Two Generations’ Perception of a Successful Business Succession … · 2017-10-20 · issues, a...

Two Generations’ Perception of a Successful Business

Succession in Small and Medium-Sized Family Business

Lam Fung Lam Post Doctoral Researcher

I. Introduction Many studies showed that business succession is an important issue for the development of the small and medium sized family business in both research and practice. Beckhard and Dyer (1983a and 1983b) showed that there were only 30 percent of the small and medium-sized family firms survived the transition to the second generation and only 10 percent made it to the third generation. It means that if the succession is not properly dealt with, it may create destructive conflicts between the first and second generations and/or among the second generation themselves. There have been many literatures on the topic of family business succession and most of the studies are focused on the following five areas: 1) succession as a process, 2) the role of the founder, 3) the perspective of the next generation, 4) multiple levels of analysis, and 5) characteristics of effective successions. (Handler 1994) However, in the People’s Republic of China (PRC), no formal literatures on this aspect are found. Some scholars believe that it is because succession is not an urgent agenda for most of the family enterprises which only appeared in the past twenty years or so. Furthermore, most of the family businesses had a very short life span and for them succession did not have any meaning to them. (Cao, 2002) Succession in the PRC’s family business has its own special characteristics, for example, the blood tie of successor and guanxi in the organization are emphasized. In such circumstances, there is a need to study the problem of succession of the PRC’s small and medium-sized family businesses, especially the factors that affect the success of the succession. In the PRC, family businesses constituted around 85 percent of the small and medium sized enterprises and these enterprises now play a very important role in the national economic development. (Li 2009) After more than thirty years, the family businesses are now entering the period of succession. If the succession were smooth and successful, it would allow these enterprises to continue operate and contribute to the overall economic development.

California Journal of Innovation and Economic Development, Feb 2015

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Thus, the purpose of this study is to examine different perspectives of the critical success factors in the succession for the two generations of the PRC’s small and medium-sized family businesses. II. Literature Review A. Personal factors The personal factors that are used as the independent variables that affect the success of the succession include: successor’s personal needs alignment, successor’s willingness to take over, trust in the successor’s abilities in attentions and relationship between owner-manager and successor. Successor’s Personal needs alignment Venter, Boshoff and Maas (2005) found that successor’ personal needs alignment did not emerge as a separate factor as expected and the items expected to measure personal needs alignment loaded onto the willingness to take over factor and those items were thus regarded as additional measures of willingness to take over. In line with Carlock and Ward (2001), their study suggested that the more the successor’s personal needs and career interests are aligned with opportunities offered by the family business, the greater chances the successor will be willing to take over the family business. Handler (1989) further showed that potential successors had a positive attitude to take over the family business if their career-interest needs, psychosocial needs and life-stage needs had been satisfied. However, to examine whether the Chinese owner-managers have a different view, personal needs alignment will still remain as a separate variable to test its influence on the success of the succession. It is therefore hypothesized that: H1: There is no relationship between successor’s Personal needs alignment and Perception of owner manager to the success of the succession and a positive relationship between successor’s Personal needs alignment and Perception of successor to the success of the succession. Willingness of the successor to take over the family business Studies show that the successor’s interest in and willingness to take over the family business play a role in the successful transition of the business from one generation to the next. (Sharma 2004, Stavrou 1999 and Venter et. al. 2005) Venter et. al. (2005) also suggested that the important elements of this factor included whether the successor had a strong desire to manage the family business, was happy and proud to work in the family business, had the confidence to manage the family business


