Family Ties and Organizational Design: Evidence from Chinese Private Firms

51 Pages Posted: 19 Jul 2010

See all articles by Hongbin Cai

Hongbin Cai

Peking University - Guanghua School of Management

Hongbin Li

Chinese University of Hong Kong - Department of Economics

Albert Park

University of Oxford

Li-An Zhou

Peking University - Guanghua School of Management

Date Written: June 2010

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 non-family 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. We show that alternative explanations, such as taste-based favoritism, succession concerns, and unobserved ability or risk attitudes, are unlikely to drive our results.

Keywords: authority, China, family firm, incentives

JEL Classification: D64, D86, L23, M52

Suggested Citation

Cai, Hongbin and Li, Hongbin and Park, Albert and Zhou, Li-An, Family Ties and Organizational Design: Evidence from Chinese Private Firms (June 2010). CEPR Discussion Paper No. DP7855, Available at SSRN: https://ssrn.com/abstract=1640377

Hongbin Cai (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Hongbin Li

Chinese University of Hong Kong - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Albert Park

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Li-An Zhou

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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