The Influence of Family Governance on the Value of Chinese Family Businesses: Signal Transmission Effect of Financial Performance

Round 1

Reviewer 1 Report

First, I would like to thank the authors for reading and commenting their work.

The importance of Family Businesses in the entrepreneurial fabric is undeniable worldwide, and, empirical research reinforcing the drivers of success is both needed and desirable. 

The paper has plenty of important aspects being raised however, in my opinion, it needs some adjustments to grant the required quality for publication. 

First of all, I would like to ask the authors to consider adjustments in the title - "signal role" sounds strange. 

Then there is an urgent need to explain the concept. The authors mention "one or more families" however, I hesitate on this approach as in most cases the definition is "one or more individuals among the same family".  As an example, I suggest the reading of "Myriam Cano-Rubio, Guadalupe Fuentes-Lombardo, Manuel Carlos Vallejo-Martos, Influence of the lack of a standard definition of “family business” on research into their international strategies, European Research on Management and Business Economics, Volume 23, Issue 3, 2017, Pages 132-146, ISSN 2444-8834, https://doi.org/10.1016/j.iedeen.2016.10.002., where highly cited definitions can be found. 

The debate on financial performance needs to be enriched as it is important to ground in extant literature the alternative measures in use. However, for enterprises operating in the stock market, it seems natural to use Tobin's Q. - please consider additional referencing.

Shouldn't point 2.2 be changed to the conceptual framework or something alike?

Then, H1 cannot be formulated as is, given that the empirical model does not compare FB to their non-FB counterparts. If all firms in the sample are FB, this cannot be tested. 

Please connect the variables in use as regressors to the hypothesis in test to grant the validation of the arguments. This is not evident in the regression. 

The models presented discuss the drivers of FB profitability - the corresponding sections need to be adjusted  (or the estimations changed - which I feel does not make sense). 

If the authors want to discuss moderation effects, much more needs to be made econometrically.  (please see the procedures in Baron and Kenny, 1986), or, in the alternative, please consider "combined effects.  - I would feel happy with both, still if the authors consider moderation the testing needs to be presented and discussed. 

Please clarify if you are running a cross-section regression or a panel. At first, it was promised a panel, however, it is not what is seen in table 6 - please clarify.

To me, table 8 makes scant sense as one cannot include a performance variable to explain another (ROA explaining Tobin's Q). 

Also, section 4.6 makes scant sense to me as it does not add value to the previous findings. I would prefer a focused empirical part. 

The results are not tied to the previous findings in the literature - this section needs reformulations.

Also, there is a need to identify the contributions to theory and practice made by the paper as well as the policy recommendations.

Best of luck with your research.

 

 

 

 

 

Author Response

Please see the attachment

Author Response File: Author Response.pdf

Reviewer 2 Report

The article has been corrected. In my opinion, however, I would consider slightly changing its title.
For example: "The influence of family governence on the value of Chinese Family Businesses.
The link between the Theory of Signal Transmission and financial performances.

Author Response

Dear reviewer:

           It is really true as you suggested that we need to consider adjustments in the title. In order to fully reflect the research on signal transmission effect, based on your suggestion，we changed the title of the article to "The Influence of Family Governance on the Value of Chinese Family Businesses: Signal Transmission Effect of Financial Performance”.We hope to get your approval.

     We appreciate for your warm work earnestly.
     Once again, thank you very much for your comments and suggestions.

Reviewer 3 Report

The paper investigated the degree of influence of Chinese family governance on the corporate value of Chinese family businesses and the signaling role played by corporate financial performance in this process. 

To improve the paper, several aspects are needed to be solved.

The paper does not follow the structure recommended to the authors, please read the link below.

https://www.mdpi.com/journal/economies/instructions

At the end of the introduction section, the paragraph with the structure of the paper must be added.

The literature review needs to be updated with other relevant papers on this topic, below is a list of where references can be selected.

