An Empirical Study On Social Relations,Second Generation Involvement And Firm Performance Of Family Business In China

Since the reform and opening up,with the GDP has grown at a high speed,China's economy has jumped to the second place in the world.Family firms play an important role in enhancing the sustained,rapid,healthy and stable development.With many founders of family firms in China have been nearly 60 years old,they urgently need to find the heirs to carry out the handover.It can be said that the inheritance of family firms has become an urgent problem that needs to be solved in China's current development.Whether the family firms can survive the inheritance period is not only related to the performance of the family firms in the future,but also related to the future prosperity of the Chinese economy.In addition,the distinctive corporate governance structure and cultural heritage are the essential differences between family and non-family firms.Therefore,the study of the family firm inheritance not only supplements the content of corporate governance research,but also has important reference significance for the development of Chinese enterprises.According to the structure of the paper,the first part of the introduction first introduces the research background of the article,then the research significance,finally the problems and methods of the article research and possible contribution points.The second part clarifies the related concepts of “social relations”,“family firms”,“tunnel behavior” and “firm performance” according to the relevant research literature at home and abroad,summarizing the relationship between social relations,family firms inheritance,tunnel behavior and firms performance.In addition,from the practice that family firms in China has passed down,the current managers generally tend to let members of the family take over the firm,more directly,choose their own children to inherit the firm.Thus,the first research question of the article was raised –what factors affect the way that the family firms is passed down? The inheritance process of family firms is the transfer of career and wealth between the previous generation and the next generation.And the inheritance will have a direct and long-term impact on the family business.In this way,another research focus of the article is proposed.What kind of impact will the second generation involvement have on the enterprise? This paper mainly examines the changes of the second generation participation caused by the two aspects.The first aspect is the influence of the second generation participation on tunnel behavior,the other is the impact on firm performance.The most difficult part of the family firm's inheritance process is how the founders transferred their unique professional assets to the second generation.Social relations is an important professional asset which could bring great benefits to the family firms.Therefore,if the founders establish a good social relationship in the process of long-term management of the firms,then they will do their utmost to protect this professional asset from dissipating.However,if the control of the family firms is transferred to an external professional manager,then the social relations are likely to disappear.So,the founders with social relationships are more likely to pass on the control of family firm to the second generation of their families.Therefore,the first hypothesis of the article is that the founders of family firms with social relations are more inclined to choose the internal inheritance.Compared to hiring professional managers,a higher level of trust between family members can partially reduce the agency costs.At the same time,family managers have a strong sense of belonging to the company,they will pay more attention to the long-term development of the company than the professional managers.So,family members will work harder to create value for the company,and will not find ways to tap the firm resources for their own use.Therefore,another hypothesis of this paper is proposed.The second generation involvement can reduce the tunnel behavior.However,compared with professional managers,the second generation has relatively little understanding of the workplace,and the ability and experience of managing enterprises are generally worse than professional managers.Therefore,the last hypothesis of this paper is proposed.The second generation participation will lead to the decline of firm performance.In order to verify the rationality of the hypothesis of the article,literature research methods and empirical research methods are used here.Taking the listed family firms in China as the research sample,and summarizing the data for 3 years from 2009 to 2011,the empirical results are as follows:(1)The social relationship of the founders of family enterprises is an extremely important factor in determining whether the second generation participates in the management of the company.The founders with social relations are more willing to let their second generation Inherit the enterprise;(2)second-generation participation in family firm management is conducive to reducing corporate tunnel behavior;(3)second-generation participation can reduce business performance.Finally,based on the above conclusions,this paper believes that in the process of family business inheritance,we should establish a good social relationship and enable the second generation to participate in the management of the enterprise as early as possible,in preparation for the later enterprise inheritance,in order to enhance the value of the enterprise.