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successfully, and put in a great deal of effort to ensure the success of the family business. Sharma (1997) also found that the propensity of successors to take over the business was an important influence on the owner-manager’s satisfaction with the succession. Accordingly, it is hypothesized that: H2: There is no relationship between Willingness to take over and Perception of owner manager to the success of the succession and a positive relationship between Willingness to take over and Perception of successor to the success of the succession. Trust in the successor’s abilities and intentions Dickinson (2000) put forward that trust in the successor’s ability was an important determinant of effective successions. It is supported by Sharma (1997) who suggested that a positive relationship emerged from the trust that the founder had in the successor’s capabilities. Moreover, the credibility of the successor is crucial to his/her successful integration into the business, because without credibility, the successor cannot attain legitimacy. (Barach, Gantisky, Carson and Doochin 1988) Morris and et al also strongly asserted that building trust, encouraging open communication, and fostering shared values among the family members is essential. (Citied in Whatley 2011) Therefore, the resulting hypothesis is: H3: There is a positive relationship between Trust in the successor’s ability and intention and Perception of both owner manager and successor to the success of the succession. Relationship between owner-manager and successor Brockhaus (2004) and Dickinson (2000) also suggested that the quality of the relationship between the owner-manager and the successor is a critical determinant of the success of the succession. Venter et. al.’s (2005) study also established that the relationship between the owner-manager and the successor has a significant influence on the respondents’ satisfaction with the succession. Their findings show the importance of establishing and managing a high-quality and harmonious owner-manager-successor relationship, in which the two generations mutually support and cooperate with each other and are willing to share information. The hypothesis is formulated as the following: H4: There is a positive relationship between Relationship between owner-manager and successor and Perception of both owner manager and successor to the success of the succession.


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B. Organizational Factors The independent variables of organizational factors for testing their influences on the success of the succession are: preparation level of successor, management succession plan and governance structures. Preparation level of successor Venter et. al. (2005) found that a high external preparation level of the successor would have a positive influence on the continued profitability of the family business. There was clearly a perception among respondents that if successors worked elsewhere before joining the family business, had a formal education, regularly attended business-related courses and seminars, and received mentoring from someone other than their parents, they would probably be more competent and ready to increase the revenue and profit of the family business and ensure its continued successful performance. However, their study also showed that the preparation level of successor did not influence the respondents’ satisfaction with the succession which does not agree with Brockhaus’s (2004) findings that there was a positive relationship between the preparation level of the successor and a successful succession. It is thus hypothesized that: H5: There is a positive relationship between Preparation level of successor and Perception of both owner manager and successor to the success of the succession. Management succession planning Venter and Boshoff’s (2007) study showed that there was a positive relationship between management succession planning and continued profitability of the business, as well as satisfaction with the succession. In their findings, respondents were of the opinion that familiarizing the successor with the employees of the business and making explicit efforts to train the successor for his/her future role in the business were important components of management succession planning. Also, Sharma (1997) and Ward (1987) suggest that planning for succession is one of the most important characteristics associated with the businesses that will survive a generation transition. It is hypothesized that: H6: There is a positive relationship between Management succession planning and Perception of owner manager and successor to the success of the succession. Governance structures It is important to have a proper governance structure that caters to the diverse needs of


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the new generation, and allows the business to continue to grow and prosper. Sound governance can go a long way toward avoiding many of the unpleasant situations that erupt in family businesses during succession (Martin 2001; Egan 1998). Also, Astrachan and Kolenko (1994) found a positive relationship between the existence of governance practices and organizational survival across family generations, while Venter and Boshoff’s (2007) asserted that the use of governance processes and planning was an important determinant of successful successions. Governance structure and process can be utilized to monitor succession and to ensure that the myriad issues associated with leadership and ownership changes are adequately addressed. Such governance process, structure and planning can take the form of a formal board of directors and advisers, a formal structure for discussing business issues, a written business plan, explicit succession criteria contained in a proper succession that has been discussed with key stakeholders, and a formal document describing the relationship between the business and the family, such as a family creed or constitution. (Venter and Boshoff’s, 2007) Thus, the hypothesis is: H7: There is no relationship between Governance structure and Perception of owner manager to the success of the succession and a positive relationship between Governance structure and Perception of successor to the success of the succession. C. The Dependent Variables Satisfaction of predecessor, successor, and other family members with the succession can be used as an indication of the perceived success of the succession. (Sharma, 1997; Handler, 1989; Stempler, 1988) In addition, the satisfaction of various stakeholders with the succession predicts not only a successful succession, but also the successor’s ability to keep the family business healthy by means of sustained growth and continued profitability. (Hume, 1999; Goldberg, 1996; Harvey and Evans, 1995) III. The Theoretical Model and Summary of Hypotheses The hypothesized inter-relationships among the various personal and organizational factors that can influence the perception of owner-manager to the success of the succession are depicted in the theoretical model in Figure 1 (Appendix 1) and the summary of the hypotheses are presented in Table 1 (Appendix 1).

