Research On The Inter-generational Succession Of Control Right In Chinese Family Business

In China, with the Family business developing, the inter-generational succession is already the question which is unable to avoid. Compared with the social attention, the fundamental research of inter-generational succession lags relatively. The research of inter-generational succession in family business is not much, and foreign literature is mainly on the links of the process. As the family business is at different stages of development, in different cultural traditions, the studies of inter-generational succession in this family business is inadequate in accordance with China. The analysis is not much, which combination the family of Chinese traditional and new firm theory to explain the family business, the research which is analysis of the modell of inherited his father's business is little more. The "embeddeness" concept of social network was introduced to family business study, and used to explain the growing family business inter-generational succession issue. The previous studies have focused primarily on systems theory and contractual theory of firm, Gersick is representative of systems theory, he emphasized family and business are two different systems that have their own rules, each one of the family members could have other two roles such as owner, and manager. Therefore operation and development of family business is complex. Contractual theory of firm emphasized family business is compound organization, which compound firm contracts and the complex family relationships. The family relationship contract is complementary to firm contracts. But they are unable to explain how the family and business interacts. In this paper we use contract embedded in the family network to explain this problem. When explaining the inter-generational succession of control rights, it is more powerful. From this point, this study on family business inter-generational succession is an innovative research.Contraction of firm embedded in a network of family relationships is feature of family business. We can combine the contractual theory of the firm, summarized family business as follows:(1) the contractual nature of firm; (2)the incompleteness of the contracts; (3) resulting importance of relevance of ownership (Zhang Weiying, 1996) and the embeddeness of control rights. The control rights embedded in the family business have major changes. Family informal constraints can be used to solve familial rights, responsibilities and interests of the distribution problems, overcome the opportunism in awards authority. The embeddeness of firm contract may also influence the cost of control right transaction.The family business will have to weigh to grow and control. The growth of family business is bound to be accompanied by Increases of social Capital and professional knowledge. According to the changes of the control rights, we distinguish four forms of organizations: Classical family business, quasi-classical family business. quasi-modelrn family business, the modelrn family business. The nature of the parents would want to pass on the control right to the next generation. The most difficult problem faced the family business is the crisis of passing the control rights on next generation. The ability of successor and the trust of professional managers are major factors, in the choice of successor, the family managers or professional managers. According to these, we built a matrix, including four inter-generational succession models: direct hereditary, control rights shared, Retain residual control right, Exit or Harvest.It is actually a kind of helplessness, that Chinese family business chooses inter-generational succession. In China, some factors narrowed optional chooses scope of family business, such as imperfect social credit system, imperfect market of professional managers, small-scale, financing modells of domestic sources. It is the most appropriate modelll of "inherit his father's business," in this social environment. Therefore, the family business has been quite widespread. The modell of inherit his father's business is the modell of direct hereditary. The ownership, power of manager and of most of the sock passed on next generation successors. They attempt to resolve the dual problems of the life cycle, the business cycle and life cycle of entrepreneurs, by inherit his father's business model. Generally believed that only modelrn companies can ensure sustainable growth of business, if inter-generational succession would not accompanied the changes of the control right organization form, it will miss the best opportunity.The analysis about inter-generational succession of this paper is the manner of short cost-income and long cost-term. Judging from the short-term perspective, the income of inter-generational succession of control right in family business is more than cost. Therefore, we are here to focus on the analysis of short-term income, overlook the cost of inter-generational succession. First of all, we consider inter-generational succession can maintain stability and cohesion of family business, to reduce the shock. Second, inter-generational succession can obtain control of the business monetary and non-monetary income. Through innovation in the control right growth, they can obtain control right income by cross-share holdings and pyramid shareholding. Inter-generational succession can maintain family management of the indirect pricing mechanisms, through network of family ties. Inter-generational succession in the family business can complete replacement of knowledge between the founder and next generation. Meanwhile it can change in development strategies, and open a wide space for the further development. Inter-generational succession can avoid the introduction of professional managers, which can save cost of supervise and restrain the manager, adjust the management structure incentive pay. In the short-term, the family business scale is smal, so the labor income of introduction professional manager's specialized division is not obvious, but it causes highest restraint cost, in imperfect manager market and imperfect system in family business. The income is unable to make up the cost. Compared with other kind of model,the net-income of inherited his father's business surpass the model of control right shared, surpasses the model of retain residual control right.In long-term network of family relationship, after all, is a relatively closed of networks, it is not sufficient to sustain a large-scale business, in human resources, information, absorb capital. The inter-generational succession will only to be able to obtain the limited income, and increase long-term cost. In income aspect,first, the financing model of internal originates has limited family firm scale income. Business controlled by family causes the limited liability characteristic in modelrn enterprise difficult to operate. The stockholder's right is unable to decentralize and multiplex, Development of business faces the limit of fund, the scale bottleneck is difficulty to breaks through. Next, the network of family related to limit the efficiency enhancement in human resources disposition. In the cost aspect, family's altruism can increase the family firm`s agent cost. The family management patter increases management cost. Along with the enterprise scale expanded management models of patriarchal style centralization management, the special trust of disparity sequence, and sentiment and face supreme authority game can increase the business management cost. In long time, control right shared model will obtain scale income and specialized division of labor income, and reduce the embeddeness degree, reduce the family internal agent cost. Therefore, the net income of control right shared model is more than model of inherited his father's business. If the enterprise develops, system superiority in model of retain residual control right will manifest, and becomes to be the best choice.Inter-generational succession of control rights in family business need to solve two problems: First is how to survive for family business; second is the problem of sustainable development, how to change. The following method can be used to solve these problems: First, to formulate an inter-generational succession plan; Second, to train and select the successors; Third, to solve internal conflicts happened in inter-generational succession; Fourth, to improve the corporate governance structure of the family business, establish an effective mechanism to incentive and supervise the professional managers, through family council and board of directors; Fifth, to complete transition of the family business culture.