New insights on economic theories of the family firm

Research attention to family firms has significantly increased in recent years, with a growing application of economic theories such as agency theory and resource-based theory to explain differences between family firms and nonfamily firms and heterogeneity among family firm populations. Despite this progress, the formulation of an economic theory of family business remains notably absent. Merely applying existing economic theories of the firm to the realm of family business is inadequate, as these general theories fail to incorporate the idiosyncratic aspects of family firms, such as the pursuit of socioemotional wealth. This paper seeks to advance economic theories specific to family firms and lay the groundwork for future studies. We advocate for interdisciplinary research using insights from fields such as economics, management, sociology, and psychology to investigate the complex dynamics governing family firms and their economic behaviors, decision-making, and performance.Research on family firms is increasing. Scholars are using economic theories like agency theory and resource-based theory to explain differences between family and nonfamily firms as well as variations among family firms. However, there is still no clear economic theory of the family firm. Using existing economic theories does not work well because they do not consider the unique aspects of family businesses. Essentially, the economic theory of family business must tackle three core inquiries: What makes family firms distinct from nonfamily organizations? What factors dictate the scale and scope of family businesses? And what influences the heterogeneity within the family business sector? This paper contributes toward the development of an economic theory of family firms.