The Allocation Of Guanxi-based Control Rights And Its Governance Efficiency In Chinese Family Firms

Chinese modern family firms arise at the historic moment with the reform and open policy,which have gradually become China's powerful economic strength not to be neglected.With the growth of family firms,the family cnontrol has been turned from single owner control mode to family members common control mode,forming guanxi-based control mode.During the operation process of family firms,the diversity sources of family members will make guanxi and all kinds of potential conflicts tend to be complicated.Especially,the allocation of control rights beween family members.will become important factors that influence the governance efficiency of family firms.Therefore,how to allocate family control rights effectively will be a puzzle that the family firms have been or are being met with.Using the control theory,agency theory and stewardship theory et al,combining with the Chinese traditional guanxi theory and the theory of differential mode of association,according with the study logic from guanxi to the allocation of control rights and governance efficiency,this paper has done some researches about the allocation choice behavior of guanxi-based control rights in Chinese family firms as followes:(1)Theoretical study.In this section,it constructs theoretical framework for analyzing the allocation mechanism of guanxi-based control rights.Firstly,it analyzes the characteristics of the differential mode of association under the background of Chinese society.Secondly,it presents the differential mode of association in family firms and disusses its impact on the allocation of family control rights.Thirdly,it analyzes the allocation mechanism of guanxi-based shareholding,management rights and their dynamic allocation.Finally,it utilizes mathematical model to deduce the agency problem may be genetated form the allocation of guanxi-based conrol rights in family firms.(2)Dynamic study.In this section,it has done a compare research on the characteristic between the initial alloction and dynamic alloction of family control rights.It also reveals that guanxi plays different roles in the initial alloction and dynamic alloction of family control rights.(3)Empirical study.In this section,it does an empirical study on the governance efficiency of the allocation of guanxi-based.control rights in family firms from two aspects which are shareholding allocation and management rigthts allocation.Furthermore,it also does classification test for different guanxi types to identify the different governance efficiency in the allocation of guanxi-based control rights.(4)Case study.In this section,it chooses two typical cases,which are the battle of True Kungfu' control rights and the loss of Busen Garments'control rights,to do some confirmatory analysis.The guanxi-based characteristics in the allocation of the family control rights have been verified in the case study.It also finds that the inappropriate allocation of family control rights maybe lead to serious governance consequences.Through the studies above,this paper gets the following conclusions:(1)It is considered that the differential mode of association is the social root of the allocation of guanxi-based control rights in Chinese family firms.In Chinese traditional society,guanxi is oriented by paternal relationship,maternal relationship and in-law relationship.As a result,there also forms differential mode of association with the center of the ower in family firms.The family member who has closer guanxi with the family firms owner will obtain more individual control rights.Under the premise of established guanxi,the family control rights can be preferentially allocated to competent family members.(2)The allocation of guanxi-based control rights in Chinese family firms is a dynamic process.Guanxi plays more important role in the initial allocation of family control rights and in the allocation of management rights.Father-son relationship,brotherhood and spousal relationship are the mainstream guanxi in the allocation of family control rights.Brotherhood is in the first place among all guanxi in the initial allocation of family control rights.But now it has been replaced by the father-son relationship.The guanxi mode in family firms now presents the trend of.adduction to the nuclear family of the family firms owner.(3)The allocation of guanxi-based control rights in Chinese family firms is a double-edged sword.Family firms need to make a trade-off between the agency cost and financial performance in order to achieve the optimal allocation of family control rights.Concrete saying,the increase of the concentration of family internal shareholding and management rights will significantly improve the company's financial performance,but at the same time,it will significantly increase the company's overhead expenses rate.The increase of the counterbalance degree of family shareholding and management rights,and the increase of family shareholders and family managers,all can reduce the company's overhead expenses rate,but it is bad for the company's financial performance.It should be specially mentioned that the excessive deviation between family shareholding and management rights is a poor allocation option.It not only significantly increases the company's overhead expenses rate,but also serious damages the company's financial performance.(4)The allocation of guanxi-based control rights can realize part optimization in family firms with specific guanxi type.The different guanxi combinations of family members have significant adjustment to the governance efficiency of guanxi-based control rights allocation.In the family firms which are jointly controlled by core family members,higher of the control rights concentration within the family,the better of the governance efficiency.In the family firms which are jointly controlled by close relatives,the appropriate increase of family members and the counterbalance degree of family internal control rights all will be beneficial to the governance efficiency.The main innovation points and theoretical contributions are as follows:(1)On the reseach angle of view,different from the traditional control rights allocation theory based on the capital,this article studies the allocation of family control rights from the perspective of "guanxi"between the family members.It reveals the social root of the allocation of family guanxi-based control rights and finds that“guanxi" is the key to open the "balck box" of the internal rights allocation of family firms.It also analyzes the mechanism of the guanxi-based control rights allocation in detail.This is an indigenous research of the family firms control rights and can help to better understand the essence of organizational behavior of Chinese family firms.It is a development of the control rights theory which is suitable for Chinese social and capital market environment.(2)On the research content,different from the general static study of the allocation of control rights,this paper does a compare research on the initial allocation and dynamic allocation of family control rights.It collects samples' initial control rights allocation data and dynamic control rights allocation data for nearly five years.Through comparative study,it not only shows the characteristics of initial and dynamic allocation of control rights,but also reveals the change trend of the allocation of guanxi-based control rights in Chinese family firms.This all are great significance to understand the initial choice,the current situation,and the change trend of family guanxi-based control rights allocation.(3)On the research methods,this article adopts the method of multidimensional observation to study the governance efficiency of the family firms' guanxi-based control rights alloction.It puts to use four dimensions respectively to measure the characteristics of the shareholding alloction and manangement rights allocation and two dimensions,which are agency cost and financial performance,to observe the corporate governance efficiency.This plays an important role to fully understand the governance efficiency of the allocation of family firms control rights.Only through the dialectical view to analize the allocation choice of the family control rights,can we better understand the behavior of Chinese family firms,and provide them with targeted management advices.