IV. Methodology A. The measuring instruments All the underlying variables comprised in the research model are measured with multi-item instruments, and all the items in the questionnaire are linked to a six-point


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Likert-type scale. In this study, respective three-item and five-item scales are used to measure the successor’s Personal needs alignment and Willingness to take over based on the scale developed by Venter, Boshoff and Maas (2005). In their study, it was found that the variable Personal needs alignment did not emerge as a separate factor as expected and the items expected to measure Personals needs alignment were loaded onto the Willingness to take over factor (Venter, Boshoff and Maas 2005). However, in this study, these two variables are still maintained as two separate factors to determine whether there is a different perception in the Chinese perspective. Respective three-item and four-item scales are generated from Venter, Boshoff and Maas (2005) to measure the Relationship between business owner and successor and Preparation level of successor. In this study, the factor under Preparation level of successor of “at the time of succession I had an academic qualification(s) that prepared me to take over the family business” is modified as “At the time of succession, I would require myself to graduate from the university that helps prepare me to take over the family business” in the questionnaire. The other three variables, namely Trust in the successor’s abilities and intentions, Management succession planning and Governance structures, respective six-item, four-item and four-item scales were employed based on Venter and Boshoff (2007). In this study, Venter and Boshoff (2007)’s nine-item scale is modified to form a five-item scale to measure the dependent variable, namely the Perceived success of the succession. B. The Sample This study was undertaken in Shantou Special Economic Zone, The People’s Republic of China, among Chaozhou small and medium-sized family businesses in the area. Chaozhou people were chosen as the sample because they are successful businessmen. The data were collected in Shantou because around 75 percent of Chaozhou people in the PRC live there. Also, Shantou is considered as the motherland of Chaozhou people and most family business entrepreneurs conduct business there. The sampling frame was the member directory in 2011 of the Chaozhou Chambers of Commerce in Shantou Special Economic Zone, containing 10,873 members. The Chaozhou Chambers of Commerce is a state-organized entity which is supposed to include all the owners of small and medium sized family business in Chaozhou. The administrative office of the Chaozhou Chambers of Commerce helped to identify and had come up with 2,169 family business members who had a second generation, and


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were preparing to hand over the business to the latter within the next three years. The final self-administered questionnaires were mailed to 470 sample members to request both of the owner manager and successor in the same family business to fill who were drawn randomly from the member directory. For owner manager, a total of 219 questionnaires were returned and 196 of them found usable. For successor, a total of 232 questionnaires were returned and 194 of them are usable. Both of the respond rates are around 42 percent. C. Description of the Realized Sample Although only around 26 percent of the respondents were women, it represented quite a large proportion according to the Chaozhou tradition. Also, it could be a reflection that women become more independent in the Chaozhou community through increased involvement in the small and medium-sized family businesses. Almost half of the respondents (48 percent) employed more than 100 employees working in their family businesses. About 87 percent of the respondents’ family businesses had assets of below 100 million Yuan, and the remaining had much more than that. This composition fairly represents the structure of the small to medium-sized family businesses in the PRC. Most of the family businesses were involved in the manufacturing industry at around 67 percent, while only 33 percent participated in the service industry. D. The statistical analysis of the data Firstly, the data were subjected to an exploratory factor analysis through SPSS to assess the discriminant validity and construct validity of the measuring instrument. Then, the reliability of the instrument was assessed by means of an internal consistency measure (Cronbach Alpha). After that, the valid items that were retained in the theoretical model were subject to a structural equation modeling analysis by AMOS to assess its structure model to determine whether the hypotheses were accepted. V. The Empirical Results A. Discriminant and construct validity assessment Owner-managers KMO and Bartlett's Test was performed to test the matrix. The result of KMO was 0.92 and the Bartlett’s test was significant at 0.000<0.01 (see Table 2, Appendix 1), indicating that it was suitable for the factor analysis.


