CEO's Capacity, Information Identification and the Succession of Family Firms

Abstract

An option pricing model is constructed to reflect the relationship between the family firms’ successor choice and the influence factors, such as CEO's capacity and information identification. Data of listed family firms from 1998 to 2016 is used to test the results deduced by the model. The empirical results show that as the firms are more attractive for managers and the competition in the industry is fiercer, the capital market's information identification capacity is stronger, the probability for family firms to employ professional manager is higher. Our data show that the succession choice for family firms in China has changed since 2011. Before 2011, most firms were inherited by their family members. After 2011, professional managers were considered to be candidates. During the succession process, there is serious gender discrimination. If the next generation is male, the results remain constant. If the next generation is female, professional managers are preferred regardless of the attractiveness of the firms, the industry competition and the information identification capacity.