Research On The Strategic Change And Economic Consequences Of Intergenerational Inheritance Of Family Businesses

China’s reform and opening up is celebrating its 45th anniversary,and the private economy is booming.General Secretary Xi Jinping in the 20th National Congress of the Communist Party of China report,the first time clearly put forward "to promote the development and growth of the private economy",declared our party vigorously promote the development and growth of the private economy firm determination.Among them,family businesses have gradually grown into one of the mainstays of China’s private economy and are at the peak of intergenerational inheritance.China has always attached great importance to the concept of family culture,and the way succeeding to father’s chairmanship is the mainstream inheritance mode of family enterprises in China.However,the road of intergenerational inheritance of family enterprises is often thorny,and there are countless cases of business bankruptcy due to failure of inheritance.Therefore,in the face of complex intergenerational inheritance,family companies usually make some strategic changes during the intergenerational inheritance period to help the company adapt to internal and external environmental changes.The influence of fathers in strategic decision-making cannot be ignored in order to help second-generation heirs make a smooth intergenerational transition.This paper selects Henan Lingrui Pharmaceutical Co.,Ltd,a family business that has successfully completed intergenerational succession,as a case study.Combining paternalism theory and strategic change theory,this paper explores the father-led strategic change decision-making process that occurred during the father-son co-rule,which can be subdivided into four dimensions:marketing,innovation,financial strategy,and governance structure,and finally analyzes the economic consequences of strategic change.The results of this paper found that:Firstly,intergenerational inheritance of family firms is a long-term complex change process,and fathers will lead in making long-term strategic change decisions during the father-son co-rule stage in order to help the heirs to be able to hand over smoothly.The father,Xiong Weizheng,planned to implement long and orderly strategic changes in advance in order to help his son accumulate experience,build authority and dominate the future strategic decisions of the family business.Secondly,the strategic changes led by the father in the intergenerational inheritance of family businesses follow the principle of "prudence" as a whole,aiming to enhance the risk-taking ability of the company and ensure its long-term stable development.Lingrui Pharmaceutical controls the sales expense ratio to improve future profitability,develops low-risk innovation,and implements a prudent operation with a low debt capital structure.All of these decisions are to mitigate the operational risks and pressures of the successor after it formally takes over the company and provide stable support and security.Thirdly,strategic changes in family businesses during intergenerational inheritance can have some positive impact on the economic consequences of the business in terms of market evaluation and financial performance.The event study method reveals that the market perception of the completion of intergenerational succession is different from that of the period before the end of intergenerational succession.This indicates the market’s recognition of the gradual succession of the successor to the management,indicating that the strategic change can reverse the negative effects of the intergenerational succession to a certain extent and present a positive market expectation.The analysis of financial performance reveals that the profitability of the company has been enhanced through strategic change,the efficiency of capital utilization has been improved,and the financial risk of the company has been reduced,which helps to ensure the sound development of the company after the succession.In conclusion,this paper yields the following insights:First,paternal inheritors can lay out long-term specific strategic change plans in advance to help ensure that control of the company can be smoothly handed over to the second generation of the family.Second,the intergenerational inheritance of family businesses should focus on the sustainable development of the company,not only to enhance the risk-taking ability of the company,but also to maintain long-term competitiveness.For family businesses,intergenerational inheritance is a transitional period,and intergenerational perpetuity is the goal pursued by the enterprise.Therefore,it is of paramount importance to keep the family business competitive even after the intergenerational transmission and to enhance the high growth of the business.