An agency, in general terms, is the relationship between two parties, where one is a principal and the other is an agent who represents the principal in transactions with a third party. Agency relationships occur when the principals hire the agent to perform a service on the principals’ behalf. Principals commonly delegate decision-making authority to the agents. Because contracts and decisions are made with third parties by the agent that affect the principal, agency problems can arise.

Agency theory handles numerous situations in which one party acts on the behalf of the other. Financial institutions are given the responsibility of generating shareholder wealth. However, its business practice forces it to incur risk by issuing loans – some of which are outside the comfort level of shareholders. Financial planners and portfolio managers are agents on behalf of their clients and the client’s investments. Finally, a lessee may be in charge of protecting and safeguarding assets that do not belong to them. Even though the lessee is tasked with the job of taking care of the assets, the lessee has less interest in protecting the goods than the actual owners.

3. Resource-based theory:

Resource-based theory contends that the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals. These competitive advantages in turn can help the organization enjoy strong profits.  According to this theory it is much more feasible to exploit external opportunities using existing resources in a new way rather than trying to acquire new skills for each different opportunity. This model, resources are given the major role in helping companies to achieve higher organizational performance. There are two types of resources: tangible and intangible.

This theory asserts that firms are heterogeneous and that it is the idiosyncratic, immobile, inimitable, and sometimes in-tangible bundle of resources residing in the firm that gives the firm the opportunity for a competitive advantage and superior performance. It examines the links between a firm’s internal characteristics and processes and its performance outcomes (Habbershon and Williams 1999; Chrisman et al. 2005). Sirmon and Hitt (2003) argue that family firms evaluate, acquire, shed, bundle, and leverage their resources in ways that differ from those of non-family firms. They believe these differences allow family firms to develop a competitive advantage. According to Dyer (2006), three types of capital (or assets) defined as “family factors” have been associated with the performance of family firms: human capital, social capital, and physical/financial capital. Certain family factors can lead to important assets and contribute to high performance, while other family factors are liabilities to firm performance and contribute to lower performance.

Based on some other cognitions (e.g., Barney 1991), Habbershon and Williams (1999) suggest the division of firm resources into four categories: physical capital resources (plant, raw materials, location, cash, access to capital, intellectual property), human capital resources (skills, knowledge, training, relationships), organisational capital resources (competencies, controls, policies, culture, in-formation, technology), and process capital resources (knowledge, skills, disposition, and commitment to communication, leadership, and the team).

To be continued..