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The varimax rotated factor matrix for the independent variables is presented in Table 3 (Appendix 1). Rotated factor matrix was not applied to the dependent variable, which had only one factor. The Cronbach Alpha values of the independent variables are shown in Table 3 (Appendix 1) and the Cronbach Alpha value of the dependent variable is 0.833. Seven independent variables were tested and five rotated factors were generated. Table 3 (in Appendix 1) shows that items measuring Willingness to take over, Trust in the successor’s abilities in attentions and Relationship between owner-manager and successor are merged together to form one new factor renamed as Trust in successor. Two items (PREP3 and PREP4) from Preparation level of successor and one item (MSP4) from Management succession planning were put together with the items measuring Governance structure to form another new factor as Governance processes and planning. As a result, Hypotheses 2, 3, 4 and 7 could not be empirically assessed individually. PREP1: “At the time of succession, I would require my successor to have graduated from the university to prepare him/her to take over the family business”, its factoring loading is less than 0.4, which is not significant and is deleted from the measurement of Preparation level of successor. Moreover, PREP2 from Preparation level of successor and TRU6 from Trust in the successor’s abilities in attentions are loaded together to form the fifth factor in Table 3 (Appendix 1). However, they do not demonstrate sufficient discriminant validity and their Cronbach Alpha value is less than 0.7 and have to be removed from the measurement of the respective variables. Since PREP3 and PREP4 were merged into a new factor and PREP1 and PREP2 were deleted, Preparation level of successor as an independent variable was deleted from the empirical model and Hypothesis 5 could not be empirically assessed. Other two variables, Personal needs alignment and Management succession planning, consisting of PN1, PN2, PN3 and MSP1, MSP2, MSP3 respectively, remain viable. Successors KMO and Bartlett's Test was performed to test the matrix. The result of KMO is 0.928 and the Bartlett’s test is significant at 0.000<0.01 (see Table 4, Appendix 1), indicating that it is significant for the factor analysis. The varimax rotated factor matrix for the independent variables of successor is presented in Table 5 (Appendix 1). As mentioned above, there was only one


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dependent variable factor, thus rotated factor matrix was not applied. The Cronbach Alpha values of the independent variables are shown in Table 5 (Appendix 1) and the Cronbach Alpha value of the dependent variable is 0.938. Seven independent variables were tested and five rotated factors were generated. Table 5 (Appendix 1) shows that items measuring Governance structure and Management succession planning were put together to form one new factor renamed as Governance process and planning. There were three items (REL1, REL2 and REL3) in Relationship between owner manager and success that were merged together with the items measuring Trust in the successor’s ability and intention to form another new factor as Trust in successor. Also, items that measuring Willingness to take over and Personal needs alignment were put together to form a new factor as Willingness to take over and Personal Needs. WTO5: “At the time of succession, I think that I will have a great deal of confidence in my ability to successfully manage the family business” and PREP1: “At the time of succession, owner manager will expect me to be a university graduate that prepares me to take over the family business”, their factoring loading is less than 0.4, which is not significant and is deleted from the measurement of Governance process and planning. Besides, the factor loading of PN3: “At the time of succession, I will believe that the opportunities offered in the family business are more challenging than anywhere else”, is also less than 0.4 and is deleted from the measurement of Willingness to take over and personal needs. In the fifth rotated factor, all of its factoring loadings are too small and are not significant, so they are deleted. As a result, Hypotheses 1, 2, 3, 4, 6 and 7 cannot be empirically assessed individually. The remaining factor, Preparation level of successor, consisting of PREP2, PREP3 and PREP4, remain viable. B. The structural model Owner-managers The path coefficients in Figure 2 (Appendix 1) show that the dependent variable Perceived success of the succession is strongly influenced by Trust in successor (point estimate: 0.504, p<0.001). Also, Perceived success of the succession is slightly influenced by Management succession planning (point estimate: 0.132, p<0.001) and Personal needs alignment (point estimate: 0.107, p<0.001). The relationship is positive in these three cases. It means that when the owner-manager has more trust in the successor, does more management succession planning and makes the


