Alliance Manchester Business School, U. of Manchester, United Kingdom
Drawing on the socioemotional wealth perspective, this study examines the role of local embeddedness and modern governance structure in shaping the financial performance of family firms in an institutional setting characterized by state capitalism. Building on the premise that pursuit of socioemotional goals makes family firms underperform their non-family counterparts, we argue that this effect is stronger when family firms are locally embedded through political connections. We then suggest that board independence provides a counterbalance to the effect of political connections in particular, and family firms SEW-orientation in general, benefiting firm performance. Using a dataset of over 2,000 Chinese publicly listed firms from 2008 to 2017, we confirm that family firms underperform non-family firms. We further identify political connections as a significant factor exacerbating this performance gap. Finally, we show that family firms with higher board independence exhibit higher financial performance and, furthermore, attenuate the adverse effect of political connections on financial performance. Our research contributes to the family business literature by integrating SEW theory with institutional and governance perspectives, highlighting how institutional contexts and governance structures influence family firm behavior and performance.
