches. 8. Fi m age Numbe o yea s since he ounding o he oldes i m. I me ged, he ounding o o e aking i m as ounding yea (sou ces as o ounde ) 9. Mul iple-sha e classes Mul iple-sha e classes as bina y a iable wi h no=0 and yes=1. 10. Indus y Bina y dummy a iable wi h eigh indus y g oups, wi h yes=1 o speci ic indus y and no=0 o his indus y. 11. Re u n on Asse s P o i be o e ax as a a io o o al asse s in pe cen . 12. Re u n on Equi y P o i be o e ax as a a io o o al equi y in pe cen . 13. Ma ke capi aliza ion Numbe o sha es mul iplied wi h yea -end closing a e 14. To al Asse s Book alue o o al asse s in balance shee 15. P o i be o e Tax % P o i be o e ax as a a io o o al sales 16. Deb - a io % In e es bea ing deb as a a io o o al asse s 17. Equi y- a io % Equi y as a a io o o al asse s 18. Deb o Equi y a io Measu e inance s uc u e - ela ionship be ween Deb & Equi y 19. Sales o Asse s % Measu e capi al in ensi y - ela ionship be ween Sales & Balance shee 20. Boa d Owne ship Numbe o sha es owned by boa d membe s (measu e o in luence) 21. La ges h ee owne s in % Measu e owne ship concen a ion 22. Boa d Size Numbe o boa d membe s 23. Indus ial Owne ship Di e en le els o in es men in sha es in o he i ms in same indus y (p oxy o comme cial ne wo ks) 24. Boa d In e locks Va ious le els o boa d in e lock, as one o se e al boa d membe s o same chai in wo i ms in same indus y (p oxy o social ne wo ks) 25. N-Fi ms Numbe o i ms in di e en indus ies (compe i ion and/o clus e ) 143 Appendix II This clus e map is an illus a ion o he No wegian Ma i ime Clus e (Po e , 2000), whe e shipping i ms a e ega ded he co e o he clus e . Sou ce: Michael E. Po e , 2000