Mitigating Bifurcation Bias in Family Firms: The Role of Human Resource Augmentation and External Governance Mechanisms

Abstract The transaction cost theory of family firms posits that bifurcation bias (BB) – the preferential treatment of family assets regardless of the actual value they bring to the business – leads to inefficiency in decision‐making and performance. Our study examines empirically three mechanisms that, according to extant literature, may help family firms mitigate the effects of BB: professional workforce training, engaging in technological collaborations and involving external investors. Drawing on panel data from the Spanish manufacturing sector (2006–2018), we test whether these mechanisms improve efficiency more in family firms than in nonfamily firms. Our findings suggest that mechanisms that combine resource augmentation with external accountability, such as technological collaborations and external investors, are more effective at alleviating BB than mechanisms focused solely on internal resource development.