The Influence Of Family Involvement On Corporate Diversification And Its Value Effect

Family involvement in firm ownership, governance and management makes the family firm unique, and the uniqueness will be reflected on corporate behaviors. Diversification as an important strategy to expand a firm’s scale exists widely in firms. To general firms, diversification is more than like a "double-edged sword", whose advantages and disadvantages coexist. It can help firms optimize allocation of resources, realize synergies and others to gain competitive advantages, while at the same time it will increase management costs, and the agency costs is most prominent. According to the agency theory, agency problems mainly arise from a high degree of the separation of ownership and management. But in family firms, the controlling family can ease such agency problems through the involvement in firm ownership, governance and management. Furthermore, in addition to pursuing the economic goals, the controlling family also pursues non-economic goals. This is inconsistent with the assumption by the traditional agency theory that the shareholders always pursue the maximum economic interests. So what’s the impact of family involvement in the firm’s diversification? Does diversification affect the financial performance of the enterprise because of family involvement in management? From the results of current research, few scholars have systematically explored such two questions.On the above two questions, we will explore them separately in chapter three and chapter four from the perspective of socioemotional wealth, and use 2010 Private Manufacturing Listed Companies as the research object, while the research analysis results showed that:(1) the higher degree of family’s involvement in firm ownership and governance, the lower level of diversification and unrelated diversification in the firm; (2) Diversification, including the unrelated diversification, can reduce the firm value, but the reduction depends on circumstances. When family involves in firm’s management, the reduction from diversification and unrelated diversification will be effectively relieved.The academic value and possible innovations of this study mainly include the following four aspects:first, using the family business research’s own framework, socioemotional wealth, as our research’perspective, not only can ease the theory confliction in diversification behavior of family firm, but also can expand the application of socioemotional wealth framework in the research field of family firm, and examine the extrapolation validity of the framework. Second, it enriches the system of family firm behavior research, and provides us a deeper understanding about diversification strategy in family controlled firms. Then, this paper studies the family involvement in the diversification strategy, expanding a new perspective about the motivation of diversification from the perspective of socioemotional wealth preservation logic. Finally, this paper explores the situational factors in the study of the diversification’s value effect, and identifies family involvement in the management of the firm is one of the important factors. At the end, the study points out the limitations and implications, hoping to provide directions for future researches.