The family firms established by consanguinity and marriage has always attracted the attention of many scholars, but for a long time the in-laws and blood relatives have been seen as completely equal, assuming that they do not have differences in goals, decision-making behaviors and other aspects. Based on the social embeddedness theory, this paper hypothesizes the agency problem with the involvement of in-laws in the family firm. Our analysis finds that the involvement of in-laws significantly increases the agency costs of the family business. This effect is alleviated by the neutral elder generation of the actual controllers of the company, which contributes to weaken the agency costs caused by it. In addition, other counterbalance mechanism from whether the spouse of the actual controller is involved in corporate governance, women’s family status and non-family major shareholders is involved in corporate governance also plays a moderating effect on the agency problem caused by involvement of in-laws. This paper further enriches the family business agency problem literature and has profound implications for the governance mechanism of family business.