A Study On The Evolution And Management Patterns Of The Family Firms

An important stylish fact about family firm is that they are zhe predominant form of business organization in the early stages of a country's economic development. Most of Chinese private firm take the form of family-owned firms, and most of them are managed by families. We can expect that the number of family firms will increase faster in China.But there is no authoritative define of family firm.After reference on other researchers' defines of family firm,we define family firm as "a firm whose organization core and control right are occupied by one or several family members". Given the important and changing nature of the role played by family firm, it is curious to find that no formal model exists in the financial to remedy this deficiency.We pay our attention to one key economic aspect:capital markets.Specifically,we construct a dynamic model to analyze how the development of primary capital markets affects the evolution and the sale of family firms.We model a family firm as a household operating a constant returns-to-scale production technology in which the household's human capital is the fixed factor of production.This factor is a special business skill that is transferred down through the generations.Using both internally and externally financed physical capital as well as its fixed human capital,the family firm produces output each period.It then devides the output between current consumption,payments to its external financiers,and future physical capital.It can sell the firm at any point in time through financial intermediaries in primary capital markets. Using a dynamic model, we analyze how the imperfections in primary capital market affect the evolution of family business. Whether recourse to external financing exists or not, our model predicts that family business are bigger, last longer, and have lower investment rates in economics with less development primary capital markets. Up to now, more and more researchers devote to this field. In China, many scholars think family management is very harmful to efficiency of firms, and they think it is necessary to separate the family business's ownership and management. But this point is not always correct. We must consider many facts affecting the development of family business. Because of lack of a "perfect" professional manager market and effective laws protecting shareholders, it is not practical for Chinese family business to separate the ownership and management. Many family firms fail in hiring professional management. In fact, because of asymmetry information, emphasize on separation of ownership and management unilaterally is not optimal to family firms. In this paper, we attempt to understand theoretically these different patterns of separation of ownership and management.The principal benefits of hiring a professional manager is that he is likely to be a better manager.The principal cost is that now the professional manager,rather than the founder,controls the company and so can expropriate investors or,in more polite language,consume the private benefits of control.We argue that a crucial factor shaping the attractiveness of delegated management is the degree of legal protection of outside shareholders from expropriation by the insiders.In part 5,we present a model of a founder looking for a manager to succeed him.We assume that there is no superior manager available with sufficient resources to buy the firm outright.Absent an outright buyer,the founder chooses among three options.He can sell out completely in the stock market and create a widely held firm run by a professional manager.He can hire a professional manager but stay on as a large shareholder to monitor him.He can also keep the firm inside the family by either staying on as a less than ideal manager or passing management to a family member.The founder makes this decision to maximize the value of the firm,which initially he owns completely.We show that in the regimes of the strongest legal protection of minority shareholders,the optimal solution for the founder is to hire the best professional manager and sell off the entire firm in the stock market.This gives rise to the Anglo-Saxon model,in which the law is the principal constraint on managerial discretion and the agency conflict is between the manager and small minority shareholder.With intermediate protection of minority shareholder,the founder still hires a professional manager,but the law is not strong enough to control managerial discretion,and the founder or his children must stay on as large shareholders to monitor the manager.When the protection of minority shareholders is the weakest,the agency problems are too severe to allow for separation of ownership and management.The founding family must stay on and run the firm.They can only afford to cede control to a professional manager if they make him a member of the family.