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Family Ties and Organizational Design: Evidence from Chinese Private Firms

Hongbin Cai1; Hongbin Li2; Albert Park3; Li-An Zhou1

1 Peking University · 2 Tsinghua University · 3 Hong Kong University of Science and Technology

The Review of Economics and Statistics 2013

Analyzing data from a unique survey of managers of Chinese private firms, we investigate how family ties with firm heads affect managerial compensation and job assignment. We find that family managers earn higher salaries and receive more bonuses, hold higher positions, and are given more decision rights and job responsibilities than nonfamily managers in the same firm. However, family managers face weaker incentives than professional managers, as seen in the lower sensitivity of their bonuses to firm performance. Our findings are consistent with the predictions of a principal-agent model that incorporates family trust and endogenous job assignment decisions.

DOI
10.1162/rest_a_00268
Volume
95 (3)
Pages
850-867
Language
en
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