Lost in Transition: Trust and CEO Succession

Chu, Alex G. H.; Tang, Vicki Wei

doi:10.2139/ssrn.2618349

Cited by 1 publication

(3 citation statements)

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“…There is limited evidence regarding the influence of trust on the appointment of CEOs in family firms (Chu and Tang, 2017). However, this knowledge gap is worth discussing because the impact of trust on firms' behaviour is a topic of longstanding interest to researchers (e.g., Fukuyama, 1995), especially in China, which features relatively weak legal enforcement and inefficient capital markets.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Notably, we compare the effects of trust both within the family and between family members and other stakeholders. Unlike the paper by Chu and Tang (2017), which discusses how generalized trust in a founder's birthplace influences CEO succession in non‐state‐owned enterprises, we include both the trust of family members and the trust of non‐family members in our hypotheses. While hiring family members is perceived as free of transition costs (Fan et al ., 2021), family members provide their reputations to family businesses and other stakeholders as collateral.…”

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confidence: 99%

“…1 1 Similarly, Chu and Tang (2017) employ ‘generalized trust’ and ‘personalized trust’ to distinguish the two types of trust. …”

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confidence: 99%

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A Family Member or a Professional Manager? The Role of Trust in the Choice of CEO in Family Firms

Wang

et al. 2023

Abacus

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Using a sample of Chinese family firms from 2008-2015, we investigate the impact of trust on the choice of whether to hire a family member or a professional manager as CEO. We find that the presence of a professional CEO is negatively associated with a higher level of trust in family members. In contrast, it is positively associated with a higher level of trust in non-family members. Our findings suggest that the trust mode in Chinese family firms is like the 'differential mode of association', which describes Fei's (1992) social structure of Chinese society. Moreover, a higher level of trust in family members is associated with native entrepreneurial activities, which strengthens the negative relationship between trust in family and the presence of a professional CEO. Furthermore, the role of trust in family firms' appointment decisions is more pronounced in regions with relatively weak legal protection and firms with relatively poor governance. Our results hold when we control for endogeneity and after a series of robustness checks. This research links the governance of family firms to the informal institution of trust, enriching the literature on trust and family firm behaviours.

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Section: Literature Reviewmentioning

confidence: 99%

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confidence: 99%