Ahn HS, Jeong E, Cho H. Toward an Understanding of Family Business Sustainability: A Network-Based Systematic Review. Sustainability. 2021; 13(1):5. https://doi.org/10.3390/su13010005

Hategan, Curea-Pitorac, R.-I., & Hategan, V.-P. (2019). The Romanian Family Businesses Philosophy for Performance and Sustainability. Sustainability, 11(6), 1715. https://doi.org/10.3390/su11061715

Leopizzi R, Pizzi S, D'Addario F. The Relationship among Family Business, Corporate Governance, and Firm Performance: An Empirical Assessment in the Tourism Sector. Administrative Sciences. 2021; 11(1):8. https://doi.org/10.3390/admsci11010008

Mai, W., & Hamid, N. I. N. binti A. (2021). Short-Selling and Financial Performance of SMEs in China: The Mediating Role of CSR Performance. International Journal of Financial Studies, 9(2), 22. MDPI AG. Retrieved from http://dx.doi.org/10.3390/ijfs9020022

Wahyudi, Suroso, A. I., Arifin, B., Syarief, R., & Rusli, M. S. (2021). Multidimensional Aspect of Corporate Entrepreneurship in Family Business and SMEs: A Systematic Literature Review. Economies, 9(4), 156. https://doi.org/10.3390/economies904015

I consider that a description of the sample regarding the fields of activity and other relevant characteristics of the companies would be useful.

In the discussion section for greater clarity, a table with the proposed hypotheses and the results obtained, as well as their validation, would be useful.

The results must be discussed according to previous research. Also, it can be discussed how the results can be generalized to companies from other countries based on the literature if there are gaps between companies from different countries.

 

Author Response

Please see the attachment

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Many thanks for considering the suggestions proposed. 

I believe that the present version of the article is far more solid than the former.

Small details in language style and formatting need to be performed ( perhaps by the MDPI services) to grant the paper the final dorm to be published. 

Congratulations!

Author Response

Dear Reviewer：

     It's a great honor to get your recognition. We have revised the paper according to the format requirements of MDPI.

     Thank you again for your comments.

     Kind regards,
     Yanan Li

Reviewer 3 Report

The paper is improved but there still minor aspects to be resolved.

The paper was not written on the template required by the journal, please see the instructions.

https://www.mdpi.com/journal/economies/instructions

Not all the recommended papers were included in the review, which could be useful in the discussion section regarding the possibility of generalizing the results obtained in other countries as well. Please update two sections.

In the models, please justify why you did not include the R-square values, if you had included them, it would have been easier to see the explanatory power of the model.

In Table 10 it would be better to replace "Pass verification" with "Validated" and added one or more columns with the coefficients of main results. 

 

 

 

Author Response

Please see the attachment

Author Response File: Author Response.pdf

This manuscript is a resubmission of an earlier submission. The following is a list of the peer review reports and author responses from that submission.

Round 1

Reviewer 1 Report

Many thanks to the authors for providing me the opportunity of reading and commenting their work. The topic in debate is very interesting and actual.

I expect that my comments are taken into consideration as insights to raise the quality of the document. 

General Aspects

The introduction needs to clarify the purpose of the research. What is the purpose of the present research? What is the value added by the present paper?

In section two there is a need to contextualize the literature presented and not to just focus on the concepts. Some introductory paragraphs should be inserted.

I feel that the explanation of performance needs to be more detailed. There is plenty of indicators (to work as proxies)  - the choices need to be detailed. Section 2.1.4 needs to become more solid, also it is important to explain that the Tobin's Q can be a limitation when applying the study to smaller companies. 

The presentation of the models needs to be explained to the reader. Presenting the equations is desirable, however, there is a need for explaining their purpose.

The empirical part needs reformulation as it is important to explain each procedure implemented not in the statistical sense, but in the sense of the usefulness to validate the research (step by step).

The discussion section does not compare the results of the present research with the previous theories. I believe that it is important to tie the present findings with extant literature. 

There are also some comments to make concerning the policy recommendations. Given that this topic raises insights about the importance of the companies to promote growth and prosperity, so I recommend to include a section with this debate.

Also, the paper must clearly identify its implications, both theoretical and empirical.

