Abstract

Corporate governance research generally rests on the assumption that ownership constituencies have homogeneous preferences. More recent, research on public firms highlighted that owners may also have varying interests (e.g. Connelly et al., 2010; Hoskisson et al., 2002). Interestingly, this issue of heterogeneous ownership preferences may also be applicable to an increasingly prevalent form of private business, namely private equity (PE) backed family firms. Whereas PE investors focus on medium-term value maximization, family owners generally have long-term objectives, which are not always economic in nature. In this study, by adopting a principal-side perspective, we examined how the potentially conflicting interests of PE investors and family owners impact employment decisions in PE- backed family firms. While family members are concerned about maintaining long-term employee relationships in order to preserve socioemotional wealth, PE firms have been criticized for creating shareholder value at the expense of employees.

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