Abstract
Based on the institutional perspective and socioemotional wealth (SEW) theory, this paper examines the impact of state logic, which is prevalent in the institutional environments of emerging markets, on the intrafamily succession intention (IFSI) of family firms. We posit that state logic shapes the set of institutional arrangements that constrain the family-centered socioemotional goals of family firms. Thus, the prevalence of a dominant state logic is negatively related to the probability of family business owners holding IFSI. However, the political power of owners can be leveraged to alleviate and even reverse this negative relationship. Moreover, the influence of political power is pronounced in settings with underdeveloped market institutions but not in those with developed ones. An empirical analysis of 774 fully family-controlled Chinese companies considering intrafamily succession substantiates our hypotheses.
Plain English Summary
How does family firm succession respond to the state logic prevalent in emerging markets? State-dominated institutional environments are found to be related to family business owners lacking the inclination for intrafamily succession. We suggest family firms seek political power or operate in a favorable business environment to protect their emotional wealth.
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The data that support the findings of this study are available from the Chinese Private Enterprise Survey. Restrictions apply to the availability of these data, which were used under license for this study. Data are available at cpes.zkey.cc with the permission of Chinese Private Enterprise Survey.
Notes
While state logic goals may align with the social responsibility emphasis of family logic that prioritizes SEW, evidence indicates that state intervention in emerging markets often erodes family firms’ social responsibility efforts (Ge & Micelotta, 2019).
When state logic is measured as family firms’ strategies for pursuing favorable gains rather than as a response to institutional pressures, measurement bias and endogeneity issues are introduced in empirical analysis. Previous research has shown that economic returns impact IFSI (De Massis et al., 2016). Thus, the proxy of state logic should not impact economic returns. In this respect, the state institutions of the party branch have the advantage because multiple additional tests find no significant effects on profit margin, ROE, and net profit.
This study’s selection of control variables is based on the following logic. 1. Common demographic variables are controlled at both the firm and individual levels. 2. Variables are controlled at the family governance level to consider family firm heterogeneity. 3. Factors related to the dependent variable and independent variable are controlled to minimize interference.
Given that the correlation between the establishment of party branches and firm size could interfere with the influence of state logic on IFSI, we control for firm size and conduct further robustness tests to mitigate this issue effectively.
Including control variables helps alleviate the interference of the correlation between the independent variable and control variables on the effect of the independent variable on the dependent variable. For instance, our analysis reveals that the detrimental impact of state logic on IFSI emerges only after controlling for firm size. The absence of firm size confounds its significantly positive influence on IFSI into the effect of state logic on IFSI, thereby neutralizing the factual negative impact of state logic.
For example, some family firms that prioritize SEW may be unwilling to disclose financial information, resulting in missing values and excluding these observations from our analysis. If this exclusion is not random, it leads to regression bias.
The L.R. test result of 0.8967 suggests no significant selection bias in our model.
Given the correlation between state logic and firm size, we further employ PSM to compare the variations in IFSI between the treatment and control groups, explicitly focusing on firm size matching, and the results consistently align with our hypothesis.
We thank a reviewer for reminding us to consider this endogeneity issue.
Due to space constraints, the table containing the test results for the endogeneity of political power is not provided.
The test results table is not provided to conserve space.
Family members are defined as spouses, parents, children, relatives, and in-laws. Family members include owners.
Serving as chairperson, general manager, director, or head of department (finance, procurement, sales, personnel, etc.).
Due to page limitations and an abundance of tables, the tables in this section are not listed.
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He, X., Xiao, W. & Liang, Q. Coexisting with the national will: state logic and intrafamily succession. Small Bus Econ 63, 713–730 (2024). https://doi.org/10.1007/s11187-024-00876-5
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DOI: https://doi.org/10.1007/s11187-024-00876-5