Family Ties and Organizational Design: Evidence from Chinese Private Firms.

Working paper

Analyzing data from a unique survey of managers of Chinese private …rms, we investigate how family ties with …rm heads a¤ect managerial compensation and job assignment. We …nd that family managers earn higher salaries and receive more bonuses, hold higher positions, and are given more decision rights and job responsibilities than non-family managers in the same …rm. However, family managers face weaker incentives than professional managers as seen in the lower sensitivity of their bonuses to …rm performance. Our …ndings are consistent with the predictions of a principal-agent model that incorporates family trust and endogenous job assignment decisions. We show that alternative explanations, such as taste-based favoritism, succession concerns, and unobserved ability or risk attitudes, are unlikely to drive our results.

Authors: Cai, H; Li, H; Park, A; Zhou, L

• Publisher: CEPR
• Series: CEPR Discussion Papers
• Publication date: 2010-06-01
• Language: English