Also, I believe that the study sohuld highlight in the last section the importance of including two vectors of strategic management such as innovation and internationalization as it is impossible to detach these dimensions from firm performance mainly in specific contexts such as China. I recommend a recent reference in the topic:  Costa J. (2020) Innovation and Internationalization as Efficiency Engines for Family Businesses: Analyzing the Case of Portugal. In: Leitão J., Nunes A., Pereira D., Ramadani V. (eds) Intrapreneurship and Sustainable Human Capital. Studies on Entrepreneurship, Structural Change and Industrial Dynamics. Springer, Cham. https://doi.org/10.1007/978-3-030-49410-0_14

Specific Details

1 - the document needs deep formatting as the tables appear with a sloppy aspect. Also some chineses characters are still there. Significances and other practical details of the estimations must be included. 

2 - the writing style needs some professional proofreading. Some paragraphs are very hard to follow, some sentences are misleading. The results need to be connected to extant literature. 

3- rearranging the index is demandes, please proceed accordingly. 

Best of luck with your research!

Author Response

Dear Reviewer:

Thank you for your comments concerning our manuscript entitled “The Influence of Family Governance on the Value of Chinese family businesses: Signal Role of Financial Performance”. Those comments are all valuable and very helpful for revising and improving our paper, as well as the important guiding significance to our researches. We have studied comments carefully and have made correction which we hope meet with approval. Revised portion are marked in yellow in the paper. The main corrections in the paper and the responds to your comments are as flowing:
Point1：The introduction needs to clarify the purpose of the research. What is the purpose of the present research? What is the value added by the present paper?

Response1：We are very sorry for our negligence of purpose of the research. We have added this part to the article. The purpose of this paper is to introduce financial performance as a signal to investors on the basis of clarifying the impact of family business governance model on corporate value, so as to provide investors with a more accurate way to evaluate the governance efficiency of family business governance model. The value of this paper is that we find the signal role played by corporate financial performance in the investors’ evaluation of the family governance of family businesses, so investors can reduce the information asymmetry problems that they have encountered through the signals of corporate financial performance.

Point 2: In section two there is a need to contextualize the literature presented and not to just focus on the concepts. Some introductory paragraphs should be inserted.

Response 2: It is really true as you suggested that we need to contextualize the literature presented. Based on the research background, we combed the literature review and inserted the introductory paragraphs.

Point 3: I feel that the explanation of performance needs to be more detailed. There is plenty of indicators (to work as proxies) - the choices need to be detailed. Section 2.1.4 needs to become more solid, also it is important to explain that the Tobin's Q can be a limitation when applying the study to smaller companies. 

Response 3: We are very sorry for our incorrect writing about the explanation of performance. We have restated the explanation of performance in the paper.

Point 4: The presentation of the models needs to be explained to the reader. Presenting the equations is desirable, however, there is a need for explaining their purpose.

Response 4: We have re-written this part according to your suggestion. The presentation of establishing the model is explained more clearly.

Point 5: The empirical part needs reformulation as it is important to explain each procedure implemented not in the statistical sense, but in the sense of the usefulness to validate the research (step by step).

Response 5: Considering this suggestion, we gradually explained the usefulness conclusion extended by each test result.

Point 6: The discussion section does not compare the results of the present research with the previous theories. I believe that it is important to tie the present findings with extant literature. 

Response 6: We are very sorry for our negligence of this part. We have added this part to the discussion section.

Point 7: There are also some comments to make concerning the policy recommendations. Given that this topic raises insights about the importance of the companies to promote growth and prosperity, so I recommend to include a section with this debate.

Response 7: It is really true as you suggested that we should concern the policy recommendations. We put forward suggestions from two aspects: corporate governance policy and financial policy.

Point 8: Also, the paper must clearly identify its implications, both theoretical and empirical.

Response 8: We are very sorry for our negligence of this part, we have identified the theoretical implication and empirical implication in this paper. The theoretical implication is that this paper enriches the application scope and theoretical value of signal transmission theory and improves the application value of signal transmission theory in the corporate governance of family enterprises. The empirical implication is that the conclusions drawn by the article provide a reference for how Chinese family businesses can better enhance the integration of ownership and control governance model to provide investors with a more credible signal.

Point 9: Also, I believe that the study should highlight in the last section the importance of including two vectors of strategic management such as innovation and internationalization as it is impossible to detach these dimensions from firm performance mainly in specific contexts such as China.

