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The Role of Shareholder Agreements in Mitigating Superprincipal Agency Conflicts Among Family Firms

Governance research paints a bleak picture regarding the organizational consequences of shareholder agreements (SAs). These legally binding contracts contain management and ownership provisions wherein participating shareholders agree to collude in a pre-determined manner. Research shows that SAs concentrate shareholders’ power and entrench shareholders, thereby aggravating principal-principal agency conflicts and hurting firm performance. In this paper, we develop theory to suggest a boundary condition regarding the negative impact of SAs on performance. Specifically, we submit that SAs in family firms carry different implications. While SAs might foster principal-principal (P-P) agency conflicts in non-family firms, we posit that SAs limit “superprincipal” agency conflicts between family shareholders and the larger family in family firms. As such, SAs should be valuable for family firms. Our empirical analysis encompasses all 195 firms that went public in France between 2005 and 2015. Our results broadl...