Abstract
We draw on the economic, corporate governance, and family business literatures to explain why the effects of family on family firms makes this governance form theoretically distinct from those of public and private non-family firms. Our thesis is that parental altruism, when combined with private ownership and owner-management, influences the ability of the firm’s owner-manager to exercise self-control, which, in turn, can expose some family firms to conflicts rooted in the agency threats of moral hazard, hold-up, and adverse selection. We then discuss why some other family firms are able to minimize these dark side threats and thereby attain altruism’s brighter side. Finally, we discuss how altruism’s influence changes over time as ownership becomes dispersed among family members and across generations.