Abstract/Summary

Board governance has attracted considerable attention due to the increasing emergence of corporate scandals. This research empirically investigates the effects of family involvement, board independence, and board diversity on the financial performance of Chinese family-controlled listed companies over 10,230 firm-year observations from 1,870 Chinese family firms during the period 2008-2020. First, this research finds that the presence of a family CEO positively affects corporate financial performance, while the proportion of family directors negatively affects financial performance; higher compensation weakens the negative effect of family directors on financial performance but does not strengthen the positive relationship between family CEOs and financial performance. Second, it shows that the proportion of independent directors and the proportion of independent directors with work experience in the financial industry positively affect financial performance. These results provide mixed support for agency and stewardship theories. Third, this research substantiates that gender diversity positively affects financial performance, while age diversity and tenure diversity negatively affect financial performance. It additionally finds that the proportion of female directors positively affects financial performance, whereas director average tenure and director average age negatively affect financial performance. These results provide mixed support for resource dependence and social identity theories. Furthermore, it corroborates that only the presence of more than three female directors produces a positive effect on financial performance, supporting critical mass theory. These results contend that Western theories provide some insights into the Chinese market. This research adds new insights to the current literature. It provides Chinese policymakers and practitioners with empirical guidance concerning how to optimise the governance structure and composition of family business boards. It discusses limitations and paves the way for future research.