Agency Theory and Stewardship Theory Integrated, Expanded, and Bounded by Context: An Empirical Investigation of Structure, Behavior, and Performance within Family Firms

Studies abound investigating whether agency or stewardship theory is more applicable within family firms. Both theories predict enhanced firm performance, but starkly contrast in behavioral assumptions and structural prescriptions. Agency theory assumes an economic model of man; agent behavior is based on self-interest and may conflict with the principal’s interest. Governance structures that control and monitor agents are prescribed to thwart opportunistic behavior and better align the goals of the principal and agent. Stewardship theory assumes a humanistic model of man; steward behavior is based on serving others and therefore will align with the principal’s interest. Governance structures that empower stewards are prescribed to facilitate the continued alignment of interests. Investigations reveal that either theory can be applicable in the unique context of family firms, thereby creating ambiguous and confounding predictions about behavior and performance.

I address this theoretical and empirical debate by reviewing and synthesizing the family firm literature grounded in these theories. I then conduct an empirical study to narrow the distance between these opposing theoretical perspectives. My research investigates the integration of agency and stewardship theories on family firm behavior and performance. My research model intertwines components of agency and stewardship perspectives, making predictions within, across, and in the integration of theories. Primary data collected from family firm leaders, family employees, and nonfamily employees were analyzed in matched triads representing 77 family firms. Results support the majority of predictions made. Contributions to family firm literature, theory, and practice are discussed.