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successor perceive the succession as aligned with his/her needs, the involved parties will be more satisfied with the succession. Hypotheses H1, H2, H3, H4 and H6 thus are accepted. Figure 2 (Appendix 1) further shows that there is no significant relationship between Perceived success of the succession and Governance process and planning (point estimate: -0.015, p>0.494). Then, Hypothesis H7 is rejected. Successors The path coefficients in Figure 3 (in Appendix 1) show that the dependent variable Perceived success of the succession is strongly influenced by Governance process and planning (point estimate: 0.531, p<0.001). Also, Perceived success of the succession is slightly influenced by Preparation level of successor (point estimate: 0.312, p<0.001) and Trust in successor (point estimate: 0.231, p<0.001). The relationship is positive in these three cases. It means that when the successor believes that the better the governance process and planning, the owner manager has more trust in him/her, and he/she perceives the succession as aligned with his/her needs, the involved parties will be satisfied with the succession. Figure 3 (Appendix 1) further shows that there is no significant relationship between Perceived success of the succession and Willingness to take over and Personal needs alignment (point estimate: 0.024, p=0.22). VI. Conclusion and Discussions From the perspective of owner managers, trust in successor, management succession planning and personal needs alignment are the critical success factors of the succession. Meanwhile, successors believe that governance process and planning, trust in successor and preparation level of successor are the critical success factors of the succession. The results indicated that the two generations have different views on the critical success factors. Only Trust in successor was the only common factor they have. Although the hypotheses cannot be examined individually, the results shows that hypotheses H3, H4, H6 and H7 are accepted as both groups have positive views on these factors. However, hypothesis H1 and H2 are rejected. The results of H1 and H2 are totally opposite to the hypotheses. That is, to owner managers, Personal needs and Willingness to take over are positive related to the Success of the succession; but to successor, Personal needs and Willingness to take over have no relationship with the Success of the succession. A. Owner-managers The test results indicate three major discussion directions: (i) trust in successor dominates other considerations in the succession of Chaozhou small to medium sized


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businesses, (ii) personal needs of the successor and the management succession planning, though significant, contribute less to this succession consideration, and (iii) organizational factors, including successors’ preparation and the businesses’ governance structure, are negligent in this Chaozhou sample. Trust in Successor Under this category, three independent variables are grouped. They include successor’s willingness to take over the business, owner-manager’s trust in the successor’s ability, and the relationship between owner-manager and successor. These independent variables emphasized not so much on how the business is organized but rather on a more personal level, i.e. how the owner-manager perceives the successor’s fit with the business and possibly more importantly, his/her relationship with the owner. It is not difficult to interpret findings in light of the culture of the Chaozhou society. The Chaozhou society is known for its focus on the family, especially the submission of the offspring to their parents. In addition, male members generally have a higher status than the female members, even more than the other Chinese families and localities. Father becomes the centre of the family, and therefore winning the trust of the father is essential to be selected as the successor. The three variables discussed therefore are important considerations for the owner-manager, usually the father of the family, when he chooses a successor. Willingness and ability must be present in the successor before he is selected, and a good relationship between father and son cannot be absent. Personal Needs of the Successor and the Management Succession Planning Personal needs of the successor, though still yield significant result, have a much lower contribution to the owner-manager’s perception of a successful succession. The element of the father-centred or family-centred Chaozhou society seems to dominate in this reading since instead of putting personal desire for achievement at the forefront, the desire of father or family comes first. Whether the destined successor “feels” good about the family business does not come much into the equation – whether the family business can sustain is more important than personal needs. However, the reading being significant also indicates that while this may not be the most important factor the owner-manager considers, he is still honest enough to take that into consideration. Possibly based on the above considerations, the management of the succession planning has not become an important part of the whole succession consideration. Whether the successor is able to understand clearly what is expected of him, or he has


