A Research Framework for Exploring Governance in Privately Held Firms

Governance is now a major area of study in the finance, accounting, and management disciplines with an increasing level of attention within the small business and entrepreneurship domains (see, for example, Brunninge et al. 2007; and, Lubatkin et al. 2005). Influenced most recently by corporate collapses and subsequent regulatory responses, much of the emphasis has been on large publicly traded firms. As is often the case with phenomenon associated with large publicly held firms, the benefits associated with greater attention to governance issues in such firms are assumed to translate directly to small privately held firms. For example, Jeffrey (2008) claims that "it has become clear ... that an active and vigilant board of directors, an effective system of internal controls, and a control conscious environment are essential to the viability and health of any organization or institution, whether publicly traded, privately held, operating as a nonprofit, or located domestically or internationally" (p.52; emphasis added). Such assertions often lack a grounding in the theory and research that surrounds our understanding of the small firm. The intent of this paper is to provide an overview of privately held firm based research that assesses the advantages and disadvantages of governance activities in privately held firms and presents a framework for the future study of governance in such firms.