Behavioral Logic of Formal Governance in Family Businesses: The Moderating Roles of Firm Size and Political Connection

Abstract

While scholarly and practical interests in family businesses’ formal governance have grown substantially, the behavioral logics underlying governance formalization remain poorly understood. We therefore advance two critical behavioral logics, including legitimacy and efficiency logics, and examine how and under what conditions they drive family businesses’ formal governance. Drawing on mixed cross-sectional data from the Chinese Private Enterprise Survey (2000–2014), our results reveal that family businesses’ formal governance reflects an organizational response to both behavioral logics, with their relative influence exhibiting divergent patterns across heterogeneous firm contexts. Specifically, small and medium-sized family businesses and those lacking political connections lean toward legitimacy logic, whereas large family businesses and those with political connections lean toward efficiency logic. These findings suggest that to effectively advance formal governance, family businesses should strategically draw upon both legitimacy and efficiency logics according to their distinctive characteristics, particularly firm size and political identity.