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Family ownership and business expansion of small- and medium-sized Chinese family businesses: The mediating role of financing preference

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  • Zhang, Xian
  • Venus, Jill
  • Wang, Yong

Abstract

The relationship between family ownership and business expansion is the subject of controversy among researchers. This article expands on the mediating role of financing preference in the context of family small and medium enterprises (SMEs) in China. In the research programme, the relationship between family ownership and business expansion was empirically examined using data collected from a survey of 206 Chinese family businesses in Henan Province. On one hand, the results show family ownership has a negative effect on a firm's total expansion level and a positive effect on a firm's internal financing preference (ratio of internal to external funds). On the other hand, we found an inverted U-shaped relationship between family ownership and a firm's annual expansion rate. The findings of this research generally indicate a complex relationship between family ownership and family business expansion: (a) Family businesses have a tendency to stagnate; stagnation is therefore a factor in the mediating role of financial preference on business expansion in size. (b) The presence of external equity partners may reduce the limitations of full family ownership; however, selling the majority of the firm is not an effective way to achieve rapid expansion.

Suggested Citation

  • Zhang, Xian & Venus, Jill & Wang, Yong, 2012. "Family ownership and business expansion of small- and medium-sized Chinese family businesses: The mediating role of financing preference," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 97-105.
    • Handle: RePEc:eee:fambus:v:3:y:2012:i:2:p:97-105
    DOI: 10.1016/j.jfbs.2012.03.002
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    References listed on IDEAS

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    1. David Sraer & David Thesmar, 2007. "Performance and Behavior of Family Firms: Evidence from the French Stock Market," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 709-751, June.
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    5. Chandra S. Mishra & Daniel L. Mcconaughy, 1999. "Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt," Entrepreneurship Theory and Practice, , vol. 23(4), pages 53-64, July.
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    Cited by:

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    2. Rana Yassir Hussain Xuezhou Wen Rehan Sohail Butt Haroon Hussain Sikandar Ali Qalati Irfan Abbas, 2020. "Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(2), pages 89-115, November.
    3. Acquaah, Moses, 2013. "Management control systems, business strategy and performance: A comparative analysis of family and non-family businesses in a transition economy in sub-Saharan Africa," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 131-146.
    4. Landry, Suzanne & Fortin, Anne & Callimaci, Antonello, 2013. "Family firms and the lease decision," Journal of Family Business Strategy, Elsevier, vol. 4(3), pages 176-187.
    5. Hanqing “Chevy” Fang & Kulraj Singh & Taewoo Kim & Laura Marler & James J. Chrisman, 2022. "Family business research in Asia: review and future directions," Asia Pacific Journal of Management, Springer, vol. 39(4), pages 1215-1256, December.
    6. Fitó, M. Àngels & Moya, Soledad & Orgaz, Neus, 2013. "The debate on rented assets capitalization: The economic impact on family firms," Journal of Family Business Strategy, Elsevier, vol. 4(4), pages 260-269.

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