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Jumat, 29 Oktober 2021 15:22:00
CUHK Business School Research Finds Company Founders Who Were Born into Collectivist Cultures Are Likely to Retain More Company Control Within the Family
HONG KONG SAR - 28 October 2021 - Since its humble beginnings in the wake of the economic reforms and opening up enacted by the late Chinese leader Deng Xiaoping more than three decades ago, family businesses have grown to become the back bone of China's economic growth.
In China, family firms contributed to about 60 percent
of the country's GDP and hiring 80 percent of the workforce, according
to professional services firm EY. But what makes these family firms tick
and under what conditions do they prosper? It is with these questions
in mind that a recent research study in China examines the effect of
culture on family firms and finds their formation (and subsequent
prevalence) tend to be boosted by societies that are more collectivist
in nature.
Rice farming requires coordinated irrigation and
shared labour among farmers, which likely led to a more interdependent
culture in the rice farming regions.
The study Collectivist
Cultures and the Emergence of Family Firms sought to look at how the
level of collectivism in Chinese society affected the degree to which
the first generational founder of a company was willing to spread
ownership of their businesses among family members as well as employ
them as managers and in senior executive positions. In general,
collectivist cultures have a strong emphasis on group achievements and
the decisions are often made in the best interest of the group.
Individualist cultures, on the other hand, focus on personal goals and
benefits. The research was co-conducted by Joseph Fan, Professor of the
School of Accountancy and Department of Finance at The Chinese
University of Hong Kong (CUHK) Business School, Dr. Gu Qiankun at Wuhan
University and Dr. Yu Xin at the University of Queensland.
Combing
through information on 1,103 private firms that went public in China
from 2004 to 2016, the researchers compared the birthplace of their
company founders with data on share ownership by other family members as
well as the number of family members who take up managerial roles
within the organisation. They concluded that company founders who hail
from a stronger collectivistic cultural background tend to hire more
family members as managers, maintain more company ownership within their
families, and they may share the controlling ownership with more family
members.
In coming to this conclusion, the researchers leveraged
on the so-called "rice theory" of culture. "It is no secret that China
has a strong collectivist cultural history. But, what's more interesting
is that how 'tight-knit' the family is actually depends on what they
eat," Prof. Fan says.
'Rice Theory' of Culture
Since
ancient times, people in northern China grew wheat, while those in
southern China farmed paddy rice. Rice farming requires coordinated
irrigation and shared labour among farmers, which likely led to a more
interdependent culture in the rice farming regions. However, such
farming arrangement is not required in wheat-farming regions and
therefore, it was theorised wheat farmers are more individualistic when
compared with rice farmers. Studies have also demonstrated that this
disparity in culture between rice and wheat farming have extended far
beyond the farming community and to those who were born and raised in
those regions.
The sample used in the study includes private
firms in 31 provinces in China, and more than half of them located in
Guangdong, Zhejiang and Jiangsu, which belong to the rice farming
regions. Coincidentally, most of the founders in the sample were also
born in these three provinces.
The results show that founders who
hail from the rice farming regions involved more family members
(whether that be through ownership or management) by 16.24 percent than
those who were from wheat regions. Company founders who were influenced
by rice farming culture also owned on average 10.38 percent more in
their firms (either through direct shareholdings or through family
ownership) but this was more spread out over their family members by
11.58 percent. In addition, a one standard deviation increase in rice
culture influence was linked to a 5.32 percent increase in family
ownership and a 5.93 percent decrease in ownership concentration within
the family.
"They say that the family that plays together stays
together. The stronger the collectivistic influence on the founders, the
more likely that they would share their firm ownership with more family
members," Prof. Fan says. "We think that in a collectivist society,
family guidance helps to serve as an effective force for governance
within an organisation."
Family Governance
Prof. Fan
explains that in a collectivist culture, which puts the group's benefits
above everything, values are learned and shared by family members and
further strengthened by familial interactions. The family of a company
founder, in getting involved in the business, can potentially serve as a
corporate governance force because their unique and close relationship
between members can provide discipline for the company, improve the
sharing of information and knowledge and reduce the effort needed in
communication and monitoring activities.
As a result, the
researchers believe that firms managed by families can benefit from
lower corporate governance costs compared to their non-family-run
counterparts, and the same would hold true in that the governance costs
of firms would be lower in those regions influenced by collectivist
cultures as opposed to those that were influenced by individualist
cultures.
"Since a higher level of family ownership and
management is associated with a lower governance cost, it makes sense
for the founders who were born into a collectivist cultural background
to involve their family members more," Prof. Fan comments, adding that
it is the birthplace culture of the founders, rather than the cultures
of where they usually work in or reside, that has the strongest impact.
On
the other hand, the researchers also considered the possibility that
Confucian values, which is also deeply rooted in Chinese culture, could
be at play in the formation of family businesses. In fact, rice growing
regions are also typically heavily influenced by Confucian culture. For
instance, Shandong province - the hometown of Confucius, is also famous
for its rice. Prof. Fan and his co-authors also took this possibility
into concern. However, after doing several rounds of additional tests,
they did not find any evidence that supported the role of the Confucian
values in the formation of family businesses.
Firm Characteristics
According
to the study, companies in the traditional manufacturing and trading
sectors, such as metal materials, timber and furniture, and wholesale,
engage the highest number of family members through either ownership or
management. Businesses in the machinery sector, as well as the
information technology sector involve significantly more founding family
members if they come from a collectivist culture compared to those from
individualist cultures. Prof. Fan says this may indicate the corporate
governance costs and benefits of collectivist cultures may vary
depending on the industry.
Companies with a larger size are also
more likely to have more founding family members and more family owners.
However, founders with higher education levels and those firms with
more leverage are less likely to involve family members in their
business operations, but they are more willing to share ownership with
their family members.
As their current research has already
established a strong relationship between collectivist cultures and the
establishment of family businesses, Prof. Fan and his co-authors expect
future research studies to further expand the scope of the roles of
culture in governing other stakeholder relationships.
"Do
founders from a collectivist cultural background compensate their
managers with less emphasis on monetary rewards while individualist
business owners tend to give their staff more incentive compensation
that's in line with the market? Or, when faced with uncertainties, will
the former be more conservative while the latter is more willing to take
risks? These questions are worth exploring in the future," Prof. Fan
adds. (*).
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