Finance

Business

Value (mathematics)

Corporate governance

Delegation

International human rights law

Machine learning

Human rights

Political science

Order (exchange)

Management

Economics

Microeconomics

Bundle of rights

Law and economics

Right to property

Incentive

Public relations

Computer science

Property rights

Academy of Management Review

Building on property rights theory, we explore the relationship among property rights, owner-management, and value creation in private firms. We suggest that property rights in the hands of owner-managers create strategic, incentive, and commitment benefits that facilitate value creation. However, the self-incentivizing nature of property rights engenders three control hazards—those related to reliability, egocentrism, and succession—that threaten stakeholder welfare. In order to mitigate these hazards, owner-managers must establish credible governance. We discuss four governance mechanisms often found in owner-managed firms: commitment to social control, delegation of authority to managers, submission to the hierarchy of a board, and partial transfer of ownership. Although these mechanisms help mitigate control hazards, they also constrain the value-generating benefits of owner-management. Owner-managers thus face control dilemmas when determining how to best govern their firms. Our theory sheds new light on the relationship between property rights and value creation, and lays a foundation for exploring the benefits and liabilities of owner-management.

Property Rights, Owner-Management, and Value Creation