Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

3-2025

Abstract

Family firms play a significant role in economic and social development, making substantial contributions to wealth creation, employment generation, and the enhancement of social welfare. However, the development of family firms faces numerous challenges, among which intergenerational succession stands out as one of the most critical. The intergenerational succession of family firms is crucial for their long-term sustainable development. In China, since the reform and opening up, private enterprises have experienced rapid growth, with most family firms still under the control of their first-generation founders. These firms are now entering a critical period of succession. The unique political, business, and socio-cultural environment in China further complicates the succession process, presenting distinctive challenges for Chinese family firms. The smooth execution of intergenerational succession is key to establishing modern corporate governance systems, fostering entrepreneurial spirit, and achieving long-term sustainable development in family firms.

This paper examines the relationship between family succession and long-term investment decisions using a sample of Chinese listed family firms from 2016 to 2023. Specifically, a multi-period difference-in-differences (DID) model is employed to empirically investigate the impact of intergenerational succession on capital expenditures and R&D investment decisions in family firms. The empirical results reveal that, compared to external professional managers, second-generation family successors are more inclined to increase capital and innovation investments. Further comparative analysis shows that when first-generation founders transfer management to external managers, these managers tend to "maintain the status quo," with no significant changes in capital and R&D investments, whereas second-generation successors significantly increase such expenditures.

To address potential endogeneity issues in the empirical analysis and more accurately identify the causal effect of family succession on long-term investment decisions, this paper selects the "number of sons" of the first-generation founder as an instrumental variable and employs a two-stage least squares (2SLS) approach for further empirical analysis. In the context of Chinese socio-cultural norms, founders are more likely to pass on their businesses to sons rather than daughters. Additionally, the "One-Child Policy" implemented in the 1980s resulted in some founders having only daughters as potential successors. This provides a unique instrumental variable for studying the impact of family succession on long-term investments. The empirical results further confirm that family successors significantly increase long-term capital and R&D investments. However, further empirical analysis also reveals that both short-term and long-term performance of family firms deteriorate after the succession process occurs. Cross-sectional analysis reveals that more intense competition among siblings leads to more conservative strategies in the investment decisions of second-generation heirs in family businesses.

The findings of this paper highlight the positive impact of intergenerational succession on long-term investment decisions in Chinese family firms. By using the "number of sons" as an instrumental variable, this study provides more robust evidence of the causal effect of family succession on capital expenditures and R&D investments. The results offer new empirical insights into how intergenerational succession influences corporate decision-making and provide valuable references for family firms in designing succession strategies and improving corporate governance.

Keywords

Family firms, family succession, investment policies, capital expenditure, R&D investment

Degree Awarded

SMU-SJTU Doctor of Business Administration

Discipline

Corporate Finance

Supervisor(s)

LIANG, Hao

First Page

1

Last Page

107

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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