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Title: Family Ties and Organizational Design: Evidence from Chinese Private Firms

Author(s): Hongbin Cai, Hongbin Li, Albert Park and Li-An Zhou

Publication Date: June 2010

Keyword(s): authority, China, family firm and incentives

Programme Area(s): Development Economics and Industrial Organization

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.

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Bibliographic Reference

Cai, H, Li, H, Park, A and Zhou, L. 2010. 'Family Ties and Organizational Design: Evidence from Chinese Private Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7855