Research Into Governance Structure Of Family Business In China

The family business, an organizational form of a firm and very popular in the world, serves as both an important component part of the Chinese economy and an important force of economic growth. For the past several years, the research into the family business has aroused more and more attention from the academic community. A majority of literatures on the research into the family business are largely focused on the such issues as the definition of family business, the analysis of advantages and disadvantages of family business, the agency and governance of the family business, the generational heritage of the family business, the growth and evolutionary path of family business, the effect of the external social system environment on the governance and growth of the family business. The researches into these literatures present us with varieties of viewpoints and controversies of the study of the family business which can be concluded to whether the family business as a primary, primitive and inefficient organizational form is replaced by a modern enterprise system or such replacement will turn out to be its future development model. In these issues the author of this dissertation shows much interest.In this dissertation, the governance of the family business is chosen as a starting point of the present research, since the efficiency and evolution of the organization are directly related to the governance structure which includes a group of system arrangement. The organizational forms of different enterprises vary with their governance structures whose difference lies both in the contractual relationship between stakeholders of these enterprises and in their corresponding right deployment. Therefore, this dissertation aims to study the governance structure of the family business in China from the viewpoints of contractual relationships and right deployment of family business and then to clarify the growth path of family business. The family business objectively exists in our society, and there is no substitute for the family business in the economic growth and development in China, especially in the present Chinese economic transitional stage. In this sense, the research into the external system environment of the governance structure of the present Chinese family business, the formation of the governance structure, the contractual relationship, right deployment and efficiency of the family business is of important theoretical and practical significance to the sustainable development of family business.The study of the corporate governance structure in this dissertation is based on such core theories as the contractual theory, principal-agent theory, transaction cost economics, property right theory. The clarification of these core theories, important analytical tools for the research into the family business, helps the author of this dissertation to find the optimum matches between the core theories mentioned above and the research into the governance structure of family business. In this dissertation, the author analyzes the history and the present theories of the existence of family business, constructs the theoretical analytical model of the family-business governance structure, compares some characteristics of specific family firms existing in different time and space, illustrates the effect of external environment on the governance structure of family business, and finally analyzes the governance efficiency and corporate efficiency of the family business especially from the two viewpoints of the contractual relationship and right deployment of the governance structure of the family business.The research indicates two major elements and five dimensions of the corporate governance structure. The corporate governance structure includes the two main elements, that is, stakeholders and rights. The analysis of the corporate governance structure from five viewpoints of the behavioral hypothesis, the contractual relationships between stakeholders, the right deployment, the governance function, and governance mechanism, shows that the analytical model of the governance structure of a perfect family business should combine the firm, the family and the right with an emphasis on the analysis of the stakeholders and the forces and manners to link all these stakeholders; discusses the design of the governance structure that can guarantee the maximum efficiency produced by an enterprise in a specific environment; proposes the concept of the trust elasticity of family business, that of the expected trust elasticity defined by the response of the expectation to the variation in trust, and the differences in trust elasticity between family members and between family and non-family members; and suggests the concept of intervention cost of a single stock right that is over-concentrated on one family business.In this dissertation, the following conclusions are made. The establishment, existence and development of family business are related to the complex structure of the relationships arising from both a specific system environment and a firm, to its efficiency, and also to its governance structure where the stock rights are concentrated to only one family and where the ownership and the management control are combined into one family business, two features shared by a majority of Chinese family firms. The coexistence of altruism and opportunism and the duality of the family-business trust structure, i.e., the objective dependences of the family business both on the interpersonal trust model and on the system trust model, determine that the family business governance structure is the dual governance, family and system that are coexistent and complementary. The governance cost of family business has its own lowest limit, that is to say, the governance cost does not follow the principle that the lower, the better, and an appropriate governance cost should be adopted, that is to say, the most appropriate governance cost should be adopted to reach the maximum governance efficiency. No sufficient evidence indicates a direct relationship and an agreement between the concentration and diversion of stock right structure, the nature of stockholders and the enterprise efficiency. However, one thing is certain that the stock right structure together with the external environment and the internal governance style of the family business produces a strong impact on the efficiency of the family business, and such an impact varies with different growth stages of this said business. The results obtained in this research do not support any optimum range of liability structure that can guarantee the maximization of the family business value, a conclusion different from that proved by some other Chinese scholars in this aspect. The perfect match between the ownership and management control that continues to last in an expanding family business will surely increase the management and transaction costs of this said family business, but it is also harmful that the hired managers from outside the family circle control more operational right. The appropriate partial separation of family ownership from its operational right is a satisfactory choice. It is not a necessity that the family business should completely follow the model of the modern enterprise system.