Characteristics Of The Control And Accounting Transparency Of The Family Business

The capital market is a market of the flow of information, and adequate information disclosure is a key factor to ensure the efficiency of capital markets. With economic development, the family business has become an important part of China’s listed companies. Therefore, the disclosure of family business will be an important and a hot research field. This paper argues that the "family control" most embodies the characteristics of the ownership structure of the family business in China, which has more research value than the Board control and the management control. Therefore, this paper will examine the impact of family business control right’s characteristics to accounting transparency. This article describes the family control right’s characteristics from the four aspects:the way to achieve family control right, concentration of ownership, the way of obtaining the control right, the way of expressing the control right. In-depth analysis of the impact of family control right’s characteristics to accounting transparency can promote the study of corporate governance and corporate transparency, and enhance corporate value, and improve corporate transparency, and promote the healthy development of capital markets.Information asymmetry will lead to agency problems in the enterprise, and agency problems still exist in the family business. The traditional agency (agency problems of owners and operators) is no longer an important agent problem of family business, and agency problems between controlling shareholders and outside minority shareholders and the tunneling behavior of controlling shareholder are problems which are needed to be solved immediately, and accounting disclosure may become a powerful tool to solve these problems. Based on agency theory and information transparency theory, this paper uses family firms listed in Shenzhen in2006,2007,and2008as samples, mainly studies characteristics of the way to achieve family control right, concentration of ownership, the way of obtaining the control right, the way of expressing the control right, and analyzes how these characteristics influence corporate transparency.This paper analyzes impact of control right characteristics to accounting transparency, based on the principal-agent theory and the information transparency theory, combining with the characteristics of the family business. In a broad vision, we can say that this paper studies internal corporate governance of listed family firms how to affect the company’s external governance. Based on the above research ideas, this article consists of the five following sections:Introduction, Literature Review, Basic concepts and theoretical analysis, Research design and empirical test, Research conclusions and implications.The first part introduces the research background, meaning and methods; puts forward ideas and structural arrangements of this study; presents the innovation of this paper.The second part:four aspects of domestic and foreign research results have been reviewed in this part:definition of family firms, property rights of family firms, company governance family business, and information disclosure of family firms.The third section describes the basic concepts and theoretical analysis. First, this chapter has a brief description of family business, family control characteristics, company transparency, and family control characteristics consist of family control over the implementation, concentration of ownership, the way of obtaining the control right and the way of expressing the control right. Second, this chapter presents the theoretical basis of this article:agency theory and the transparency of information theory. The last part focuses on the issues of agency and information transparency of the family business. The family business not only has the traditional agency problem also special agent problems which are mainly from two aspects of the agency problem of controlling shareholders and outside minority shareholders and the tunneling behavior of controlling shareholders.The fourth part is divided into two parts:part of the study design, part of the empirical test and analysis. Using the theory of the third part, this chapter analyzes the impact of corporate transparency from four aspects:the way to achieve family control right, concentration of ownership, the way of obtaining the control right, the way of expressing the control right. Two rights (control rights and cash flow rights) separation degree measures the way to achieve family control right; the stake of the controlling shareholder and the second to the fifth largest shareholder measure ownership concentration; that the family firms whether were listed directly through IPO measures the way of obtaining the control right; that controlling shareholders whether participate in corporate governance and chairman of the Board whether serves as general manager measure the way of expressing the control right. This article proposes six hypotheses on this basis, and constructs two regression models based on hypotheses, and presents definitions and descriptions of variable.Empirical testing and analysis of this part:Firstly, it has descriptive statistical analysis and correlation analysis of the samples. The results of descriptive statistical analysis prove the hypothesis of this article; correlation analysis shows that there is no correlation between the independent variables and the regression which will not produce multi-collinearity problems if these independent variables are brought into the model. Secondly, there are ordered logistic regression and logistic regression to the samples. The regression results: Two rights (control rights and cash flow rights) separation degree, the chairman of the Board serving as general manager and corporate transparency negatively correlated; the stake of the second to the fifth largest shareholder, family business directly listed through the IPO positively correlated with corporate transparency stake of controlling shareholder, controlling shareholders participation in the company’s management is not obvious trend to corporate transparency. Finally, in order to ensure the reliability of the conclusions, the paper has the robustness test. The results of robustness test show that the empirical conclusions are right.The fifth part draws relevant research conclusions and implications. The conclusions of this study are:Firstly, from the way to achieve family control right, the pyramid ownership and cross-shareholdings will reduce the transparency of the company. When separation factor of the control rights and cash flow rights are greater, the transparency of the Company is lower. The fundamental reason for the separation of two rights is the way of other ownership except of the direct holdings, such as pyramid ownership and cross-shareholdings.Secondly, from the perspective of ownership concentration, the size of the controlling stake held directly by the controlling shareholder who don’t have a clear trend to corporate transparency, which is caused by double effect of controlling shareholder’s ownership concentration; but the other major shareholder’s ownership concentration can effectively inhibit the embezzlement of controlling shareholder, in order to obtain the company’s information they will require companies to disclose more information to improve the transparency of the company. Thirdly, from the way of obtaining the control right, the family business listed directly through the IPO are more transparent than the family enterprises listed indirectly. The main reason for this result is that different ways of obtaining the control right lead to controlling family having different attitudes towards the company. For company’s long-term development and corporate reputation, the controlling shareholder of the family business listed through IPO will improve company performance and corporate transparency which will establish a good image of the public.Finally, from the way of expressing the control right, the controlling shareholder participation in company management will not affect the transparency of the Company, but the chairman of Broad severing as manager would reduce the transparency of the Company. Controlling shareholder participation in company management, which causes double effect, has an uncertain impact on corporate transparency. The chairman of Board severing as manager will weaken the supervision of the board to management.This article’s innovation and academic contribution are:Firstly, based on the characteristics of family control right, the paper has research about the family business accounting transparency, which fills the blank of our family business information disclosure. Starting from the characteristics of family control right to study the impact of accounting transparency sets the course for the accounting transparency of family business. Characteristics of family control right is a broad concept and this paper describes it from four major aspects: the way to achieve family control right, concentration of ownership, the way of obtaining the control right, the way of expressing the control right. This interprets the characteristics of family control from a new and comprehensive perspective.Secondly, this paper enriches study of the family business accounting transparency and the family business corporate governance theoretically. China scholars concerned about the research of the family business from the1990s and also made a number of valuable research achievements, but they concerned about little information transparency of the family business, especially from the point of view of the characteristics of family control right. Therefore, that we study accounting transparency from the characteristics of family control right enriches the theory of the family business accounting transparency and corporate governance and increases the accumulation of relevant research literature.Thirdly, the paper will solve the problem that how to improve accounting transparency of the family business from the characteristics of family control right. It is useful to establish a perfect information disclosure mechanism and to improve the corporate governance of family businesses, which will promote the family business development long, healthily and stable. At the same time, from the perspective of investor protection, the paper studies family control characteristics impact on corporate transparency, which is useful for external medium and small shareholders to improve the protection awareness.The inadequacy of this paper is:Firstly, there are many factors to impact the transparency of the company, so it is possible to omit control variables for this paper.Secondly, the measure of listed companies’ information transparency varies, and this paper will use information disclosure evaluation results of integrity file provided the Shenzhen Stock Exchange, but we can’t make sure their evaluation results which reflect the company’s transparency.Thirdly, we consider the family business listed in the Shenzhen Stock Exchange as the study sample. In order to get more scientific and rigorous conclusions, we need to do further empirical examination.