HONG KONG SAR –\u00a0Media OutReach<\/a>\u00a0– 28 October 2021
Rice farming requires coordinated irrigation and shared labour among farmers, which likely led to a more interdependent culture in the rice farming regions.<\/i><\/p>\n \u00a0<\/p>\n The study Collectivist
\u00a0<\/p>\n Combing through information on 1,103
\u00a0<\/p>\n In coming to this conclusion, the
\u00a0<\/p>\n ‘Rice Theory’ of Culture<\/b><\/p>\n Since ancient times, people in
The sample used in the study
\u00a0<\/p>\n The results show that founders who
\u00a0<\/p>\n “They say that the family that
\u00a0<\/p>\n Family Governance<\/b><\/p>\n Prof. Fan explains that in a
\u00a0<\/p>\n As a result, the researchers believe
\u00a0<\/p>\n “Since a higher level of family
\u00a0<\/p>\n On the other hand, the researchers
\u00a0<\/p>\n Firm Characteristics<\/b><\/p>\n According to the study, companies in
\u00a0<\/p>\n Companies with a larger size are
\u00a0<\/p>\n As their current research has
\u00a0<\/p>\n “Do founders from a collectivist
\u00a0<\/p>\n Reference:<\/b><\/p>\n Fan, Po Hung Joseph P. H. and Gu, Qiankun and Yu,
\u00a0<\/p>\n This article was first published in the China
\n\u2013 Since its humble beginnings in the
\nwake of the economic reforms and opening up enacted by the late Chinese leader
\nDeng Xiaoping more than three decades ago, family businesses have grown to
\nbecome the back bone of China’s economic growth. In China, family firms contributed
\nto about 60 percent of the country’s GDP and hiring 80 percent of the
\nworkforce, according to professional services firm EY<\/a>. But what makes these family firms
\ntick and under what conditions do they prosper? It is with these questions in
\nmind that a recent research study in China examines the effect of culture on
\nfamily firms and finds their formation (and subsequent prevalence) tend to be
\nboosted by societies that are more collectivist in nature.<\/p>\n![](\"https:\/\/images.media-outreach.com\/Thumb\/500x0\/190855\/cu-image.jpg#image-190855\")
<\/p>\n
\nCultures and the Emergence of Family Firms<\/i><\/a> sought to look at how the level of collectivism in Chinese
\nsociety affected the degree to which the first generational founder of a
\ncompany was willing to spread ownership of their businesses among family
\nmembers as well as employ them as managers and in senior executive positions.
\nIn general, collectivist cultures have a strong emphasis on group achievements
\nand the decisions are often made in the best interest of the group.
\nIndividualist cultures, on the other hand, focus on personal goals and
\nbenefits. The research was co-conducted by Joseph Fan<\/a>,
\nProfessor of the School of Accountancy and Department of Finance at The Chinese
\nUniversity of Hong Kong (CUHK) Business School, Dr. Gu Qiankun at Wuhan
\nUniversity and Dr. Yu Xin at the University of Queensland.<\/p>\n
\nprivate firms that went public in China from 2004 to 2016, the researchers
\ncompared the birthplace of their company founders with data on share ownership
\nby other family members as well as the number of family members who take up managerial
\nroles within the organisation. They concluded that company founders who hail
\nfrom a stronger collectivistic cultural background tend to hire more family
\nmembers as managers, maintain more company ownership within their families, and
\nthey may share the controlling ownership with more family members.<\/p>\n
\nresearchers leveraged on the so-called “rice theory” of culture. “It
\nis no secret that China has a strong collectivist cultural history. But, what’s
\nmore interesting is that how ‘tight-knit’ the family is actually depends on
\nwhat they eat,” Prof. Fan says.<\/p>\n
\nnorthern China grew wheat, while those in southern China farmed paddy rice.
\nRice farming requires coordinated irrigation and shared labour among farmers,
\nwhich likely led to a more interdependent culture in the rice farming regions.
