Transforming the Management and Governance of Private Family Firms in East Asia: The Role of Financial Intermediaries
NBER 2015 Entrepreneurship Working Group Meeting Paper
68 Pages Posted: 21 Aug 2015 Last revised: 21 Jun 2018
Date Written: June 12, 2018
In this paper, we empirically analyze the role of financial intermediaries, specifically, venture capitalists (VCs), in transforming the management and governance of Chinese family firms prior to their IPOs. Our results show that VC-backed family firms are more likely than non-VC backed family firms to experience departures of family members from top management positions as well as decreases in family control rights, cash-flow rights, and the separation between them; these effects are stronger when VCs have greater bargaining power or board representation in these firms. We show using propensity-score matching and Instrumental Variable (IV) analyses that the above results are causal. Finally, we find that the above changes in corporate governance and family member departures from top management positions are associated with correspondingly higher IPO firm valuations and long-run post-IPO stock returns for family firms.
Keywords: Family Firms; Corporate Governance; Top Management Changes; Initial Public Offerings (IPOs)
JEL Classification: G24, G34
Suggested Citation: Suggested Citation