American Journal of Industrial and Business Management, 2015, 5, 288-310

Published Online May 2015 in SciRes. http://www.scirp.org/journal/ajibm

http://dx.doi.org/10.4236/ajibm.2015.55031

Contractual Governance, Relational

Governance, and Firm Performance:
The Case of Chinese and Ghanaian
and Family Firms
Samuel Addae-Boateng1,2, Xiao Wen1, Yaw Brew1,2
1
School of Management and Economics, University of Electronic Science and Technology of China,
Chengdu, China
2
Faculty of Business and Management Studies, Koforidua Polytechnic, Koforidua, Ghana
Email: [email protected]

Received 7 May 2015; accepted 24 May 2015; published 27 May 2015

Copyright © 2015 by authors and Scientific Research Publishing Inc.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

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 re-
duce 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 con-
tractual 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.

Keywords
Corporate Governance, Family Business, Firm Performance, Contractual Governance, Relational
Governance

1. Introduction
Contractual governance and relational governance are corporate governance structures used to manage the rela-

How to cite this paper: Addae-Boateng, S., Wen, X. and Brew, Y. (2015) Contractual Governance, Relational Governance,
and Firm Performance: The Case of Chinese and Ghanaian and Family Firms. American Journal of Industrial and Business
Management, 5, 288-310. http://dx.doi.org/10.4236/ajibm.2015.55031
 S. Addae-Boateng et al.

tionships between parties to a transaction and reduce opportunism. The concept of corporate governance sounds
simple and unambiguous, but when one attempts to define it and scan available literature, one comes across a
bewildering variety of perceptions behind available definitions. The definition varies according to the sensitivity
analyst, the context of varying degrees of development and from the standpoint of academics versus corporate
managements. Corporate governance is typically perceived by academic literature as dealing with “problems
that result from the separation of ownership and control”. From this perspective, corporate governance would
focus on: the internal structure and rules of the board of directors; the creation of independent audit committees;
rules for disclosure of information to shareholders and creditors; and control of the management [1].
As stated in Sicoli [2], in an article from 1937, Coase uses the concept of governance to refer to those coordi-
nating mechanisms internal to the firm which reduce market originated transaction costs [3]. Later, in 1979,
Williamson takes up the term governance in his theory of transaction costs, to describe alternative forms of fi-
nancial organization to the market and hierarchy. In his theory, governance designates the coordinating modali-
ties of those individual and organizational actions, different from hierarchies and the market, through which the
construction of the social order is achieved [4].
Tricker [5] suggests that corporate governance is concerned with the exercise of power over corporate entities.
Addae-Boateng, Wen & Brew [6] project several definitions of the concept and reiterate the view of Mallin [7]
that many of the definitions of corporate governance serve to illustrate that corporate governance is concerned
with both the shareholders and the internal aspects of the company, such as internal control, and the external as-
pects, such as an organization’s relationship with its shareholders and other stakeholders.
In family firms, as for the other typologies of firms, there exists no one model of governance which is abso-
lutely valid in every context, and even within the same business context, the structure of governance is not fixed
but may change over time [8]. Depending on the specific situation and timeframe considered, very different
types of institutional structures can prevail [9]. Addae-Boateng et al. [10] define family businesses as firms
owned and controlled by a family (nuclear and/or extended), either wholly or in part. In their work on the rea-
sons for work performance in family businesses, Addae-Boateng et al. [10] noted that all the definitions of fam-
ily businesses project three qualifying combinations of ownership and management: family-owned and family-
managed, family-owned but not family-managed, and family-managed but not family-owned [11]. However,
there is consistency in the literature that a business owned and managed by a family is a family business.
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.
By extension, effective governance of family firms should incorporate both formal control and social control
aspects of governance. That is, family firms need to develop governance structures that ensure effective supervi-
sion and control by owners and promote cohesion and shared vision among major stakeholders as well as re-
ducing conflict. Ensuring effective management supervision and control by owners calls for formal principal-
agency relationships and controls through contractual agreements (i.e. contractual governance). On the other
hand, promoting cohesion and shared vision among major stakeholders as well as reducing conflict calls for the
identification and use of social controls to promote social interaction and shared vision (Relational Governance
Models). From the above, it suffices to state that governance structures of family firms could employ or draw on
both contractual governance and relational governance models, either as complementary systems, or substitutory
systems.

