Corporate governance and firm performance in Chinese family firms
1. Introduction
1.1 Motivations
Family ownership is universal among privately held firms, but is also dominate among publicly traded firms in the world. In Western Europe, South and East Asia, the Middle East, Latin America, and Africa, family firms are at least as common in public firms as widely held and other nonfamily firms (Claessens et al. 2000; Faccio & Lang 2002; La Porta et al. 1999). Even in the United States and United Kingdom, some of the largest listed firms, such as Wal-Mart Stores and Ford Motor, are family controlled (Burkart et al. 2003). (why your research is important)
The prevalent presence of family firms has led to a surge in the academic research on the family firms from the perspective of corporate governance and finance, one of which is to address the twin problems of the classic owner-manager conflict, and a conflict between lar
ge (family) and small (nonfamily) shareholders. This results in the research on the effect of family-controlled governance on the firm performance, but fails to reach a unanimous conclusion. Some scholars produce evidence that family firms outperform nonfamily firms (Anderson & Reeb 2003; Maury 2006; McConaughy et al. 1998; Sraer & Thesmar 2007; Villalonga & Amit 2006), while others find the opposite or mixed (Claessens et al. 2002; Faccio et al. 2001; Lins 2003; Miller et al. 2007; Morck et al. 2000). In emerging economies, however, the prevalence of concentrated ownership and an absence of effective external governance mechanisms make the agency problems more costly and problematic (Wright et al. 2005). Thus, whether family firms are more or less valuable than nonfamily firms in these countries still remains an open question and deserves better understanding.(deserves to be further studied)
1.2 Research questions (specific and testable)
How does the internal corporate governance, such as family ownership, control, or management, influence the firm value of Chinese family firms? 
● Does higher cash-flow ownership strengthen the incentives and power of the controlling family to monitor managers or to expropriate minority shareholders?
● How do control-enhancing mechanisms affect the extent of expropriation by the controlling family?
● Do family managers mitigate the owner-manager conflict or magnify the divergence between large and smallshareholders?
2. Literature review
A number of empirical examinations have supported the positive impact of family ownership and control on the performance. By investigating a sample of U.S. companies, Anderson and Reeb(2003) and McConaughy et al (1998) propose that, in well-regulated and transparent markets, controlling families in public firms reduce agency problems rather than driving severe losses in decision-making efficiency. In European, Sraer and Thesmar(2007) show that the family firms listed on the French stock exchanges perform
better than nonfamily firms, pointing in the same direction as the findings by Maury (2006) who samples in Western Europe (literature).
As a whole, prior literature indicates that the controlling family as the large shareholder has the incentives and power to monitor and expropriate minority shareholders, leading to the dual effects of family governance on the twin problems of a conflict between owners and managers, but also between large and small shareholders (summarize).The inconsistent evidence from the prior studies on family firms are empirically concluded from the individual capital markets with different samples and periods, while none of them so far has investigated family firms in China, one of the most important developing countries in the world (Allen et al. 2005), in which family firms represent a significant proportion. Hence, the nature and presence of agency problems in Chinese public family firms is the central issue we attempt to address in this research (research gap).
3. Research methodology
3.1 Sample and data source
The sample comprises a panel of 52,787 observations from 508 firms listed on the Fortune 500 during the period 2000–2004.Data are mainly sourced from CSMAR Databaseand double-checked against annual reports, prospectus, and interim announcements of listed companies.The publicly accessible reports or announcements are obtained from official websites in China–governance the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE).
3.2 Variables and model
3.2.1 Variables and measurement
Dependent variables
Following the earlier literature in the discussion of family firms from the perspective of corporate governance and finance, we use firm performance - the most commonly used indicator - to proxy for the costs of dual-triple agency problems. Empirically, firm performance is measured by Return on Assets (ROA) and Tobin’s q (Q), suggesting the accounting performance and market valuation respectively.

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