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Family Ties and Organizational Design: Evidence from Chinese Private Firms

Author

Listed:
  • Hongbin Cai

    (Peking University)

  • Hongbin Li

    (Tsinghua University)

  • Albert Park

    (Hong Kong University of Science and Technology)

  • Li-An Zhou

    (Peking University)

Abstract

Analyzing data from a unique survey of managers of Chinese private firms, we investigate how family ties with firm heads affect managerial compensation and job assignment. We find that family managers earn higher salaries and receive more bonuses, hold higher positions, and are given more decision rights and job responsibilities than nonfamily managers in the same firm. However, family managers face weaker incentives than professional managers, as seen in the lower sensitivity of their bonuses to firm performance. Our findings are consistent with the predictions of a principal-agent model that incorporates family trust and endogenous job assignment decisions. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Hongbin Cai & Hongbin Li & Albert Park & Li-An Zhou, 2013. "Family Ties and Organizational Design: Evidence from Chinese Private Firms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 850-867, July.
    • Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:850-867
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    Cited by:

    1. van Hoorn, Andre, 2013. "Trust and Organizational Design: Explaining Cross-National Differences in Work Autonomy," MPRA Paper 80016, University Library of Munich, Germany.
    2. Rodrigo Basco & Thomas Bassetti & Lorenzo Dal Maso & Nicola Lattanzi, 2023. "Why and when do family firms invest less in talent management? The suppressor effect of risk aversion," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(1), pages 101-130, March.
    3. Lingling Zhuang & Lawrence Loh & Minna Zheng, 2020. "Can Family Members’ Involvement Improve Technological Innovation? Empirical Study Based on Chinese Family-Owned Enterprises," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    4. Lemos, Renata & Scur, Daniela, 2018. "All in the family? CEO choice and firm organization," LSE Research Online Documents on Economics 88679, London School of Economics and Political Science, LSE Library.
    5. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching Firms, Managers, and Incentives," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 623-681.
    6. Qiuqiong Huang & Scott Rozelle & Dinghuan Hu, 2007. "Pump-set clusters in China: explaining the organization of the industry that revolutionized Asian agriculture," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 14(2), pages 75-105, December.
    7. Zhu, Ling & Kong, Dongmin, 2022. "Does government transparency shape firm decentralization? Evidence from a natural experiment in China," Emerging Markets Review, Elsevier, vol. 53(C).
    8. Dongmin Kong & Ling Zhu & Ni Qin, 2022. "Does corruption shape firm centralisation? Evidence from state‐owned enterprises in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3365-3395, September.
    9. Clara Graziano & Laura Rondi, 2021. "Product Market Competition, Executive Compensation, and CEO Family Ties," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 357-397, May.
    10. Tang, Junhua & Osmer, Eric & Zheng, Yao, 2022. "Do married couples make better family firm leaders: Evidence from China," Journal of Economics and Business, Elsevier, vol. 118(C).
    11. Yves Bozec & Jackie Di Vito, 2023. "CEO Compensation in Founder-Controlled Firms: A Comparison Between Family CEOs and Non-Family CEOs," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(6), pages 1-44, June.
    12. Zhou, Weina, 2014. "Brothers, household financial markets and savings rate in China," Journal of Development Economics, Elsevier, vol. 111(C), pages 34-47.
    13. Nancy Kong & Lars Osberg & Weina Zhou, 2018. "The Shattered “Iron Rice Bowl”— Intergenerational Effects of Economic Insecurity During Chinese State-Owned Enterprise Reform," Discussion Papers Series 595, School of Economics, University of Queensland, Australia.
    14. Ashutosh Thakur & Jonathan Bendor, 2021. "Endogenous Organizational Restructuring: Status, Productivity, & Meritocratic Dynamics," ECONtribute Discussion Papers Series 084, University of Bonn and University of Cologne, Germany.
    15. Cheng, Jiameng & Dai, Yanke & Lin, Shu & Ye, Haichun, 2021. "Clan culture and family ownership concentration: Evidence from China," China Economic Review, Elsevier, vol. 70(C).
    16. Eugene Bempong Nyantakyi, 2016. "Family ties, firm performance and managerial compensations in African SMEs," Small Business Economics, Springer, vol. 46(3), pages 493-501, March.
    17. Amore, Mario Daniele & Miller, Danny & Le Breton-Miller, Isabelle & Corbetta, Guido, 2017. "For love and money: Marital leadership in family firms," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 461-476.
    18. Yuan, Song & Xie, Jian, 2021. "The Cultural Origins of Family Firms," MPRA Paper 111315, University Library of Munich, Germany.
    19. Jenny Kragl & Alberto Palermo & Guoqian Xi & Joern Block, 2023. "Hiring family or non-family managers when non-economic (sustainability) goals matter? A multitask agency model," Small Business Economics, Springer, vol. 61(2), pages 675-700, August.
    20. Scur, Daniela & Lemos, Renata, 2019. "The ties that bind: implicit contracts and management practices in family-run firms," CEPR Discussion Papers 13794, C.E.P.R. Discussion Papers.
    21. Florackis, Chris & Fu, Xi & Wang, Jingjing, 2023. "Political connections, environmental violations and punishment: Evidence from heavily polluting firms," International Review of Financial Analysis, Elsevier, vol. 88(C).
    22. Li, Qing & Hu, Dezhuang & Li, Tang, 2022. "The innovation of family firms in China: New evidence from the China employer-employee survey," China Economic Review, Elsevier, vol. 72(C).
    23. Kong, Nancy & Osberg, Lars & Zhou, Weina, 2019. "The shattered “Iron Rice Bowl”: Intergenerational effects of Chinese State-Owned Enterprise reform," Journal of Health Economics, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    family firm; incentives; authority; job assignments; China;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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