Mediating effect of successful succession planning on the relationship between corporate governance characteristics and performance of family businesses in China

Many family businesses were prosperous initially but eventually had to go bankrupt as they lacked successful succession planning to transfer firms to the next generation. This means that lacking successful succession planning in family businesses dramatically limits the development of firm performance. Although improvements in corporate governance mechanisms can effectively mitigate its potential negative effect on firm performance, the specific effect of robust corporate governance mechanisms on successful succession planning in the context of Chinese family businesses remains unclear. Besides, existing studies on how successful succession planning influences firm performance are still inconclusive. Meanwhile, the examination of whether successful succession planning can play a mediating role in the relationship between corporate governance and firm performance in Chinese family businesses is minimal. Given that the deficiencies in the existing literature and the development of most family businesses in China are currently challenged by succession issues, this study draws upon agency theory and socioemotional wealth theory in testing a model in which the impact of corporate governance on successful succession planning, thereby eventually contributing to achieving the better performance of Chinese family businesses. Specifically, this study proposes that several board characteristics of corporate governance are related to successful succession planning, which mediates their effects on firm performance. Quantitative multi-method was employed in this study to collect the data. About 281 questionnaires were returned from listed family businesses in China for the purpose of the study, and later were matched with their annual reports. The findings of the study show that corporate governance characteristics positively influence successful succession planning and firm performance, and successful succession planning plays a mediating role in the relationship between corporate governance characteristics and firm performance. Thus, this study contributes to the corporate governance and family business literature by emphasizing successful succession planning as a crucial driving force of firm performance among Chinese listed family firms and demonstrating how board characteristics drive firm performance. Besides, this study verifies that successful succession planning mediates the relationship between corporate governance and firm performance. Perhaps most importantly, this study sheds new light on the role of corporate governance, especially the board of directors, in facilitating the formulation of successful succession planning. In practice, the findings of this study provide information to the owners and management of family businesses in establishing successful succession planning from the perspective of corporate governance, which ultimately advances the firm performance.

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