Investor protection and agency problems in family firms: evidence from China

摘要

The increasingly important role played by family firms in China’s fledging capital market calls for a better understanding of how it works and is governed. Since the legal analytical approach is considered as a more meaningful way to undertand the nature of corporate governance, this study aims to explore how corporate governance issues in family firms are tackled from the perspective of investor protection. The thesis addresses the question by first presenting mathematical models showing the relations among investor protection, family governance, and agency costs in family firms. It then formulates empirical models to test the predictions of the theoretical models against a unique and detailed family-firm data set in China’s stock markets, one of the largest and fastest growing economies in the world. The findings show that the dynamic improvement of written legal rules pertaining to investor protection is potentially conducive to Chinese family firms by mitigating agency problems and thus enhancing firm performance. However, the provincial enforcement of investor protection is found to be immunised against the agency issues. Secondly, the thesis finds that an increase in the effectiveness of the provincial enforcement of investor protection goes hand in hand with an increase in ownership concentration and the involvement of family managers in management, but a reduction in the use of control-enhancing mechanisms in Chinese family firms. Lastly, the findings reveal that concentrated ownership rights with active family management generate performance benefits when the level of legal protection for investors is high. However, the use of control-enhancing mechanisms by the family leads to a significant loss in financial performance of family firms with inferior investor protection. The thesis contributes new perspective insights and adds several methodological innovations and new empirical evidence to governance strategies in family firms in key areas, such as succession decisions, executive development, and compensation policies.