Family Control And Corporate Geographic Diversity Behavior

It is an important risk-taking decision-making behavior for managers to carry out geographic diversification in China.Entering the new market helps enterprises to obtain market opportunities and additional resources in various regions,disperse risks,increase managers' income and increase market power,and so on.It is one of the important strategic choices for enterprises to develop a certain scale to achieve sustainable growth.However,although China has a large domestic market scale and rich inter-geographic heterogeneity resources,in reality,most enterprises concentrate their business scope on their region and seldom carry out geographic diversification.This phenomenon has attracted the attention of many scholars.In the end,what factors lead to the unwillingness of enterprises to carry out geographic diversification is still a question that is constantly being discussed.Based on the relevant theories,this paper analyzes the geographic diversification strategy of family enterprises.To have an indepth understanding of the current situation of geographic diversification of family business in China,we need to start with the following questions: First,what is the impact of family control on the degree of geographic diversification? Second,what are the situational factors that limit the influence of family control on the degree of geographic diversification? Third,what is the impact of the geographic diversification strategy of the family enterprises on the value of subsequent enterprises? Focusing on the above issues,this paper explores the geographic diversification strategic behavior of the Chinese family enterprises based on the empirical data of Chinese listed companies from 2007 to 2018.The main conclusions of this paper are as follows:First,family control has played an inhibitory role in the development of geographic diversification of enterprises.Different from the non-family business,the family business connects the two systems of the family and the business,which makes the family members derive the value of control,personal authority,and emotion--that is,social emotional wealth--in the process of governing the business.Based on the behavioral agent model,when family enterprises take the protection of social emotional wealth from a loss at the reference point,they often prefer to bear the economic loss or bear the risk brought by business centralization.On the other hand,there are some problems in the process of geographic diversification,such as the financial risks caused by borrowing and the additional agency costs that professional managers need to face in expanding their business,which will damage the social emotional wealth of family businesses.Our empirical study also confirms that compared with non-family business,family business shows a lower degree of geographic diversification.Second,from the perspective of informal institutional factors,the degree of quasifamiliarization has a significant impact on the degree of diversification of family control inhibition areas.Based on the "differential order pattern" put forward by Fei Xiaotong(1985),in today's social interpersonal relations,clan culture is not only linked by consanguine.It has also formed a wider range of clan ties-the same dialects and the same surname.From the perspective of geography and ethnicity as an index to measure the degree of quasi-family,our research demonstrates its influence on the decisionmaking behavior of the family business.The chairman and the general manager speaking the same dialect can improve the efficiency of communication,promote trust between the two sides,and increase managers' investment in the social and emotional health of the family business.At the same time,the agency cost is reduced,the phenomenon of information asymmetry is restrained,and the their goals tend to be the same in the direction of the future development of the enterprise.Similarly,the same surname will prompt people to consider that they share a common ancestor and inherit the common lineage of their ancestors.Chinese people have a deep concept of the clan,which makes people have a stronger sense of identity to the kinship.Therefore,it is easier to establish a sense of social identity and trust among people with the same surname.Therefore,the degree of quasi-family in family governance with the same dialect and surname can help enterprises effectively reduce agency costs and increase external managers' investment in the social and emotional health of enterprises.It makes the two sides tend to be more consistent in the strategic decision-making behavior of geographic diversification.Third,the stock-based incentive mechanism has a significant impact on the degree of diversification of family control inhibition areas.Family business in China generally lacks the spirit of the contract,and family members often rely on relationships,which are easy to cause some problems in the process of family governance.The participation of non-family executive members improves the information processing ability of the senior management team and provides alternatives to problem assessment and strategy.The introduction of a formal contract system into a family enterprise can make up for the deficiency caused by relying on relationship management.Based on the incentive mechanism of stock ownership and stock options,the board of directors can play its due role of supervision and service,and the quality of strategic decision-making of the family of enterprises can be improved.The empirical study of this paper finds that different incentive mechanisms and measures have asymmetric risk characteristics,which will affect senior executives' risk preference and goal orientation in investment decision-making.Finally,it leads them to make diametrically opposite decisions in the process of geographic diversification strategy formulation.Specifically,the non-family executives who hold stock