Response 9: Thank you very much for this paper. The research conclusion of this paper provides us with a lot of reference. We have also referred to the best part of this article in the article.

We tried our best to improve the manuscript and made some changes in the manuscript.  These changes will not influence the content and framework of the paper.    We appreciate for your warm work earnestly, and hope that the correction will meet with approval.
   Once again, thank you very much for your comments and suggestions。

Reviewer 2 Report

In the article entitled „The Influence of Family Governance on the Value of family businesses: Signal Role of Financial Performance”  a very interesting research area has been explored.

My remarks concerning the article refer to following problems:

• In the Introduction section the author(s) used the notion of “signal” for example financial signals. I would suggest changing it into „aspects” or some other similar notion.
• In this paper the phrase Market Signal Theory and Theory of Signal Transmission is used. Do the authors refer to the same theory? If so, they should stick to one phrase and use it consequently.
• Subpoint 2.1.1. reads „This paper believes”. This sentence is stylistically incorrect.
• Subpoints 2.1.2 reads „Gu et al. (2017) believe…”. I would change it into ” Gu et al. (2017) have pointed that…”.
• The authors claim that „meanwhile, the integration of ownership and control can avoid the cost and risk caused by another agency, thereby saving the costs of the agency so that the family business can maintain its strong competitiveness”. I do not understand in what context the word agency has been used.
• In paragraph 107 it is written “ Long-term financial performance includes development capacity”. How does the author define “development capacity” in the financial perspective? It is true that in table 1 it is pointed out that “R&D/total assets” but it should be explained in advance (par. 107).
• The assumption that ROA in current research related to enterprise value is generally used as measurement is doubtful. In my opinion it should be underlined that it happens in a situation when other measurements are also used and ROA is only an element in the measurement and estimation of the enterprise value (line 114).
• Hypothesis 1 formulated and presented in the article in the form of “Family governance can promote the enhancement of corporate value” is in fact a thesis . If the author had pointed out that “Family governance promote…” it could be regarded as hypothesis.
• In references to the second hypothesis I would pose a question if a model can be controlled? In my opinion one can control rather the assumptions excepted in the model than the model itself. It should be also defined what model the authors think about (theoretical or empirical one).
• Hypothesis 3 in my opinion should be written as: „Debt solvency information can positively regulate…”. The same concerns hypotheses 4 and 5.
• In point 3.1 the author writes that  ST and ST* companies are excluded. This abbreviations (ST, ST*) should be explained.
• In table 1 some abbreviation, such as: FA, FN, should be added.
• In table 4, column 1 some numbers have appeared. They express the lines in the article. They should be deleted.
• In Table 6 in the first line there are some Chinese signs (see also table 6, 7, 8). This signs ought to be translated into English.
• In figures 3,4,5 and 6 it should be written what the axis “X” and “Y” express.
• In the first reference „Amit V.R.” the pagination can be added.

I find the article very interesting and in my opinion it should be published after introducing the above mentioned changes.

Author Response

Dear reviewer:

We thank you very much for giving us an opportunity to revise our manuscript, we appreciate you very much for your positive and constructive comments and suggestions on our manuscript entitled “The Influence of Family Governance on the Value of Chinese Family Businesses: Signal Role of Financial Performance”. We have studied your comments carefully and have made revision which marked in yellow in the paper. We have tried our best to revise our manuscript according to the comments. Attached please find the revised version, which we would like to submit for your kind consideration. The main corrections in the paper and the responds to your comments are as flowing:
Point 1: In the Introduction section the author(s) used the notion of “signal” for example financial signals. I would suggest changing it into „aspects” or some other similar notion.

Response 1: It is really true as your suggestion. In the Introduction section, We changed the expression of signal in some places.

Point 2: In this paper the phrase Market Signal Theory and Theory of Signal Transmission is used. Do the authors refer to the same theory? If so, they should stick to one phrase and use it consequently.

Response 2: We are very sorry for our incorrect writing. We have corrected the expression of signal transmission theory.

Point 3: The authors claim that „meanwhile, the integration of ownership and control can avoid the cost and risk caused by another agency, thereby saving the costs of the agency so that the family business can maintain its strong competitiveness”. I do not understand in what context the word agency has been used.