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the training to face the responsibilities, or he has established a relationship with the employees of the family business, are not significant factors. In the Middle Eastern context, it was also found that succession planning and implementation was insignificant in relation to the success of the succession in small and medium enterprises. This seems counter-intuitive and unexpected compared to most theoretical and empirical studies in the Western hemisphere. (Chalhoub 2011) It may owe to the view that the centre of the attention is not on how well adapted the successor will be, but the owner-manager’s level of comfort with the successor. This comfort level is based more on the personal elements, which are difficult to measure. It is also interesting to know that the dimension of a written succession plan in this independent variable has proved to be insignificant at all. Any institutional effort seems to be wasted on the owner-manager. Organizational factors Organizational factors include a structured preparation process for the successor and the governance status of the family business. The structured preparation process includes institutional efforts in education and mentoring. The governance status includes organizational elements such as a board of directors, a business plan and a formally written organization framework. While these are all important make-up of a modern organization, they seem to ill-fit a small to medium sized business environment. Many of such businesses, likely to be more so in the Chinese culture in which legal implications are less considered than in the Western culture, are not exposed to these organizational factors at all. Other than what the law requires, qualification and corporate governance are less important especially when these are family businesses that do not respond to external demands. Moreover, it may be like what Wu and Pan (2012) pictured that Chinese enterprises rely more on relational governance that governs transactions through relational norms, which refer to the existence of certain social processes and regulations because of the counterparts’ relations in a transaction. Such explanations also provide an insight into the owner-manager’s obvious negligence of a management succession plan as mentioned above. He simply does not see the need since no one will challenge his decision, except himself. However, it would hinder the willingness of the successor to take over the family business. China Private Economic Research Institute (2011) reported that the higher the degree of normalization of the family businesses, the higher the degree of the successors’ willingness to take over. The implication is that if the owner-manager does not pay sufficient attention to establish the governance structure, it will reduce the willingness


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of the successor to take over the family business. B. Successors The test results indicate three major discussion directions from the perspective of successor: (i) governance process and planning dominates other considerations in the succession of Chaozhou small and medium sized businesses, (ii) preparation level of successor and trust in successor, though significant, contribute less to this succession consideration, (iii) personal factor, i.e. successors’ willingness to take over and personal needs alignment, was negligent in this Chaozhou sample. Governance process and planning Under this category, two independent variables are grouped. They include governance structure and management succession planning. Governance process is an important issue in the Western companies. Corporate governance is a method to maintain the efficiency and performance of a company (Georgeta and Gherghina 2012). Poor governance grooms possible threats in the company. The existing management may provide some problems to the succession, such as negatively affecting the succession. A scholar once mentioned that the absence of succession rights may provide co-owner with chance to transfer his or her shares to someone with whom the remaining owners do not want to deal (Anonymous 2008). As mentioned above, since many successors went to study abroad in the past, they are more willing to trust the theory of corporate governance. In short, governance process and planning are the most important factors from the perspective of the successors. Moreover, the successor needs to manage the business in the future. Poor governance means that he/ she will need to solve more problems. Bourgeois (1984) stated that chief executive officer (CEO) is more willing to delegate the company when the company is performing well. Strong performance of the company provides a margin of surplus that allows managers to accommodate more relaxed managerial styles. It provides a buffer for the CEO against poor handling of delegated responsibility (Singh 1986). By the same token, the successor is less willing to take over the company with no governance, as there is no buffer for him/ her to make mistake. Preparation Level of Successor The preparation level of successor measures whether the owner manager provides assistance to the successor to take over the family business. Successors believed that this factor is the second important factor influencing the success of the business succession. If the owner manager is more willing to provide such assistance, it is


