Do Founding Families Downgrade Corporate Governance? The Roles of Intra-Family Enforcement

32 Pages Posted: 2 Dec 2019 Last revised: 6 Apr 2022

See all articles by Joseph P. H. Fan

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Xin Yu

University of Queensland

Date Written: March 20, 2022

Abstract

We examine whether adding more founding family members as firm owners and/or managers matters to corporate governance outcomes. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we find that more such family involvement is associated with lower volumes of related party transactions suspicious of expropriating shareholder wealth. The curtailing relation is stronger when family members own firm shares and/or serve as managers, and are more arm's-length relatives instead of immediate kin of the founders. The intra-family governance effects are stronger when firms are subject to weaker capital market disciplines or have more free cash under insider discretion. The overall evidence is consistent with founding family members' information advantages and ownership incentives making them more robust monitors of managerial decisions than other formal mechanisms, which help enforce shareholder rights in emerging markets.
Free access to the full paper before May 20 2022: https://authors.elsevier.com/c/1eqho3JGUMvv7F

Keywords: Founding families, Family firms, Corporate governance, Related-party transactions, China

JEL Classification: G32, G34

Suggested Citation

Fan, Po Hung Joseph P. H. and Yu, Xin, Do Founding Families Downgrade Corporate Governance? The Roles of Intra-Family Enforcement (March 20, 2022). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3488539 or http://dx.doi.org/10.2139/ssrn.3488539

Po Hung Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
(852) 26097839 (Phone)
(852) 26035114 (Fax)

Xin Yu (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
206
Abstract Views
2,181
Rank
303,285
PlumX Metrics