The Transaction Cost Economics Theory of the Family Firm: Family-Based Human Asset Specificity and the Bifurcation Bias

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Publication Details

Output type: Journal article

Author list: Verbeke A, Kano L

Publisher: SAGE Publications

Publication year: 2012

Journal: Entrepreneurship Theory and Practice (1042-2587)

Volume number: 36

Issue number: 6

Start page: 1183

End page: 1205

Number of pages: 23

ISSN: 1042-2587

eISSN: 1540-6520

Languages: English-Great Britain (EN-GB)

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Open access status: closed

Abstract

We develop a transaction cost economics theory of the family firm, building upon the concepts of family-based asset specificity, bounded rationality, and bounded reliability. We argue that the prosperity and survival of family firms depend on the absence of a dysfunctional bifurcation bias. The bifurcation bias is an expression of bounded reliability, reflected in the de facto asymmetric treatment of family vs. nonfamily assets (especially human assets). We propose that absence of bifurcation bias is critical to fostering reliability in family business functioning. Our study ends the unproductive divide between the agency and stewardship perspectives of the family firm, which offer conflicting accounts of this firm type's functioning. We show that the predictions of the agency and stewardship perspectives can be usefully reconciled when focusing on how family firms address the bifurcation bias or fail to do so.

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