2. Contractual Governance
Wu and Pan [12] state that contractual governance means governing a transaction through formal contracts.
Owing to the investments on specific purposes and asymmetric information, professional managers probably
make use of their operational and managerial power in the pursuit of personal interests more than businesses’
overall interests. In order to lower the transactional risks between family businesses and professional managers,
the family business will surely reinforce contractual governance as the power to regulate enterprises and profes-
sional managers [13] [14].
Heidi, Pia, Kirsimarja, & Paavo [15] define contractual governance as formal means of safeguarding the ex-
change between buyer and seller as they conduct joint R&D activities. The concept thus refers to contracts (ex-
plicit, formal and written collaboration contracts) and Intellectual Property Rights (IPRs) used for managing

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buyer-supplier relationships. They view IPRs (patents, copyrights, trademarks and trade secrets) as part of con-
tractual governance, since their existence (potentially) provides protection against opportunism where innova-
tions are concerned [16]. The importance of contracting is emphasized in the literature on supply-chain and
technology management in the context of knowledge transfer between buyers and sellers [17]-[22]. Contracting
facilitates commitment and task allocation, which, in turn, are relevant in successful conflict management [23].
Whereas a certain amount of conflict may be beneficial for innovation, too much of it is likely to create prob-
lems [24]. As Cullen and Hickman [25] note, classical contracts are drafted with the presumption that “the par-
ties are at arms’ length, rather than collaborating on the basis of close working relations”. Thus, the use of con-
tracts may include terms that assume from the start that parties will not perform their obligations if left un-
checked. Generally, without contracts the risk of abuse and opportunism increases, which may lead to collabora-
tion failure and leave the firm at a disadvantage.
However, as Cullen and Hickman [25] note, no contract can account for every potential issue or contingency.
Because property rights and other formal protection are costly and may not always be efficient, firms need to use
an array of organizational arrangements to protect valuable knowledge. Thus, given the limitations and rigidity
of contractual governance, relational governance mechanisms are also needed [15] [26].

3. Relational Governance
Relational governance is to govern transactions through relational norms. Relational norms refer to some social
processes and regulations which exist because of the counterparts’ relations in a transaction [27]. Zaheer and
Venkatraman [28] believe that relational contracts’ governance consists of a structure and a process. The rela-
tional structure dimension is represented as vertical semi-integration while processes underlined in the relation-
ship are presented as joint actions.
Heidi et al. [15] note that relational contracting has been used to describe mechanisms that utilize non-legal
sanctions that result in decreased opportunism along with improved effectiveness [29]-[31]. Indeed, under the
label of the relational review [31] it is suggested that this governance mechanism has a value-adding function.
They use the concept of relational governance to describe the non-contractual relational mechanisms (trust in its
various forms and relational-cooperative norms) that affect the exchange relationship between buyer and sup-
plier [32].
McNeil [33] holds the view that contracts can be explained as the exchange relations among different persons.
Poppo and Zenger [34] state that relational governance basically hinges on trust, cooperation or cooperative
spirit, open communication and sharing of information, and dependence. Where available, these should promote
the flexibility, solidarity, and information exchange needed to enforce obligations, promises, and expectations.
In their absence, it will be difficult for exchange partners to adapt to unforeseeable events, get a bilateral ap-
proach to problem solving, and acquire new information and opportunities that could aid the attainment of goals
(both in the short-term and in the long-term). Through these social processes and the resulting norms, relational
governance may function to mitigate the precise exchange hazards targeted by contractual governance [15]
[33]-[40].

4. Governance and Family Firm Financial Performance

Firm performance is a multi-dimensional construct, which could be divided into financial and non-financial
models. The financial models are linked with sales growth, cash flow, profitability, return on assets, and other
financial performance measures; while the non-financial models are linked with market share, market position,
product quality, and customer loyalty. Thus there is no universal unit of analysis for describing or measuring
performance, competitiveness, and success in firms [41]-[51].
Although available literature suggests that family businesses are pestilenced by destructive nepotism [19] [52],
determination of executive succession by broadly placing family interests first rather than competence [53], lack
of access to capital due to ever-increasing needs of a growing family, lack of professional management [54],
skepticism by financial markets [54] [55], etc., varying comparisons of family businesses and non-family busi-
nesses by researchers affirm that the former outperforms the latter [56]-[64].
Perhaps, the performance of family businesses could be attributed to their unique characteristics, which shape
their governance. For example, issues about succession may encourage family firms to invest more efficiently

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because they may consider their firms as assets to be passed on to succeeding generations [65]-[67]. Also, their
control of management, together with the founding family’s historical presence and active involvement, accord
the family auspicious berth to oversee its business and hence ensure that the firm performs better financially [59]
[67]-[69]. Furthermore, because family members working in the business are not simply economic individuals
seeking their self-interests, but often act with altruism for the benefit of the organisation and family [70]-[72],
they identify with the organisation and embrace its objectives; and are committed to make it succeed, even at
personal sacrifice [10] [63] [73].
Since family firm performance could, in part, be attributed to its governance [6], this study intended to meas-
ure family firm financial performance in the light of contractual governance and relational governance. The re-
searchers attempted to measure the degree to which contractual complexity affects individual and family firm
performances as well as the degree to which relational governance affects individual and family firm perform-
ances. Thus by firm performance, we are referring to the financial returns generated by the firm when it invests
in assets, otherwise called Return on Assets (ROA). Since the study aims at ascertaining how effectively family
businesses could use their human assets to create profits, we adopt the definition proposed by Chen & Dodd [74],
and Ross, Westerfield, & Jaffe [75], thus ROA measures how effectively a firm uses its assets to create profits,
i.e. how much is generated by the family business from investing any amount in one individual employee.

