An Explanation For The Development Of Chinese Family Business-A Principle-Agent Perspective

Family business has a long history, which is still a widespread from of enterprise organization both at home and abroad. As far as China is concerned, the family business plays an increasingly important role in the economic and social development. In a sense, concern about the Chinese family business is concerned about the future of China's economy. However, theoretical studies of family businesses are lagging far behind in the real world in its development. The author hopes that this thesis can provide family business at different stages with some clues to get a clear understanding of their status and direction for the future development.At the broader context of reform and opening up, the thesis analyzes the governance structure of family business at different stages dynamically. At starting period, the ownership and management right of family business are highly united; at growth period, the ownership and management right begin to separate between the family; at mature period, the management right even the ownership begin to flow outward partly. Different governance structures have different principal-agent relations. At starting and growth period, principal-agent relationships are more internal in the family; at mature period, family business choose outsiders such as professional managers to do the agent. At starting period, high degree of trust within the family during this period makes the agent cost low and high degree of consistency of the goal makes the family members work more efficiently. So the internal agent accords with the enterprise benefits during this period. During growth period, various contradictions and conflicts begin to appear between family members, which leads to the agent cost increases significantly. But because of high-risk, family business choose professional managers conservatively or do not even select anyone. With improvement of external environment, the time is ripe for family business to introduce professional managers. At the premise of the family still holds the ultimate control of company, ownership and control right have a greater degree of separation as compared with the previous two stages. The change of contrast between agent costs and benefits promote the change of governance structure of family business.The last part of the thesis analyses the trend of encouraging family business to abandon the family system into a modern company. The author holds that family business should not change just for the sake of change, but should choose and explore their own path of development. In the course of learning from modern enterprise, it should be noted particularly that how to maintain the essence of family business, that is the family owns the critical control of ownership and management rights.Facing the future, I believe that Chinese family business will continue to co-exist with other forms of enterprise organization and will still contribute to the economy of our country even the world.