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Political connection and business transformation in family firms: Evidence from China

Author

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  • Wang, Delu
  • Ma, Gang
  • Song, Xuefeng
  • Liu, Yun

Abstract

We investigate the impact of family ownership on core business transformation and the moderating role of political connections in this relation through a Probit model, conditional Logit model, and Heckman selection model with instrumental variable using data from Chinese listed companies covering 2001–2010. The results demonstrate that, compared with non-family firms, family firms are more likely to transform their core business, enter strongly correlative industries and non-regulated industries, and adopt a mergers and acquisitions (M&A) mode. Furthermore, compared with politically non-connected family firms, family firms with political connections are more likely to conduct business transformation and adopt M&A rather than an internal cultivation mode to realize transformation. In addition, political connections make family firms more likely to enter weakly correlative industries and increase their chances of entering government-regulated industries.

Suggested Citation

  • Wang, Delu & Ma, Gang & Song, Xuefeng & Liu, Yun, 2016. "Political connection and business transformation in family firms: Evidence from China," Journal of Family Business Strategy, Elsevier, vol. 7(2), pages 117-130.
    • Handle: RePEc:eee:fambus:v:7:y:2016:i:2:p:117-130
    DOI: 10.1016/j.jfbs.2016.05.001
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