This paper focuses on the issue of nepotism or the practice of hiring and managing family members in family firms. Extant research suggests that while nepotism is related to numerous problems, it also offers some unique advantages to family-owned firms. We use a socioemotional wealth (SEW) perspective to develop a theoretical framework that explains how nepotism influences firm performance. In doing so, we rely upon a nuanced conceptualization of SEW to clarify why some family firms are more likely to engage in nepotism than others, as well as explain the contingencies under which nepotism may prove beneficial or detrimental for family firms. Finally, we explore how human resource practices might impact the interplay between nepotism, environmental contingencies, and firm performance.