Life cycle stage effects, CEO power and internal control quality: evidence from listed family firms in China

Mingxia Hu and Shengdao Gan

China Journal of Accounting Studies, 2017, vol. 5, issue 2, 211-233

Abstract: We study the evolution of internal control quality within listed family firms in China, over different stages of the life cycle. We find a downward trend in internal control quality, and a significant difference between growth and non-growth stages. Further, we investigate the relationship between CEO power and internal control quality. In the growth stage, the higher the CEO’s structure power and expert power, the higher the internal control quality. In addition, the higher the CEO’s ownership power, the lower the internal control quality. But in the non-growth stage, a CEO’s expert power and ownership power is significantly negatively associated with the internal control quality. Additionally, the different types of CEO source in the family firm result in heterogeneity of CEO power. The findings show that the actual controller as CEO prefers weaker internal control quality and has a positive moderating effect on the association of expert power and the internal control quality. Where the CEO is related as a family member of the actual controller, then the closer is the kinship network and the lower is the internal control quality. Moreover, a closer kinship network increases the negative impact of ownership power on internal control quality.

Date: 2017
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DOI: 10.1080/21697213.2017.1339429

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