Hiring Family or Nonfamily Managers in Family Firms: a Multitask Model with Interdependence Between Economic and Non-economic Tasks

Jenny Kragl (EBS University of Business and Law)
Guoxian Xi (University of Trier )
Alberto Palermo (EBS University of Business and Law)
Joern Block (University of Trier)

Abstract: We present a multitask principal-agent model with economic and non-economic tasks to analyze top management hiring decisions in family firms. Our model shows that ability differences between family and nonfamily managers, the interdependence of economic and non-economic tasks, and difficulties in the measurement of non-economic tasks explain why either family or nonfamily managers are hired. We find that non-family managers are more likely hired when the managers' abilities don't differ strongly because the non-family manager is better at the economic task which can be more efficiently incentivized. If the economic and non-economic tasks are strong substitutes, a non-family manager will be hired at the cost of negligence of non-economic goals. However, hiring a family manager becomes optimal when the non-economic task can be measured better, the tasks become more complementary, and the family manager cares more strongly for the family firm. Our results contribute to the literature on top management hiring decisions in family firms which so far has not accounted for multitask settings, measurement problems and the interdependence between economic and non-economic tasks.