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An investigation of the choice of governance modes in Chinese family firms

Author

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  • Jiancai Pi

    (Department of Economics, School of Business, Nanjing University, China)

Abstract

This paper aims to investigate the choice of governance modes in Chinese family firms. For that purpose, we build a principal-agent model to conduct our analyses. There are two modes of governance that the owner of the family firm can choose from, either the relational governance or the professional governance. The choice of governance modes is embodied in managerial compensation under different contractual arrangements. Our theoretical analyses show that under some conditions it is optimal for the owner to choose the relational governance, while under other conditions it is optimal for the owner to adopt the professional governance. That is to say, the choice of governance modes is condition-dependent.

Suggested Citation

  • Jiancai Pi, 2015. "An investigation of the choice of governance modes in Chinese family firms," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 33(2), pages 257-273.
    • Handle: RePEc:rfe:zbefri:v:33:y:2015:i:2:p:257-273
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    References listed on IDEAS

    as
    1. Amit, Raphael & Ding, Yuan & Villalonga, Belén & Zhang, Hua, 2015. "The role of institutional development in the prevalence and performance of entrepreneur and family-controlled firms," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 284-305.
    2. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    3. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    relational governance; professional governance; Chinese family firm; moral hazard;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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