Academic journal article Asian Social Science

Research on Governance Behavior and Inheritance Performance: A Review Based on Chinese Family Businesses

Academic journal article Asian Social Science

Research on Governance Behavior and Inheritance Performance: A Review Based on Chinese Family Businesses

Article excerpt


Governance behavior is a symbol of institutions and mechanisms which is used for standardizing variable relationships between families and businesses. The family businesses' effective inheritance and sustainable development have unavoidably become two of the biggest challenges for family businesses and owners in the fortune-accumulating process. The paper explains the contents of two types of governance, both relational governance and contractual governance of family business, as well as inheritance performance, discusses the complicated dimension and structure of enterprises' performance, such as family business' performance, family success and the working attitudes of staffmembers. The paper also discusses the relationship between contractual governance and family businesses' inheritance, and the relationship between relational governance and family businesses' inheritance.

Keywords: governance behavior, inheritance performance, family success

1. Governance Behaviour and Family Business Governance

Economists have given various explanations of relevant corporations' governance behaviour. Reviewing on different kinds of viewpoints, Mayer and Hart (1997) believe that businesses' governance problems will arise from enterprises' organizations. Thus, family governance is an indispensable and institutional arrangement of family businesses for averting the hazards concerning agents.

1.1 Two Types of Governance: Relational Governance and Contractual Governance of Family Business

Contractual governance means governing a transaction through formal contracts. For example, structures like board meetings and board of supervisors, systems used for encouraging the colleagues, contracts linking corporations and stakeholders, etc. The risks are the requirements for contractual governance in the market transactions (Williamson, 1985; Klein, Crawford, Alchian, 1978). Owing to the investments on specific purposes and asymmetric information, professional managers probably make use of their operational and managerial power in pursuit of personal interests more than businesses' overall interests. In order to lower the transactional risks between family businesses and professional managers, the family businesses will surely reinforce contractual governance as the power to regulating enterprises and professional managers (Mustakallio, 2002; Su Qi and Li Xin Chun, 2004).

Relational governance is to govern transactions through relational norms. Relational norms refer to some social processes and regulations which exist because of the counterparts' relations in a transaction (Baker, Gibbons and Murphy, 2002). McNeal (1978) held the view that contracts can be explained as the exchange relations among different persons. Every exchange has two features: contractual and relational. In fact, there are many scholars engaged in the management study on relational contracts' governance and taking assts' specificity put forward in the Game Theory and relational norms into consideration. For instance, Zaheer and Venkatraman (2002) believe that relational contracts' governance consists of structure and process. The relational structure dimension is represented as vertical semi-integration while processes underlined in the relationship and presented as joint actions. Assets' specificity, uncertainty and mutual-beneficial investments as well as trust have all played important roles as engine in affecting the structures and processes of relational contracts' governance. In spite of experiential study insufficient supporting their assumptions, it is innovative to have equal emphasis on all these factors and has profound influences on relational contracts' research. Through experiential study, Claro (2003) discovered joint actions' extents (including joint plans and resolutions) of strategic allied enterprises are affected by transactional forms, investments on the labour capital in the transactions, businesses' network density and trust between organizations and persons. …

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