The Theoretical Analysis of the Allocation of Family Control Rights B Oc10/17 | Page 5

L. Y. Gu

with other will increase too. Trust, as a kind of expectations, doesn’t act on the allocation of corporate internal
control rights directly. It affects on the allocation of corporate internal control rights by enhancing the expectations of cooperation to reduce the transaction costs [20].
In fact, trust reduces the transaction costs in social interaction through the way of reducing the uncertainty in
the transaction. On the one hand, trust can improve the efficiency of the treatment of random events, and reduce
the primary uncertainty; ontheotherhand, trust can promote the information communication in the process of
transaction, reduce the secondary uncertainty. In addition, trust can still improve the expectations of maintaining
cooperation in both parties, and reduce the uncertainty of behavior.
Consequently, the allocation of Chinese family control rights doesn’t fully comply with the classical theories.
We must implant guanxi into the allocation of family control rights. As a result, we construct a theoretical analysis framework to study the paths of the allocation of family control rights. The main points are guanxi, trust,
transaction costs and allocation of control rights.

4.2. The Theoretical Analysis about the Allocation Paths of the Family Control Rights
Follow the theoretical analysis framework, family control rights are allocated between family members and
non-family members according to the kinship. Family equity is allocated between the family members. Family
managerial control rights are allocated between the family and non-family members.
1) The theoretical analysis about the allocation paths of family equity
Family equity is mainly allocated between the family members. The allocation paths of family equity are
showed in Figure 2. If the guanxi between the actual controller and other family shareholder is closer, the actual
controller will give he/she more trust. As a result, the internal transaction costs of the family will reduce. So,
family equity should allocate between the family members who have the closer kinship with the actual controller.
2) The theoretical analysis about the allocation paths of family managerial control rights
During the allocation of family managerial control rights, the controlling family can allocate the control rights
to the family members, but also to the non-family members. Therefore, the transaction costs are divided into two
parts: the transaction costs between the family members and the transaction costs between the family and nonfamily members. The allocation paths of family managerial control rights are showed in Figure 3.
If the family managerial control rights are allocated to non-family members, the actual controller will pay the
lowest trust to them and the transaction costs will be the highest; if the family managerial control rights are allocated to the family members besides the actual controller, the trust that the actual controller will pay to them
depending on the guanxi between the family membe