The Intergenerational Transition of Family Business and the Thoughts of Pan-Familizational Equity Financing in Modern China

Cheng Lin, Zhou Yan

Journal of Finance and Economics Vol. 44, Issue 11, pp. 61 - 73 (2018)  DOI:10.16538/j.cnki.jfe.2018.11.005

Summary

It has been forty years since the Chinese reform and opening-up. The founders of family business at that time have stepped into their twilight, anxiously inspecting and evaluating their qualified successors. Of late, the transition of family business has become one of the big hurdles on the way of sustainable development of Chinese private economy. The existing literature considers equity financing as an institutional arrangement, which is conducive to alleviating the conflicts between stakeholders and optimizing the structure of corporate governance during the family business transitional process. However, many problems remain mystery to us. What are the features of the equity financing of Chinese family business? How does its mechanism function in ensuring the transition of family business? 　　This article has a systematic investigation on the origin, the mechanism, and the system design of the thoughts of modern pan-familizational equity financing, especially the role it plays in the intergenerational transition of family business from the perspective of history of economic thoughts. Our research draws the following conclusions. First of all, although the thoughts of equity financing stem from western countries, the thoughts of pan-familizational equity financing are products of the fusion of western economic thoughts with Chinese traditional culture. Second, facing so much impediments in the intergenerational transition of family business under the background of Chinese culture, the thoughts of pan-familizational equity financing, typically the family integration, differentiated governance hierarchy, family networking, undoubtedly clear the way to certain extent. Third, since the " rotten meat in the pot” dividend distribution system, the " differentiated mode of association” equity ownership structure and the " quasi consanguine ties” equity governance system are built to accommodate traditional Chinese family business, the pan-familizational equity financing, as a combination and development of equity financing and microeconomic theories, could significantly lower transaction cost in intergenerational transition.　　In a word, the main contributions of our paper are as following. First, it sketches a panorama of thoughts of modern Chinese pan-familizational equity financing, including its origin, mechanism and system design. Second, it provides a new path of constructing the institutions of the intergenerational transition of Chinese family business. Third, it gives insights into how recent family business to reduce potential risks, boost the efficiency of intergenerational transition and enrich Chinese traditional governance culture. It has a great influence on introducing brilliant achievements of traditional governance culture to the world and winning the international discourse power on Chinese culture.

Keywords

modern China; family business; intergenerational transition; thoughts of pan-familizational equity financing