The Theoretical Analysis of the Allocation of Family Control Rights B Oc10/17 | Page 4

L. Y. Gu

But Gersick et al. [15] find that the rights allocation in family firms varies greatly. In some family firms,
rights are allocated to one controlling owner. In some other family firms, rights are allocated to several nuclear
family members who are close kinship or distant family members. Moreover, in the process of competition and
internationalization, it is a compromise governance mode for the family members and the professional managers
to divide the ownership and managerial rights. In China, the proportion of the managerial rights which the family business owners allocate to non-family members is higher than the proportion of the family equity they allocate to [16].

3.3. The Factors Which Influence the Allocation of Family Control Rights
The scale of the family business is the most important factor which influences the allocation of family control
right [17].
In current China, the capital market, the reputation market and the professional manager market are all imperfect. It is difficult for Chinese family business to transfer the control rights from the owner to the professional
manager in short time [18].
If the family allocates the control rights inappropriately, it may hamper the development of the family enterprises. Trust and scale are the two factors which will influence the allocation of family control rights. Under the
influence of Chinese traditional family culture, the allocation modes of family control rights are divided into two
types: trust the internal people and trust the outside people. How to choose the allocation mode? It depends on
the scale of family business. Before reaching a certain scale, it is better for the family business to choose the
mode of trusting internal people. If the scale of the family business exceeds the certain scale, it is better to
transfer the allocation mode from trusting internal people to trusting the outside people [19].

4. The Theoretical Analysis about the Family Guanxi-Oriented Control
Rights Allocation
4.1. The Theoretical Backgroud of the Allocation of Family Control Rights
The research about the allocation of corporate control rights started from the proposition that put forward by
Berle and Means in 1932. In most public companies, the ownership is separated from the control rights.
The existing corporate control rights theories mainly develop from the transaction cost theory of Coase (1937),
the vertical integration theory of Williamson (1985), the corporate organization theory of Klein et al. (1978), the
team theory of Alchian and Demsetz (1972) and Aoki Masahiko (1994), the enterprise ownership structure and
agency cost theory of Jensen and Meckling (1976) and Fama and Jensen (1983), the incomplete contracting
theory of Grossman and Hart (1986) and Hart and Moore (1990), the enterprise control transfer theory of Aghion and Bolton (1992), indirect pricing theory of Yang and Ng (1995), and so on.
All these theories treat the relationship of corporation and market, and the allocation of the corporate internal
rights from the perspective of transaction cost. They consider that market or corporation is the result of choice. )]