Non‐family shareholder governance and the digital transformation of family firms: Evidence from China

• Published date: 01 January 2024
• Author: Shanzhong Du,Lianfu Ma,Zhuo Li,Chengcheng Ma
• Date: 01 January 2024
• DOI: http://doi.org/10.1111/corg.12517

ORIGINAL ARTICLE

Non-family shareholder governance and the digital

transformation of family firms: Evidence from China

Shanzhong Du

1

| Lianfu Ma

1

| Zhuo Li

2

| Chengcheng Ma

3

1

China Academy of Corporate Governance/

Business School, Nankai University, 59 Baidi

Road, Tianjin, China

2

Business School, Soochow University,

50 Donghuan Road, Suzhou, Jiangsu, China

3

Economics and Management College, Civil

Aviation University of China, Jinbei Road,

Tianjin, China

Correspondence

Shanzhong Du, China Academy of Corporate

Governance/Business School, Nankai

University, 59 Baidi Road, Tianjin, China.

Email: johndo1992@163.com

Funding information

National Natural Science Foundation of China,

Grant/Award Numbers: 72172063, 71772094

Abstract

Research Question/Issue: We investigate the influence of non-family shareholder

governance on Chinese family firms' digital transformation strategies.

Research Findings/Insights: We use the socioemotional wealth theory to examine

the impact of non-family shareholder governance on family firms' digital transforma-

tion. We find that the influence of non-family shareholder governance by appointing

directors can significantly promote the implementation of digital transformation

strategies through their capital and human effects in family firms. In contrast, non-

family shareholders only play a positive role in family firms' digital transformation

when they are blockholders. In addition, non-family shareholder governance plays a

significant role in promoting the digital transformation of family firms with entrepre-

neurship and a high degree of industry competition. Regarding external digital devel-

opment, the Broadband China policy complements family firms' digital

transformation strategies. The characteristics of the appointed directors suggest that

the introduction of appointed directors, an excess of appointed directors, and the

inclusion of appointed directors with digital expertise can effectively promote the

digital transformation of family firms. The characteristics of controlling families show

that socioemotional wealth can further optimize the relationship between non-family

shareholder governance and digital transformation.

Theoretical/Academic Implications: We not only verify the rationality and effective-

ness of non-family shareholder governance in combination with digital transforma-

tion strategies but also further observe the impact of the heterogeneity of directors

appointed by non-family shareholders on family firms' digital transformation strate-

gies. Thus, our study tests the influence of non-family shareholder governance on

digital transformation and enriches the literature on non-family shareholder gover-

nance and family firms' strategies.

Practitioner/Policy Implications: This study offers insights to family firms regarding

how to effectively promote non-family shareholders' participation in corporate gov-

ernance and help family firms to achieve the goal of “everlasting foundation.”

KEYWORDS

corporate governance, digital transformation, non-family shareholder governance, text analysis

Received: 15 May 2022 Revised: 20 February 2023 Accepted: 21 February 2023

DOI: 10.1111/corg.12517

Corp Govern Int Rev. 2024;32:89–115. wileyonlinelibrary.com/journal/corg © 2023 John Wiley & Sons Ltd. 89

1|INTRODUCTION

Family firms are ubiquitous worldwide and account for a significant

proportion of the global economy. For example, more than 30% of

listed US firms in the Standard & Poor's 500 are either controlled or

managed by families (De Massis et al., 2018). In China, family firms

now contribute significantly to the economy's growth after more than

40 years of economic reform (Du et al., 2022; Jiang et al., 2020).

Therefore, a study of family firms in China would be theoretically and

practically significant. Family firms must improve their long-term ori-

entation and realize an “everlasting foundation”(Lumpkin &

Brigham, 2011; Sharma et al., 2014). Digital transformation can strate-

gically and crucially improve enterprises' operating performance, mar-

ket position, and long-term development (Dimitrov, 2016; Yoo

et al., 2010). Digital transformation offers an important method for

enabling family firms to achieve the goal of an everlasting foundation.

According to PricewaterhouseCoopers' (2021) global research report

on family firms in China, the COVID-19 pandemic has forced family

firms to make many strategic changes, such as focusing on improving

their technological innovation and digital transformation capabilities.

The Chinese government actively formulates relevant policies to vig-

orously develop the digital economy, providing favorable external

conditions for family firms to achieve digital transformation.

In the Chinese context, however, statistics show that family firms

lag non-family firms in their digital transformation strategies. As

shown in Figure 1, although both types of firms are increasingly pur-

suing digital transformation, the digital transformation of family firms

is always lower than that of non-family firms. Family attributes can

directly affect a family firm's important risk decisions about digital

transformation strategies and their implementation. According to

studies considering family firms, controlling families consider the dilu-

tion of family equity, the destruction of family authority, and the pro-

tection of socioemotional wealth (SEW) when making their risk

decisions (Block, 2012; Du et al., 2022; Patel & Chrisman, 2014).

Family firms also experience a shortage of specialized talent and

external financing constraints simultaneously (Amit et al., 2015;

Anderson & Reeb, 2004; Chan et al., 2012), which makes it difficult to

finance and employ talent when implementing digital transformation

strategies. These situational factors lead family firms to avoid risky

behavior in the pursuit of stability (De Massis et al., 2014); therefore,

their implementation of digital transformation strategies is conserva-

tive. Assuming that digital transformation can effectively enhance

family firms' core competitiveness and ability to achieve an everlasting

foundation, the motivations for family firms to pursue digital transfor-

mation have become a key focus of research.

Shareholders account for the majority of enterprise decision

makers; thus, corporate risk strategies primarily depend on the share-

holders' attitudes towards risk (Habib & Hasan, 2017). Therefore, it is

meaningful to explore the factors influencing digital transformation

from the perspective of shareholder governance. Enterprises in China

can use different property capital to revitalize economic transforma-

tion and upgrade their businesses (Du et al., 2022; D. Xu et al., 2019).

Meanwhile, the Chinese government has proposed that ownership

economies should be allowed to develop into mixed ownership econ-

omies (Jiang & Kim, 2020). Against this real-world background, the

mixed ownership reform of non-family firms in China (including state-

owned and private enterprises) has introduced a rich variety of het-

erogeneous shareholders to corporate governance to make available

rich external resources (Arregle et al., 2019). In turn, this reform pro-

vides strong support for the digital transformation strategies.

Although the coexistence of family and non-family shareholders in

family firms is very common globally (Sacristán-Navarro et al., 2015),

controlling families are often concerned that non-family shareholder

governance could threaten their non-economic benefits, such as SEW

(G

omez-Mejía et al., 2007,2011). Therefore, controlling families

behave conservatively towards risk decisions promoted by non-family

shareholders, including decisions pertaining to digital transformation

strategies. From the perspective of family firms' pursuit of sustainable

development, however, family firms focus on balancing the interest

relationship between family and non-family shareholders (Miller & Le

Breton-Miller, 2005). Hence, controlling families have positive atti-

tudes towards non-family shareholder governance and urge non-

family shareholders to improve their collaborative governance and

promote digital transformation to realize an everlasting foundation

(Du et al., 2022; Zellweger et al., 2012). Therefore, when influenced

by the controlling families' goal of heterogeneity, does non-family

shareholder governance strengthen the controlling families' tendency

towards risk aversion, which obstructs digital transformation

FIGURE 1 Comparing the digital

transformation of non-family firms and family

firms.

90 DU ET AL.