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interpreted as he/she is more willing to give the business to the successor. This is an intrinsic motivation. Also, one of the factors measures whether the owner manager help the successor to build up the relationship with senior members. To have a successful succession, i.e. continue running the business, the successor must build up a good relationship with the staff who know the operation well and are well connected with external suppliers and/or customers. Fan, Wong and Zhang found that there are a lot of non-transferable assets in the succession, including the owner managers' superior management skills, creativity, leadership, secret formula, previous leader's ideology, reputation, or political/ business connections, all of them cannot be learned quickly or bought and sold freely in the marketplace (citied in Fan, Jian and Yeh 2008). Therefore, if the preparation level of successor is better, then he/she is more likely to overcome the challenges after the succession. Moreover, the preparation level of successor may affect the confidence of the successor in taking over the company. According to Bandura (1986), self-confidence is one of the most influential regulators of behavior. If the successor has less experience in managing the family business, he/she may face more challenges from the senior staff. The disadvantageous position of the successor may lower his/her confidence in running the business. There is a positive relationship between self-confidence and performance (Druckman and Bjork, ed. 1994). Thus, less prepared is the successor, less confidence he/she has in managing the company and a higher chance of failure in the succession. It is therefore the second important critical success factor in the eyes of a successor. Trust in Successor Under this category, two independent variables are grouped. They include owner manager’s trust in the successor’s ability, and the relationship between owner manager and successor. The results are not surprising. As mentioned above, the unplanned birth is normal in Chaozhou, most of the families have more than one child. It means that owner managers can choose the most suitable child to be the successor. Also, Chinese people emphasized on “face” and seniority. If the relationship between the two generations is bad, it means that the younger generation may challenge the older generation. It will cause the owner manager to loss “face”. If this happened, the successor understood that he/she would lose his/her position easily. In short, Trust in successor affects the Perception on the success of the succession positively.


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Willingness to take over and Personal Needs This category contains two independent variables, namely Willingness to take over and Personal needs alignment. This factor, contrary to expectation, is not significant. As mentioned above, Chaozhou is a father-centred society. Father has the absolute power in the family. All the rulers in the eras of emperors wanted to sustain their dynasty into infinity. This wish is passed down even to the contemporary Chinese and a sustained enterprise is important to most Chinese businessmen. According to Ip and Gabriel (2006), owner managers want his/her company to generate sufficient income for the following generations and this is a common tough in the Chinese society. Hofsted’s cultural dimensions show that Chinese people are less willing to share their thoughts. Although the owner managers may have their own planning, they never tell the successor his/ her thought. Consequently, successors believe that they have no choice, but to take over the company. Willingness to take over and personal needs is therefore not considered as a critical success factors in the succession. VII. Summary, Limitations and Recommendations for Future Research This empirical study examines the personal and organizational factors affecting the succession in small and medium sized family businesses in the PRC where very few similar studies have been made. In this study, successors believe that Governance structure and planning is the most important critical success factors in the succession, followed by Preparation Level of Successor and Trust in successor. Willingness to take over is not shown to have any relationship with the Perception success of the succession. These beliefs may find its roots in successors of the new generation’s Western management theories. Also, they think that personal needs and feelings are unimportant as they believe they do not have a choice in taking over the family business. Although a random sample is used in this study, the targeted respondents were constrained to Chaozhou small and medium sized family businesses in Shantou Special Economic Zone. Chaozhou is only one of many clans and Shantou is only one of cities in a big country like the PRC. Thus the result of this study may not be generalized beyond the sample to represent the small and medium sized family businesses in the PRC. So, it is worthwhile to further investigate how clan culture influences succession in family businesses. In addition, the results show that there are two rejected hypotheses, including Successor’s Personal needs alignment and Willingness to take over. For further research, it is a need to examine the reasons


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that cause the two hypotheses rejected in this study.


