Research On The Performance Of Listed Family Business: Base On Agency Theory

In the1990s, China’s family business established for the first time. Becoming one ofChina’s major economic forms, family business is an important driving force for thedevelopment of the national economy. Government gives unprecedented attention on the familybusiness and encourages its development in policies, laws and other aspects. Academia hasmade a series of research from different area and some academics have worked out someimportant achievements. In Sep.4th,2012, the Chinese version of Forbes published China’sModern Family Business Survey Report. The survey covered the mainland private familybusinesses listed on Shanghai，Shenzhen and the HKEX. It is the three consecutive years thatthey publish the survey for family business. The report shows that listed family business isbetter than the listed non-family business in profitability and growth ability. But in the last twoyears, they are also encountered some difficulties. Affected by many external and internalfactors challenges, the survival and development of listed family business highlights a lot ofproblems in complex economic environment. Maintaining a good level of performancecontributes to family business’s long-term stable growth and development. Therefore, theresearch on family business performance is extremely important.This article studies the impact of the family business performance factors from theperspective of agency theory. Based on La Porta’s research framework, listed family businesshas two different types of agency problems. The first one is the agency relationships betweenthe controlling family and the external small shareholders (to which we should refer to type I).The second one is the agency relationships between family controller and manager (to whichwe should refer to type II). Type II has two cases: the agency relationships between familycontroller and family managers and that between family controller and non-family managers.Based on this framework, we analysis the relationships between the degree of deviation ofrights of control and cash flow, ownership concentration, board governance, entrepreneursauthority, executive compensation and the performance of family business. Board governanceincludes several factors: the size of the board of directors, the proportion of independentdirectors, two positions in one, the total remuneration of directors of the top three, thefrequency of Board meetings, the attendance rate of shareholders’ meeting. Executivecompensation is composed of the total remuneration of the top three executives and managersstake.The main conclusions of the researching are as follow: ratio of the equity held by theactual controllers and corporation performance are positive correlation, the total remuneration of the top three directors and corporation performance gets to be inverted u-shaped relationship.Attendance rate of shareholders’ meeting and corporation performance are positive correlation.The total remuneration of the top three executives and corporation performance gets to beinverted u-shaped relation. Ratio of the equity held by the managers and corporationperformance gets to be u-shaped relationship. But the relationship between corporationperformance and the degree of deviation of rights of control and cash flow, and the size of theboard of directors, the proportion of independent directors, two positions in one, the frequencyof the board meetings are not significant.Listed family business face complicated agency problems. Despite the fact that the agencyproblem different corporations face are not the same, agency cost would affect theproduction,operation efficiency and strategic decision-making, and also affect the level ofcorporation performance and long-term development. According to above, it’s necessary toestablish the mechanism for the family members’ withdrawal gradually and introduce scientificmanagement; strengthen the governance of the board to improves the duty of the board;promote the manager credit market, decrease the agency cost cause by the opportunisticbehavior of managers.