Predicting External Management Risks in China-Based Family Businesses: An Exploratory Analysis Using the SVM Technique

Abstract

Family-owned companies face a challenge: once they evolve to a particular size, they frequently need to incorporate external management. This transition is tricky for all firms but particularly for family-owned businesses in China. In this paper, we identify adverse selection and moral hazard factors that may contribute to difficulties China-based family companies have in scaling, as part of an exploratory project to determine if the support vector machine (SVM) technique can aid in predicting successful external management integration. Preliminary results indicate SVM may be highly accurate in estimating how successful external management involvement will be in the Chinese setting.