A Study Of Corporate Governance In Founding Family Business: An Agency Perspective

Compared to family businesses with hundreds of year history in the world, Chinese family businesses are only start-up. Family businesses have been seen as a continuous variable in academia, but most of researchers do not categorize family business in the prior papers. Presently, there is a good opportunity to research earlier period of family business in China. Therefore, the paper study the corporate governance of founding family business (FFB), in order to fill the gap of researching the corporate governance of start-up family business. Firstly, the paper argues three types of agency problem:non-family manager agency problem, family manager agency problem, and controlling family agency problem to minority shareholder. Secondly, based on the definition of family business in foreign and Chinese papers, I strictly define FFB for reliability and validity. Thirdly, with analyzing the characters of agency problem in FFB, I argue and hypothesize the effect of governance mechanisms. Finally, I examine the hypotheses to support my argument.The paper uses 20 public FFB listed at the Shanghai Stock Exchange and Shenzhen Stock Exchange between 2004 and 2009 as samples. Using the multivariate regression method, I examine the relationship between firm value (Tobin Q, return of asset) and the variables of governance mechanism. The empirical result shows:(1) the relation between flowing share ratio and Tobin Q presents significant positive effect; (2) the relation between debt ratio and Tobin Q presents significant Shape U; (3) the relation between independent director and Tobin Q presents significant Shape U; (4) the relation between top family manager ratio and Tobin Q presents significant Shape U; (5) the relation between family internal ownership authority and return of asset presents significant converse Shape U; (6) the relation between family internal management authority and Tobin Q, return of asset presents significant converses Shape U; (7) the relation between the duality and return of asset presents significant negative effect; (8) the relation between the separation between controlling right and cash flow right and Tobin Q is insignificant; (9) the relation between non-family blockholder and Tobin Q, return of asset presents significant negative effect; (10) the relation between pyramid and Tobin Q, return of asset presents significant Shape U.My research shows that FFB is still family management style, traditional governance mechanisms are not completely validity. Family generation inheritance has two-side effect. On one hand, that inheritance can alleviate non-family manager agency problem. On the other hand, it may result "tragedy of the commons". Although there is potential agency problem between controlling family and minority shareholder, no enough evidences prove that controlling family will seize interest from minority shareholder by FFB。...