Contractual Governance, Relational Governance, and Firm Performance: The Case of Chinese and Ghanaian and Family Firms

Abstract

Financial performance of firms is a key to long-term survival and profitability. Investors will only invest in firms whose financial performance is creditable; and family businesses are no exception. Perhaps, the performance of family businesses could be attributed to their unique characteristics, which shape their governance. Contractual governance and relational governance are corporate governance structures used to manage the relationships between parties to a transaction and reduce opportunism. Governance models of family firms are often more complex because of the need for two systems (the family and the firm) to interact positively and efficiently despite their different aims, values, institutional structures, etc. In this study, we explore the effects that contractual and relational governance models exert on family firm financial performance, from a survey of 2432 management and non-management employees of family businesses across China and Ghana.