Internal governance mechanisms, agency problems and family ownership: Evidence from Australia

Abstract

This paper investigates whether family firms use dividends, board composition and debt to expropriate the wealth of minority shareholders or to mitigate agency problems. Utilising panel data on a sample of publicly traded firms in Australia over the period 2000-2005, this study provides evidence that family firms pay optimal and higher levels of dividends and debt compared with their non-family counterparts. The study also finds that family firms have significantly lower proportions of independent directors on the board, but this is consistent with the optimal (value maximization) use of board composition. These results provide evidence that family firms mitigate rather than exacerbate moral hazard problems between owners and minority shareholders in Australia. This study adds to the very limited research into the relationship between family ownership and corporate governance mechanisms in Australia.