ownership are consistent with the interests of shareholders,pay more attention to economic interests and show risk preference,which alleviates the degree of geographic diversification restrained by family control;stock options make non-family executives consistent with the interests of family members,pay more attention to the long-term development of the enterprise,and strengthen the degree of family control to inhibit geographic diversification.Fourth,from the perspective of external environmental factors,uncertainty has a significant impact on the degree of diversification of family control inhibition areas.From the real options theory of investment irreversibility,uncertainty has a strong negative impact on capital investment and increases the value of waiting for investment.In the face of uncertainty,companies will become cautious and reduce investment.This policy uncertainty caused by the replacement of local officials will largely restrain the diversified investment behavior of family businesses in the region.Uncertainty leads to risk premium,and when the economic outlook is not good,the investment risk of enterprises becomes greater.Compared to state-owned enterprises,family enterprises are more likely to be affected by economic uncertainty and policy uncertainty,thus showing a lower level of geographic diversification.Fifth,it further discusses the intermediary role of slack on the impact of family involvement on the degree of geographic diversification.When the proportion of family ownership is larger,the enterprise will give the family more power and legitimacy to pursue the goal that is beneficial to the interests of the family.More family members participate in family governance,and enterprises tend to allocate current assets,which leads to higher current assets ratio of family enterprises.At this time,the expansion strategy looking for new growth opportunities will inevitably make the managers of the organization bear greater strategic risks,and diversification will also bring related costs and bear more debt.Compared with non-family enterprises,the higher the degree of family involvement,the more slack will be held by family members.Slack may affect the structural allocation of the company,and managers may adopt a sub-optimal structural arrangement,which is more in line with the managers' personal preferences rather than focusing on the optimization of economic efficiency.Especially when the slack is in the target range,the managers of the family business master more slack and the management is easy to meet the current status quo,thinking that everything in the enterprise is running well and only needs to maintain the status quo.The response to the external environment becomes slow,and there is no motivation to change the allocation of resources or innovation in the organization.According to the path of a family involvement-slack-the the degree of geographic diversification,this paper finds that slack plays an intermediary role in the degree of geographic diversification.Sixth,there is a positive relationship between geographic diversification and corporate performance under family control.Based on the application of the resourcebased model in the research of geographic diversification companies,the higher the degree of geographic diversification of an enterprise,that is,the larger its business scale and scope,the more fully it will make use of strategic resources.The greater the opportunity to obtain cross-market economic benefits,at the same time,help enterprises to disperse market risk,and then achieve a higher level of performance.Cross-geographic enterprises have the opportunity to get more benefits from the intangible resources they already have.In the family business,family members communicate regularly and frequently,and the closer relationship and strong social capital between the members promote the sharing of experience and knowledge within the enterprise,uphold a common corporate vision and take trust as a link.It is helpful for enterprises to make use of geographic diversification to obtain comprehensive strength,reduce business competition,maintain the dominant position in the family business,and thus obtain greater bargaining power.Therefore,the geographic diversification of enterprises under family control can improve business performance and increase enterprise value.The theoretical contribution of this study is mainly reflected in the following five aspects:First,based on social emotional wealth theory,agency theory,combined with the behavioral agency model,this paper explores the impact of family control on the geographic diversification strategy,enriching the application situation of the existing theory.Different from the risk decision-making of R&D,which is more influenced by technology,expertise,and other factors(Chrisman and Patel,2012),the process of geographic diversification depends more on the professional management ability and information processing ability of professional managers.As a result,agency problems are more likely to occur in the process of geographic diversification.Based on previous studies,this paper discusses the problem of geographic diversification of enterprises from the perspective of family control and finds that family control inhibits the development of geographic diversification of enterprises.This is mainly because,although the geographic diversification strategy reduces risk concentration and improves the chances of survival of enterprises,geographic diversification of enterprises may encounter discrimination in policy implementation or law enforcement.In the process of carrying out geographic diversification,there are financial risks brought about by borrowing,as well as the agency formation that professional managers need to face when expanding their business,to reduce the family's control over the enterprise.In turn,it leads to damage of social emotional wealth and finally shows that enterprises avoid the development