Research on the institutional structure of family enterprises

Author: Xiao Yan
Publisher:
Publish Date: 2006-05-01
Features: Family businesses, as an economic organizational form, have a long history and have remained prosperous. Since the emergence of businesses, human society has experienced agricultural societies, pre-industrial societies, industrial societies, and is now gradually moving towards the post-industrial society marked by the information age. Whether in societies that have already been experienced or those that are currently entering, family businesses have survived and developed. Moreover, the family business system holds a significant position not only in countries and regions within the pan-East Asian Confucian cultural circle with strong family values but also in developed market economies in Europe and America that emphasize individual rationality, well-connected social information channels, and relatively standardized markets. In the Fortune magazine's list of the top 500 largest companies, one-third are controlled by a single family, and they are all highly successful companies in the world. Specifically, in the case of China, since the reform and opening-up, the vast majority of private enterprises, which have been a major driving force behind the rapid economic development, have distinct family characteristics. These family businesses have experienced rapid development from a few to many, from traditional industries to information, biotechnology, and other high-tech fields, and from scattered, small family workshops to large cross-industry, cross-regional, and even transnational business groups. They play an irreplaceable role in China's labor employment, social stability, and economic growth. Contrary to the facts, family businesses are generally considered in economics to be a pre-modern organizational form of businesses that have been phased out by modern corporate systems, to the extent that when people mention family businesses, they often naturally associate them with negative evaluations such as being outdated, inefficient, and based on nepotism. If the family business system is an inefficient and backward institutional arrangement, then the widespread existence of family businesses both in China and abroad today would be a phenomenon that deviates from the "rational choice" assumption of economic man. Although we do not deny that family businesses are an economic organization where family rules and business rules are intertwined, family businesses are first and foremost operating entities seeking survival in competitive markets. Under the rigid constraints of the "invisible hand" of free competition, the realization of family interests must be based on corporate profitability. If the family business system itself lacks an efficiency foundation, then the institutional choice behavior of entrepreneurs and their families, even if it is in the interest of the family, would be irrational. Based on the above understanding, this book attempts to use the structural framework of modern corporate systems as a reference to establish a theoretical logical framework for analyzing the institutional structure of family businesses. This book demonstrates that the family business system is also composed of different institutional levels such as exclusive property rights systems, corporate governance structures, management systems, and contractual behavioral constraints, as well as the interactions between these levels. Within this structural framework, the book analyzes the institutional components of family businesses one by one and explores, using economic methods, the reasons behind the voluntary choice behavior of economic entities regarding this institutional arrangement based on non-transaction contracts, thereby providing a possible economic explanation for this so-called "irrational" institutional structure. On the basis of a comprehensive analysis, this book argues that the so-called "optimal" business system depends on the trade-off between costs and benefits, as well as the trade-off between different institutional structures, and no one institutional structure can achieve optimality unconditionally.