Response 3: We are very sorry to have misunderstood you. We have revised the expression of this paragraph.

Point 4: The assumption that ROA in current research related to enterprise value is generally used as measurement is doubtful. In my opinion it should be underlined that it happens in a situation when other measurements are also used and ROA is only an element in the measurement and estimation of the enterprise value (line 114).

Response 4: We are very sorry for our incorrect writing. We have redefined the concept of enterprise value in section 2.1.4.

Point 5: In figures 3,4,5 and 6 it should be written what the axis “X” and “Y” express.

Response 5: We are very sorry for our negligence of this part. We have highlighted what the axis “X” and “Y” express at the bottom of the picture in the article.

We have corrected other errors in expression and description. We tried our best to improve the manuscript and made some changes in the manuscript.  These changes will not influence the content and framework of the paper. And here we did not list the changes but marked in yellow in revised paper.
    We appreciate for your warm work earnestly, and hope that the correction will meet with your approval.
     Once again, thank you very much for your comments and suggestions.

Reviewer 3 Report

In the presented article "The Influence of Family Governance in the Value of Family Business: Signal Role of Financial Performance", the authors focused on the impact of family governance on the family business. The title of the article does not explicitly state that the analysis was carried out only on selected Chinese family businesses that have their own specifics, and therefore the results on such a sample cannot be generalized. The definition of the concept of the article shows problems and ambiguity, where the author (s) state that the family business on the basis of traceability to a "single person or family" (line 86), while in line 91 they mention at least two or more family members. There is also an inappropriate term "Real person" used (line 90).

Significant simplifications are given in lines 113 and 114, where, based on 1 citation, it is stated that enterprise value is only measured through Tobins Q and ROA. Minor technical shortcomings in the citation are on lines 177 and 178.

The Sample Selection chapter does not sufficiently specify the data source (CSMAR?) and does not justify the use of data of companies that are listed on A-share family companies.

The most significant shortcoming of the article is the chapter Discussion, in which, despite the title, there is no comparison of the achieved results with other existing authors or studies.

Due to these shortcomings, I do not recommend publishing the article in the scientific journal Economies.

Author Response

Dear reviewer:

We appreciate you very much for your positive and constructive comments and

suggestions on our manuscript entitled “The Influence of Family Governance on the Value of Chinese Family Businesses: Signal Role of Financial Performance”. We have studied your comments carefully and have made revision which marked in yellow in the paper. We have tried our best to revise our manuscript according to the comments. Attached please find the revised version, which we would like to submit for your kind consideration. The main corrections in the paper and the responds to your comments are as flowing:
Point 1: In the presented article " The Influence of Family Governance on the Value of Chinese Family Businesses: Signal Role of Financial Performance ", the authors focused on the impact of family governance on the family business. The title of the article does not explicitly state that the analysis was carried out only on selected Chinese family businesses that have their own specifics, and therefore the results on such a sample cannot be generalized.

Response 1: We are very sorry for our negligence of this mistake. Since our research object is Chinese family enterprises, we have modified the expression of the title.

Point 2: The definition of the concept of the article shows problems and ambiguity, where the author (s) state that the family business on the basis of traceability to a "single person or family" (line 86), while in line 91 they mention at least two or more family members. There is also an inappropriate term "Real person" used (line 90).

Response 2: We are very sorry for our incorrect writing. We have restated the contents of 2.1.1. The following is the relevant content.

 The family business studied in this paper refers to that the ultimate controlling shareholder of the company can be traced back to a person or a family. At the same time, the person or controlling family, as the ultimate controlling shareholder, has an actual controller, and at least one family member is related to the actual controller and has a high-level position in the company. This paper defines a family enterprise as meeting two conditions: the actual controller of the enterprise is a family member, and at least one or more family members are employed in the enterprise.

Point 3: Significant simplifications are given in lines 113 and 114, where, based on 1 citation, it is stated that enterprise value is only measured through Tobin’s Q and ROA. Minor technical shortcomings in the citation are on lines 177 and 178.

Response 3: We are very sorry for your misunderstanding. We have restated the definition of enterprise value. The following is the relevant content.