of geographic diversification more than non-family enterprises.Second,the introduction of a quasi-familial degree with local characteristics to discuss the impact of family members' participation in geographic diversification strategic decision-making,which further improves and enriches the relevant theory of family governance.In recent years,the study of corporate decision-making behavior from a cultural perspective has become cutting-edge research.Some scholars have explored it from the perspective of Chinese religion,Confucianism,geographic dialects,and so on.However,there is little discussion on how cultural factors affect the diversification strategy of family enterprises.Deeply influenced by Chinese traditional Confucian culture,and due to the low level of trust among Chinese people,the network construction of clan relations can effectively increase mutual trust and greatly reduce agency costs.Based on previous studies,based on the theory of social identity and the "differential order pattern" in Chinese social interpersonal relations,this paper finds and summarizes that today's Chinese family enterprises have formed a wider clan relationship--based on the same geography in dialects and the clan relationship with the same surname,and take this as an index to measure the degree of quasifamiliarization,and verify its influence on the diversification strategy of family enterprises.It enriches the relevant research results of family governance.Third,it analyzes the important role of the senior management team in corporate decision-making and the mechanism of the stock-based incentive mechanism,which enriches the application of Upper Echelons Theory in the family business.The study of high-level theory has been widely recognized by scholars,but little attention has been paid to the change of executive team governance structure in the family enterprises.Most of the previous scholars separately explore the impact of stock ownership or stock options on the risk preference of managers.This stock-based compensation incentive system is considered to play a good supervisory role and improve the quality of corporate strategic decision-making.Based on previous studies,this paper compares and discusses the differences in goal orientation and risk preference when non-family executives hold stock ownership and stock options.In this paper,it is found that the stock-based incentive mechanism has a significant impact on the degree of diversification of family control inhibition areas,and the interests of nonfamily executives holding stock ownership are consistent with those of shareholders,which corrects the problem that family enterprises pay too much attention to noneconomic objectives and show a higher level of risk preference;stock options increase the risk-taking of non-family executives,and then show a risk aversion attitude consistent with that of family members.Different incentive mechanisms have different effects on the degree of diversification in family-controlled areas,which not only provide a reference for the family of enterprises to use stock-based incentive mechanisms but also enrich the application results of Upper Echelons Theory in the family enterprises.Fourth,it analyzes the influence and mechanism of uncertainty on risk preference of family enterprises,which further enriches the research of uncertainty on investment decisions of family and non-family enterprises.Bennett(1983)and Bloom,Bond,and Van Reenen(2007)have established a model of the relationship between uncertainty and actual investment.In the face of uncertainty,enterprises will become cautious and reduce investment.Drawing lessons from the real options theory of investment irreversibility,this paper finds that in the face of external economic instability and political fluctuations,enterprises will adopt more conservative investment plans and maintain a higher tendency of risk aversion.Moreover,in sharp contrast to laissez-faire capitalism in the West,the Chinese government will play a greater role in promoting economic development and compared with state-owned enterprises,family enterprises are more easily affected by this uncertainty.To reduce the geographic diversification strategy,this research results enrich the application scenario of policy uncertainty.Fifth,by discussing the intermediary role of slack,this paper further reveals a potential internal operation mechanism of the impact of family involvement on geographic diversification and expands the related research on the strategic decisionmaking of family enterprises and the impact of slack on corporate behavior.Many previous studies theoretically and empirically support the negative impact of family control on the degree of diversification,but the mechanism of this process has been rarely discussed.The study of this paper finds that,compared with non-family businesses,family owners and managers in family businesses have a deeper emotional dependence on the business,and the strategy of geographic diversification poses a threat to the identity maintenance of a family business.As a result,with the increase of family ownership,the tendency of enterprises to adopt geographic diversification will be more reduced.When slack exist,managers are more likely to adopt sub-optimal structural arrangements to meet personal preferences,rather than focusing on the optimization of economic efficiency.Our research supports the negative impact of slack as a "buffer" to enterprises.In enterprises with a high degree of family involvement,family members hold more slack,which directly affects the allocation of internal resources and the choice of corresponding strategic behavior,and finally suppresses the development of geographic diversification strategy and verify the establishment of the intermediary role of slack.The revelation of this internal mechanism reminds family enterprises to go out of the "comfort zone" and make full use of slack to build their competitive advantage.