Solving agency problems in Chinese family firms – A law and finance perspective

Abstract

To overcome the potential for omitted-variable and aggregation biases in country-based comparisons commonly adopted in the law and finance literature, this study designs a within-country analysis of legal measures toward resolving agency problems in Chinese family firms. Our findings show that agency costs in family firms can be significantly minimized by the evolution of formal legal rules, even with weak enforcement of investor protection. These results have important implications for economic reform and corporate development in emerging economies, because they show that the development of rules and regulations does matter in countries with weak enforcement.