The effect of succession on corporate governance reform under the Chinese clan culture context

What is it about?

The fundamental component of Confucian cultures is clan culture, which stresses that family ties are the most important of all social relationships and have an essential impact on the governance model of family firms in Southeast Asian countries, especially in China. Drawing upon altruistic theory and differences between generations, this study investigates complex relationships among family firm succession and governance reform in the context of Chinese clan culture. We conduct an empirical study on 295 Chinese listed family firms that initiated intergenerational succession from 2008 to 2018 and yield two important insights. First, the different stages of the succession will positively affect the family firm's governance reform, whether it is the stage in which the successor takes over the firm or the stage in which the successor completely controls the firm. Second, the succession-governance reform relationship is negatively moderated by the clan concept of the actual controller. The stronger the clan concept of the family firm's actual controller is, the weaker the positive effect of succession on governance reform is, and the less likely it is for family firms to implement governance reform in the process of succession. The research results provide evidence from the firm-level under the Chinese clan culture context to understand the complex relationship between succession and corporate governance.

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Photo by Yugarya Goyal on Unsplash

Photo by Yugarya Goyal on Unsplash

Why is it important?

This paper fulfills an identified need to study how succession in the family firm can accelerate corporate governance reform (transition from relation-based governance to rule-based governance). The research results provide evidence from the firm-level under the Chinese clan culture context to understand the complex relationship between succession and corporate governance.

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