Family Firms

  • 详情 The Cultural Origins of Family Firms
    What determines the prevalence of family firms? In this project, we investigate the role of historical family culture in the spatial distribution of family firms. Using detailed firm-level data from China, we ffnd that there is a larger share of family firms in regions with a stronger historical family culture, as measured by genealogy density. The results are further conffrmed by an instrumental variable approach and the nearest neighbor matching method. Examining the mechanisms, we find that entrepreneurs in regions with a stronger historical family culture: i) tend to have family members engage more in firms; ii) are more likely to raise initial capital from family members; iii) are more willing to pass on the firms to their children. Historical family culture predicts better firm performance partly due to a lower leverage ratio.
  • 详情 Leaving a legacy for my children: The one-child policy reform and engagement in CSR among family firms in China
    The reform of China’s one-child policy allows families to have more children and thus may affect anticipation of intergenerational succession of family businesses and drive family firms to improve their corporate social responsibility (CSR). Using a difference-in-differences design, we find that the reform positively affects family firm CSR. We also find that the positive impact is more pronounced for family firms whose owners have fewer children, have no son, and are of reproductive age, which confirms the theory that intergenerational succession anticipation drives family firm CSR. Moreover, we find that the positive impact is more pronounced for firms that operate in environments where CSR is more strategically important. We validate our findings by showing that the reform curtails family firms’ short-termism.
  • 详情 Corporate Social Responsibility Reporting in Family Firms: Evidence from China
    We examine whether family firms differ from nonfamily firms in their corporate social responsibility (CSR) reporting practice. Using a sample of Chinese firms, we find that, compared to nonfamily firms, family firms are more likely to have a system in place that guides the establishment and development of their CSR activities. Family firms are also more likely to adopt the GRI guidelines, and they disclose significantly more information about their CSR practice. The findings are consistent with the notion that family firms are more long-term oriented, and as a result, they are more concerned about firm reputation and use CSR disclosure as a means to establish and maintain a good reputation and to legitimize their behavior. We further find that the positive relation between family firms and CSR disclosure exists mainly in those firms with relative high state ownership, which helps mitigate government expropriation risk. Our research contributes to the limited literature on the relation between family firms and CSR practice. We also contribute to the literature on the impact of government expropriation risk and its interaction with firm ownership structure on firm behavior.
  • 详情 Are executives more socially responsible when raised with siblings? Evidence from Chinese family firms
    Using hand-collected data on siblings of chairpersons in Chinese family firms, we examine the impact of the chairperson having siblings on the corporate social responsibility (CSR) of their firm. The findings suggest that when a firm has a siblings-chairperson, the firm has a better CSR rating than firms with a chairperson without siblings. Specifically, a firm with a siblings- chairperson, on average, has a CSR rating approximately 7.96% higher than a median firm’s rating. The conclusions are robust to a battery of robustness checks including a regression discontinuity research design, alternative measures of CSR, a propensity score matching sample, placebo tests, and different estimation methods. Additional analysis suggests that the mechanisms behind siblings and CSR are consistent with both competition and altruistic effects among siblings. Further analysis suggests that the positive impact of a siblings-chairperson on the CSR rating of firms is more salient when the local familism culture is stronger, when government official career advancement incentives are lower, or when the siblings are directors or CEOs of other firms. Finally, firms with a siblings-chairperson are also pro-shareholder because they consume less perquisites than firms without a siblings-chairperson. Collectively, the findings are consistent with the notion that, by having at least one sibling, a chairperson is more competitive and altruistic than a chairperson without siblings, and such behavior enhances CSR. Family structure matters in corporate practices.
  • 详情 Political Connection, Financing Frictions, and Corporate Investment: Evidence from Chinese Listed Family Firms
    Using a sample of Chinese family firms from 2000 to 2007, we investigate whether the political connection of the family firms will help them to reduce the frictions they face in external financing in a relationship-based economy. We find that political connectedness of family firms could reduce their investment-cash flow sensitivity. More interestingly, this political connectedness effect exists only in financially constrained family firms. However, from governance dimension, we cannot find any significant variation of the political connection effect on the sensitivity of investment to cash flow. We argue that these evidences are consistent with the firm’s underinvestment arising from the asymmetric information problems, and are inconsistent with the firm’s overinvestment arising from the free-cash-flow problems.
  • 详情 The Role of Institutional Development in the Prevalence and Value of Family Firms
    We investigate the role played by institutional development in the prevalence and value of family firms, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across the Chinese provinces with homogeneity in cultural norms, law, and regulation. Using hand-collected data from publicly listed Chinese firms, we find that, when institutional efficiency is low, family ownership and management increase value, while family control in excess of ownership reduces value. When institutional efficiency is high, none of these effects are significant.
  • 详情 Political Connection, Financing Frictions, and Corporate Investment: Evidence from Chinese Listed Family Firms
    Using a sample of Chinese family firms from 2000 to 2007, we investigate whether the political connection of the family firms will help them to reduce the frictions they face in external financing in a relationship-based economy. We find that political connectedness of family firms could reduce their investment-cash flow sensitivity. More interestingly, this political connectedness effect exists only in financially constrained family firms. However, from governance dimension, we cannot find any significant variation of the political connection effect on the sensitivity of investment to cash flow. We argue that these evidences are consistent with the firm’s underinvestment arising from the asymmetric information problems, and are inconsistent with the firm’s overinvestment arising from the free-cash-flow problems.
  • 详情 'Rent Seeking Incentives, Political Connections and Organizational Structure: Empirical Evidence from Listed Family Firms in China
    In this study we examine the incentives for listed family controlled firms in China to establish political connections and their organizational structure as measured by shareholding concentration and composition of board of directors. We hypothesize and find that listed family firms are more likely to establish political connections when the local markets are less developed and the governments are more powerful in allocating economic resources. In particular, firms are more likely to build political connections when local governments suffer from severe budgetary deficits, when they tend to rely on discretionary charges and administrative penalties for raising revenues, and when they have more leeway in granting business subsidies. We also find that controlling shareholders of family firms with political connections tend to concentrate their shareholding and dominate the board of directors so that they can make deals with government officials in secrecy and enjoy the benefits exclusively among themselves.