Working Paper: CEPR ID: DP7855
Authors: Hongbin Cai; Hongbin Li; Zhou Lian; Albert Park
Abstract: 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 non-family 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. We show that alternative explanations, such as taste-based favoritism, succession concerns, and unobserved ability or risk attitudes, are unlikely to drive our results.
Keywords: authority; China; family firm; incentives
JEL Codes: D64; D86; L23; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| family ties (J12) | higher salaries (J31) |
| family ties (J12) | more bonuses (M52) |
| family ties (J12) | weaker incentives (H31) |
| family ties (J12) | higher positions (J62) |
| family ties (J12) | more decision rights (D70) |
| family ties (J12) | more job responsibilities (M54) |