Second Generation Involvement And Cash Dividend Policy Of Family Firms

As an indispensable part of China’s economy,family firms have now entered the peak period of inheritance.However,according to the 2018 PwC family business survey,few family firms have made detailed succession plans and that after inheritance,family businesses have universally experienced a decline in performance.Faced with this dilemma family firms may execute quite unique behaviors when they start intergenerational succession which aims for the steady transfer of power,including charity donations,portfolio entrepreneurship and secret reserves before succession.However,the existing literature has not yet studied the relationship between second generation involvement and dividend policy of family firms.Based on the review of domestic and foreign studies on family businesses and dividend policies,this paper selects all A-share listed family enterprises from 2003 to 2018 as the data sample,manually collects the family businesses list and the relationship between family members,and explores the relationship between second generation involvement and the cash dividend policy.The empirical results show that second generation involvement significantly increases the willingness and level of cash dividend payments of family firms.Through the mechanism test,this paper finds that,on the one hand,family businesses have the incentive to decrease the second type of agency costs through cash dividends,one of the intermediate for family firms to alleviate their conflicts with small and medium shareholders when second generation is involved;On the other hand,due to the capacity constraints of successors and the stickiness of the founders’ special assets,family businesses will increase cash dividend payments when the second generation is involved in order to realize "a bird in the hand".Then this paper further explores the impact on the dividend policy brought by whether the second generation is in place,the types of positions held by the second generation and the background of the second generation.The result shows that when the first generation is in place and the second generation occupies the position of chairman or CEO,the family firms are more inclined to increase dividend payments.Also,the successors without overseas experience and financial background play a major role in the increase in cash dividend payments.Finally,after changing the dividend measurement,considering the impact of policy,excess dividend and split-share structure reform and endogenous problems,the result still exists.This article provides a theoretical basis for family businesses of how to plan inheritance and realize a steady transfer of power,and also provides a new perspective for market investors to understand the inheritance behavior of family business.