Second-generation Succession and the Financialization of Assets: An Empirical Study of Chinese Family Firms

ABSTRACT

This research examines whether intra-family leadership succession in Chinese family firms influences the decision to allocate more financial assets, the factors that influence second-generation successors in making such decisions, and their impacts on firm performance. The study collected firm and CEO data in which second-generation CEOs’ characteristics were captured, and the findings suggest second-generational involvement is a critical factor in the financialization of assets. Furthermore, the study finds that second-generation CEOs’ characteristics, market competition, and financing constraints have significant effects on second-generation successors when making asset-allocating decisions, and this is particularly true for financing constraints due to capital reserve motivations. The study finds no significant relationship between the financialization of assets in second-generation family firms and the family firms’ performance. This implies that firm innovation does not mean to neglect primary operating business. The results are robust after considering possible endogeneity issues and to various specifications of variables.

KEYWORDS:

• Family firms
• second generation succession
• financialization of assets
• firm performance

JEL:

• G32
• G34
• G38

Notes

1. The Chinese State Council promulgated the old 36 opinions in the document titled “Several Opinions of the State Council on Encouraging, Supporting, and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy” on February 19, 2005.

Additional information

Funding

This work was supported by the [Chinese Ministry of Education of Humanities and Social Science] under Grant [number 17YJC790008]; [Philosophy and Social Science Research in Colleges and Universities in Jiangsu Province] under Grant [number 2017SJB0812]; and [Fundamental Research Fund for the Central Universities] under Grant [number 2019JDZD16].