The study examined the interplay of the two separate governance dimensions of dominant ownership and management control that differentially affected the prevalence of Principal-Agent (PA) and Principal-Principal (PP) conflicts, as well as their respective impacts on shareholder value. The sample comprised of 675 Indian firms examined during the period 2006–۲۰۱۵٫ Dominant family ownership reduced the negative impacts of PA conflicts, while exacerbating the negative impacts of PP conflicts on shareholder value. However, when family ownership was combined with non-family management, the negative effects of PA conflicts were minimized, while creating a favorable impact of PP conflicts on shareholder value. Thus, the governance configuration that minimizes the undesirable impacts of both types of agency conflicts and is conducive to encouraging stewardship behaviors appears to be one where the influence of dominant (viz., family) owners is balanced by the executive decisions of non-family managers (officiating in their roles as stewards).
Theory development and formulation of hypotheses
Firm ownership and management are the primary governance mechanisms for making decisions about patterns of authority, norms for resource allocation, incentive schemes, and conflict resolution mechanisms (Daily, Dalton, & Canella, 2003; Daspit, Chrisman, Sharma, Pearson, & Mahto, 2018). Accordingly, variations in these governance mechanisms have been proposed as solutions to both principal-agent conflicts (Aguilera, Filatotchev, Gospel, & Jackson, 2008; Dalton, Hitt, Certo, & Dalton, 2007; Eisenhardt, 1989; Sundaramuthy & Lewis, 2003) as well as principal-principal conflicts (Renders & Gaeremynck, 2012; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). A principal-agent [PA] conflict refers to the problems arising from goal differences and information asymmetries between the agents (i.e. managers) and their principals (i.e. shareholders).1 In contrast, a principal-principal [PP] conflict arises when the interests of dominant shareholders and minority shareholders in a firm diverge (Villalonga & Amit, 2009; Ward & Filatotchev, 2010; Young et al., 2008), and the dominant shareholders seek to appropriate the private benefits of control at the expense of minority shareholders (Barclay & Holderness, 1989; Faccio, Lang, & Young, 2001; Gugler & Yurtoglu, 2003).