Family succession and business diversification: Evidence from China

This study examines whether family firms tend to expand their business when family successors inherit the entire business. In the specific economic environment of China, we find that second-generation successors are more likely to diversify the family business and perform better after diversification. Moreover, family successors located in provinces with low levels of development have more incentives to diversify their business, relative to successors located in provinces with high development levels. However, political connections reduce successors' incentives for diversification. Therefore, we find that the specific effects of political connections and regional levels of market development influence family successors' incentives for diversification.