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Appendix 1: Figures and Tables

Figure 1: Theoretical Model

Figure 2: Structural Model of Owner-manager


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Figure 3: Structural Model of Successor

Table 1: Summary of Hypothesis

Hypothesis Factors Owner Manager Successor

H1 Successor’s personal needs alignment No Relationship Positive

H2 Willingness to take over No Relationship Positive

H3 Trust in the successor’s abilities and intentions Positive Positive

H4 Relationship between owner manager and successor Positive Positive

H5 Preparation level of successor Positive Positive

H6 Management Succession Planning Positive Positive

H7 Governance structure No Relationship Positive


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Table 2: KMO and Bartlett's Test for Owner-managers Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.920 Bartlett's Test of Sphericity Approx. Chi-Square 4321.315

df 406 Significant 0.000

Table 3:Varimax Rotated Matrix: The Independent Variables for Owner managers

Items

Factor

Trust to successor

(TRUS)

Governance process

and planning (GPP)

Personal needs

alignment (PNA)

Management

succession planning

(MSP)

Cronbach Alpha .942 .917 .862 .832

TRU3. .730 .092 .230 .081

WTO3. .728 .025 .188 .205

WTO5. .707 .192 .193 .091

WTO2. .693 .101 .395 .230

TRU2. .671 .344 .207 .003

WTO4. .668 .035 .304 .238

REL2. .651 .388 .193 .223

TRU1. .637 .090 .079 .027

REL1. .634 .321 .049 .068

TRU4. .605 .317 .160 .067

WTO1. .600 .273 .406 .209

REL3. .599 .401 .164 .287

TRU5. .593 .294 .172 .100

GS1. .135 .883 .178 -.012

GS2. .200 .826 .119 .190

GS4. .173 .723 .093 .238

GS3. .199 .721 .068 .223

PREP4. .229 .652 .170 .219

MSP4. .244 .619 .163 .366

PREP3. .304 .503 .162 .201

PREP1. .240 .350 .332 .302

PN1. .376 .096 .813 .071

PN2. .343 .276 .652 .128


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PN3. .359 .354 .520 .098

MSP2. .329 .313 .099 .698

MSP1. -.015 .443 .216 .629

MSP3. .468 .276 .018 .545

PREP2. .192 .505 .203 .362

TRU6. .338 .359 .149 .049

TRU=Trust in the successor’s abilities in attentions

WTO=Willingness to take over

REL=Relationship between owner-‐manager and successor

GS=Governance structure

PN=Personal needs alignment

MSP=Management succession planning

PREP=Preparation level of successor

Table 4: KMO and Bartlett's Test for Successors Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.928 Bartlett's Test of Sphericity Approx. Chi-Square 4209.680

df 406 Significant 0.000

Table 5: Varimax Rotated Matrix: The Independent Variables for Successors

Items

Factors

Governance process

and planning (GPP)

Trust in

successor

(TRUS)

Willingness to take over and

Personal Needs (WTOPN)

Preparation level of

successor (PREP)

Cronbach

Alpha 0.941 0.915 0.876 0.885

GS4 .779 .264 .229 .147

GS1 .722 .316 .185 .201

GS3 .718 .216 .166 .218

GS2 .708 .295 .221 .174

MSP2 .637 .265 .272 .324


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MSP4 .619 .318 .255 .247

MSP1 .573 .252 .241 .426

MSP3 .519 .297 .215 .259

WTO5 .396 .330 .396 .273

PREP1 .362 .311 .266 .359

TRU2 .265 .761 .161 .155

TRU4 .387 .694 .140 .206

TRU1 .196 .666 .219

REL2 .180 .643 .295 .170

TRU6 .612 .106 .209

REL1 .331 .583 .189 .275

TRU5 .422 .582 .145 .158

TRU3 .355 .548 .163 .123

REL3 .364 .526 .151

WTO1 .322 .222 .811 .143

PN1 .800

WTO2 .355 .262 .619 .257

WTO4 .350 .196 .549 .156

WTO3 .351 .131 .518 .400.

PN2 .316 .208 .513 .150

PN3 .122 .383 .183

PREP4 .243 .183 .234 .782

PREP3 .282 .221 .254 .701

PREP2 .277 .292 .195 .640

TRU=Trust in the successor’s abilities in attentions

WTO=Willingness to take over

REL=Relationship between owner-manager and successor

GS=Governance structure

PN=Personal needs alignment

MSP=Management succession planning

PREP=Preparation level of successor

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