Do In-laws Really in? Conflicts and Agency Problems within Family Members

Our study extends the emerging stream of research of kinship involvement in business by examining how the involvement of in-laws in firms affects their agency issue and performance. Drawing on social embeddedness theory and the agency perspective, we argue that in-laws of the firm owner exhibit different degree of embeddedness in a family from his/her blood-relatives, reducing their attachment and communication within the firm. Using a large sample of publicly listed firms in China, we find that family firms with a greater percentage of the owner’s in-laws in the top position have lower returns on assets and market values compared to other family firms. While the negative effect on firm performance will be strengthened when the spouse of the firm owner is in the top position, the cost of in-laws’ involvement will be alleviated when the parents of the firm owner are in the top position and in-laws have increasing ownership. We also find the inferior performance of in-laws is mediated by the excess managerial perquisites and the increasing risk aversion on strategy. We discuss the implications of our paper for the family firm studies, research of firm embeddedness of kinship, and literature of corporate governance.