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

58 Pages Posted: 2 Dec 2019 Last revised: 13 May 2021

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: May 1, 2021

Abstract

We examine the roles of conflicts of interest within firm controlling families and associated corporate governance outcomes, an agency problem unique to family firms. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we report that when firm ownership and management rights are more diffusely held by founding family members, the volumes of transactions suspicious of expropriating shareholders are lower. The relation is stronger when more arm’s length family relatives participate in firms as owners or managers, when families are influenced by collectivist cultures, when firms are subject to weaker capital market disciplines, and when firms have higher levels of free cash flow. The findings are consistent with a self-enforcement role of founding families in protecting ownership rights, which spills over to benefit market investors.

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 (May 1, 2021). 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
116
Abstract Views
1,229
rank
297,455
PlumX Metrics