\nHowever, such farming arrangement is not required in wheat-farming regions and
\ntherefore, it was theorised wheat farmers are more individualistic when
\ncompared with rice farmers. Studies have also demonstrated that this disparity
\nin culture between rice and wheat farming have extended far beyond the farming
\ncommunity and to those who were born and raised in those regions.<\/p>\n
\nincludes private firms in 31 provinces in China, and more than half of them
\nlocated in Guangdong, Zhejiang and Jiangsu, which belong to the rice farming
\nregions. Coincidentally, most of the founders in the sample were also born in
\nthese three provinces.<\/p>\n
\nhail from the rice farming regions involved more family members (whether that
\nbe through ownership or management) by 16.24 percent than those who were from
\nwheat regions. Company founders who were influenced by rice farming culture
\nalso owned on average 10.38 percent more in their firms (either through direct
\nshareholdings or through family ownership) but this was more spread out over
\ntheir family members by 11.58 percent. In addition, a one standard deviation
\nincrease in rice culture influence was linked to a 5.32 percent increase in
\nfamily ownership and a 5.93 percent decrease in ownership concentration within
\nthe family.<\/p>\n
\nplays together stays together. The stronger the collectivistic influence on the
\nfounders, the more likely that they would share their firm ownership with more
\nfamily members,” Prof. Fan says. “We think that in a collectivist
\nsociety, family guidance helps to serve as an effective force for governance
\nwithin an organisation.”<\/p>\n
\ncollectivist culture, which puts the group’s benefits above everything, values
\nare learned and shared by family members and further strengthened by familial
\ninteractions. The family of a company founder, in getting involved in the
\nbusiness, can potentially serve as a corporate governance force because their
\nunique and close relationship between members can provide discipline for the
\ncompany, improve the sharing of information and knowledge and reduce the effort
\nneeded in communication and monitoring activities.<\/p>\n
\nthat firms managed by families can benefit from lower corporate governance
\ncosts compared to their non-family-run counterparts, and the same would hold
\ntrue in that the governance costs of firms would be lower in those regions
\ninfluenced by collectivist cultures as opposed to those that were influenced by
\nindividualist cultures.<\/p>\n
\nownership and management is associated with a lower governance cost, it makes
\nsense for the founders who were born into a collectivist cultural background to
\ninvolve their family members more,” Prof. Fan comments, adding that it is
\nthe birthplace culture of the founders, rather than the cultures of where they
\nusually work in or reside, that has the strongest impact.<\/p>\n
\nalso considered the possibility that Confucian values, which is also deeply
\nrooted in Chinese culture, could be at play in the formation of family
\nbusinesses. In fact, rice growing regions are also typically heavily influenced
\nby Confucian culture. For instance, Shandong province \u2013 the hometown of
\nConfucius, is also famous for its rice. Prof. Fan and his co-authors also took
\nthis possibility into concern. However, after doing several rounds of
\nadditional tests, they did not find any evidence that supported the role of the
\nConfucian values in the formation of family businesses.<\/p>\n
\nthe traditional manufacturing and trading sectors, such as metal materials,
\ntimber and furniture, and wholesale, engage the highest number of family
\nmembers through either ownership or management. Businesses in the machinery sector,
\nas well as the information technology sector involve significantly more
\nfounding family members if they come from a collectivist culture compared to
\nthose from individualist cultures. Prof. Fan says this may indicate the
\ncorporate governance costs and benefits of collectivist cultures may vary
\ndepending on the industry.<\/p>\n
\nalso more likely to have more founding family members and more family owners.
\nHowever, founders with higher education levels and those firms with more
\nleverage are less likely to involve family members in their business
\noperations, but they are more willing to share ownership with their family
\nmembers.<\/p>\n
\nalready established a strong relationship between collectivist cultures and the
\nestablishment of family businesses, Prof. Fan and his co-authors expect future
\nresearch studies to further expand the scope of the roles of culture in
\ngoverning other stakeholder relationships.<\/p>\n
\ncultural background compensate their managers with less emphasis on monetary
\nrewards while individualist business owners tend to give their staff more
\nincentive compensation that’s in line with the market? Or, when faced with
\nuncertainties, will the former be more conservative while the latter is more
\nwilling to take risks? These questions are worth exploring in the future,”
\nProf. Fan adds.<\/p>\n
\nXin, Collectivist Cultures and the Emergence of Family Firms (April 1, 2021).
\nForthcoming in Journal of Law and Economics, Available at SSRN: https:\/\/ssrn.com\/abstract=3839978<\/a><\/p>\n
\nBusiness Knowledge (CBK) website by CUHK Business School: https:\/\/bit.ly\/3DWOFbl<\/a>.<\/p>\n