Transforming the Management and Governance of Private Family Firms Prior to Initial Public Offerings : The Role of Venture Capital

We analyze the role of venture capitalists (VCs) in transforming the management and governance of China's private family firms pre-IPO. We show, causally, that VC-backed family firms are more likely than non-VC backed family firms to experience departures of family members from top management positions and decreases in the separation between family control rights and cash-flow rights; these effects are stronger when VCs have greater equity ownership or board representation. We show that these changes in top management and governance in family firms are associated with higher IPO firm valuations and better post-IPO long run stock returns