In current research related to enterprise value, Tobin’s Q is an element in the measurement and estimation of the enterprise value. It refers to the ratio of enterprise market value to its asset replacement cost. It reflects the specific value of two different value assessments of one enterprise. The numerator is the market value on the financial market, while the denominator is the “basic value” ― the replacement cost of an enterprise. This study selects Tobin’s Q to reflect enterprise value.

Point 4: The Sample Selection chapter does not sufficiently specify the data source (CSMAR?) and does not justify the use of data of companies that are listed on A-share family companies.

Response 4: We are very sorry for our negligence of this. CSMAR is the abbreviation of China Stock Market Accounting Research. In addition, in China, A-share is the main issuing market of Listed Companies in China, and the family enterprises listed in A-share account for 97% of China's listed family enterprises. Therefore, the family enterprises listed in A-share can comprehensively represent the current operation situation of China's family enterprises, making the research conclusion of this article more comprehensive.

Point 5: The most significant shortcoming of the article is the chapter Discussion, in which, despite the title, there is no comparison of the achieved results with other existing authors or studies.

Response 5: We are very sorry for our negligence of this part. We have supplemented this part in the discussion. The following is the relevant content.

The prior literature generally suggests that the integration of ownership and control governance model can promote the promotion of enterprise value, which is consistent with the research conclusion of this paper. Further, this paper first finds operating capacity, solvency, profitability and development capacity can positively regulate Chinese investors’ responses to the integration of ownership and control governance model.

We tried our best to improve the manuscript and made some changes in the manuscript.  These changes will not influence the content and framework of the paper.    We appreciate for your warm work earnestly, and hope this revised article can get your approval.
    Once again, thank you very much for your comments and suggestions.

Round 2

Reviewer 1 Report

Thanks to the authors for providing an improved version of their former work. I believe that this version is far more interesting and organized than the former. 

As a final effort, I would like the authors to devote some time to the formatting and style of the overall paper, in particular the tables.

Please revise the language and the typos. Thereare some sentences needing reformulation. 

Consider verifying and improving the style mainly in the abstract and the introduction - remove the unnecessary arguments and concentrate in the core of the paper. 

Best of luck with your research! 

Reviewer 3 Report

The author(s) did some corrections in the article, on the other side some of the comments were left untouched:

Citation on lines 177 ((namely V. R, 2006; D. et al, 2014). ) and 178 (namely S and D (2001) ) in the original article remains the same in the „corrected version“. I suppose the author(s) meant Amit (2006) in case V.R,2006 (incompletely cited in bibliography without any volume, issue, pages, etc.) and Miller et al., 2014 in case D.et al,2014.

Citation of S and D (2001) is incorrectly mentioned in the bibliography as:

Peter, S., & Paula, D.(2001). The Phenomenon of Substantive Conflict in the Family Firm: A Cross-Generational Study. Journal of Small Business Management, 39(1),14-30.

The correct citation is:

Davis, P. S., Harveston, P. D. (2001). The Phenomenon of Substantive Conflict in the Family Firm: A Cross-Generational Study. Journal of Small Business Management, 39(1),14-30. https://doi.org/10.1111/0447-2778.00003

Thus the citation in the text should be: Davis and Harveston, 2001 instead of S and D 2001.

There are other incomplete citations in the bibliography:

Costa, J. (2020): missing names of publication, volume, issue, pages

Jess, H. et al. (2017): missing the complete list of authors

Su, J. (2019): missing the date, ISBN, pages

Zhao CE et al (2008) and Rovelli et al. (2021): exact pages mentioned instead of complete

Rovelli et al. (2021) is cited incompletely, I found on the internet that this article is in press only (that's why it is cited incorrectly): https://www.sciencedirect.com/science/article/pii/S1877858521000036

The article still has a significant problem with chapter Discussion. Author(s) added a short paragraph with incorrect citation (V.R, 2006, D et al, 2014: mentioned above), but comparison with 2 incorrectly cited authors does not mean the discussion. I expected adding 15-20 relevant citations and comparison of obtained results with these authors, now prolonging the so-called Discussion by two paragraphs without proper and sufficient relevant citations.