Family Firms’ Concentration of Wealth: Lessons Drawn From the Chinese Experience

In this post, Yingyu Zhang at the Guangdong University of Foreign Studies discusses research conducted with co-authors Xuan He and Weicheng Xiao (both also at Guangdong) and detailed in the paper “Structure of Local Political Power and Family Firms’ Concentration of Wealth,” published in Family Business Review.

Wealth concentration is a widespread global problem. However, there is little research exploring how political power structures impact the concentration of family wealth, especially the relationship between de jure and de facto political power. Therefore, this has motivated us to pursue this research.

Our paper may have the following research innovations and impact the field from the following aspects. First, while existing research examines wealth inequality, it does not directly address the wealth concentration of family firms. Wealth concentration can serve as a comprehensive index for analyzing the accumulation of social wealth. The existing literature mainly discusses the influence of internal factors on the wealth of family firms, and rarely examines external political environmental factors. By examining the relationship between enterprise wealth and social wealth, our paper provides a new perspective for the study of family firm wealth and expands our understanding of the effect of outside influences on family wealth accumulation. It also serves as a cue to the field of family firm research that the causes and consequences of family wealth concentration should be fully discussed.

Second, in the practical political structure, there is a conflict between de jure power and de facto power. By analyzing changes in family firm wealth concentration under these two types of political power, our paper enriches the literature on how family firms use political connections to accumulate wealth and expand invisible political connections that exist in the local de facto political power structure rather than only the currently visible manifestations of de jure political power. The findings of this study help us better understand the collusion mechanism between local power and family firms and provide a new institutional perspective for alleviating inequality.

Third, based on the promotion cycle of officials and the changing relationship of family firms to the balance of financial wealth and socioemotional wealth, we find that the relationship between officials and enterprises undergoes a dynamic evolution. During the process, family firms might eventually capture the support of top leaders and form a new round of “interest-based relationship networks,” thereby maintaining a stable and sustainable relationship. Therefore, the wealth concentration of family firms may decline at the beginning of a new top leader’s tenure, but it will eventually rise again.

For incoming researchers in this particular field of study, we have the following advice. First, the China’s New Fortune 500 Rich List used in this paper has certain limitations. Future studies can develop a more accurate assessment of wealth in family firms. Second, future research can explore the impact of changes in de jure power at different levels (such as municipal/county party secretary, etc.) on enterprise wealth. Third, with regard to de facto power, we do not discuss other types of informal connections (e.g., central or local level), and future research is needed which explores other aspects of de facto power and informal connections at other levels.

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Yingyu Zhang

Yingyu Zhang is a professor at Guangdong University of Foreign Studies, who recently authored "Structure of Local Political Power and Family Firms’ Concentration of Wealth" in Family Business Review.

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