Investigating the Role of Non-family CEOs in Knowledge Diffusion and Investment Behavior in Family Firms During Succession

Although family businesses are formidable economic forces, navigating transitions in leadership can be difficult. This research examines the effects of knowledge diffusion and potential disruptions on the investment behavior of non-family CEOs of Chinese A-share listed companies from 2007 to 2019. We investigate the impact on the investment strategies of non-family CEOs as family firms enter the intergenerational inheritance phase, with a particular emphasis on potential shifts toward short-term decision-making. By leveraging conflict of interest and management defense theories, this research investigates how perceived organizational fairness may serve as a moderating factor. The results indicate a positive correlation between succession and the short-term investment behavior of non-family CEOs. Notably, this relationship is weakened when the vertical pay gap between CEOs and other executives is greater, indicating that fairer compensation structures may have the capacity to alleviate this effect. On the contrary, a greater disparity between anticipated future performance and actual objectives reinforces the connection between succession planning and short-term capital outlay. This research makes a valuable contribution to knowledge dynamics by examining the impact of perceptions of fairness and succession on the investment decisions of non-family CEOs within family firms. This research underscores the significance of effectively managing expectations and promoting communication throughout the succession process to secure the organization’s sustainability.