5. Research Problem and Hypotheses

Over the years, most research on governance of firms, both family and non-family, have concentrated on For-
tune 500 corporations and from United States, British, and Finnish firms [76]-[79]. This research concentrates
on corporate governance structures in Chinese and Ghanaian family firms, with emphasis on the relationship
between management and non-management employees within these firms.
Financial performance of firms is a key to long-term survival and profitability. Investors will only invest in
firms whose financial performance is creditable. Although literature on governance of family business units ex-
ists, a detailed study of the effect that each of contractual and relational governance systems could have on a
family firm’s financial performance, when the concept is applied to the relationship between management and
employees of family businesses, is yet to be conducted.
To address the above problems of research, the study sought to answer the following questions.
1) What is contractual governance and how does it apply to the relationship between management and em-
ployees of family businesses?
2) What is relational governance and how does it apply to the relationship between management and employ-
ees of family businesses?
3) What is the effect of contractual governance on family firm financial performance?
4) What is the effect of relational governance on family firm financial performance?
Based on the above discussions and the problems highlighted, we hypothesized the following:
a) Null Hypothesis 1 (H1): The level of contractual complexity has no effect on individual and ultimately
family firm financial performance.
b) Alternate Hypothesis 1 (H2): The level of contractual complexity has effect on individual and ultimately
family firm financial performance.
c) Null Hypothesis 2 (H3): The level of relational governance does not influence individual and family firm
financial performance.
d) Alternate Hypothesis 2 (H4): The level of relational governance influences individual and family firm fi-
nancial performance.

6. Methodology
In order to achieve the objectives of this study, we employed both qualitative and quantitative methods in sam-
pling our respondents and investigating the variables of interest. We described and explored the strength of rela-
tionships between the variables as well as their cause-and-effect relationships using correlation and regression
analyses techniques, which are consistent with available literature and previous research of this nature [80]-[84].
As has already been stated, we studied family businesses across Ghana and China. Distinct criteria were used
to identify the family businesses to be included in the sample frame. The major criterion applied was Chua,

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Chrisman, & Sharma’s [11] definition of family business, i.e. “a family business is a business governed and/or
managed with the intention to shape and pursue the vision of the business held by a dominant coalition con-
trolled by members of the same family or a small number of families in a manner that is potentially sustainable
across generations of the family or families”. Therefore, the criteria developed from the attributes of family
businesses according to the above definition were applied to the determination of the sample of the study as fol-
lows:
1) Family-owned and family-managed;
2) Family-owned but not family-managed; and
3) Family-managed but not family-owned.
After identifying the family businesses that fall within the criteria described above, cluster sampling was used
in selecting the cases study firms. Thus the family businesses identified from our definition of family business
were clustered into three for each study area and a sample randomly selected from each of them. The three clus-
ters were defined as follows:
1) “family businesses that are 15 years old or less”;
2) “family businesses that had existed for more than 15 years but less than 30 years”;
3) “family businesses that are 30 years old or more”.
Based on the above clusters, three (3) family businesses (one from each cluster) within the Sichuan Province
of China were purposefully selected or sampled. The same process was used in selecting the three (3) family
businesses in Ghana. The family businesses were selected in this manner because the researchers needed busi-
nesses who were interested in the research and whose CEOs and the Boards were willing to encourage the man-
agement staff, non-family-member-employees, and family-member-employees to discuss the questions in the
questionnaires objectively with the researchers. The process adopted in the study therefore met Merriam’s [85]
recommendation regarding purposeful sampling that it is not the number and representativeness of the sample
that are the major considerations, but rather the potential of each person or group to contribute to the develop-
ment of insight and understanding. This potential for contribution to the study was determined by the partici-
pants’ high response to the questionnaire survey.
The use of cluster sampling conforms to the elucidation by Cochran [86] and Henry [87] that sampling clus-
ters guarantee that results will be proportionate to known groups in the population, and can substantially reduce
study costs of data gathering while ensuring that all characteristics within the population are represented.
After sampling the family businesses, convenience and purposive sampling techniques were used in the ad-
ministration of questionnaires, which in some cases, were followed with interviews to clarify unclear responses.
These techniques were employed because of the difficulty associated with identifying and contacting all the
elements in our population of study (i.e. all staff of the sampled firms) as well as the necessity to purposively
select respondents in some cases (e.g. management) because, in the researchers’ judgment, they could provide
answers that would enhance the attainment of the study’s objectives. This method became necessary because,
since the approach adopted was the personal, face-to-face method of collecting data in order to encourage high
response rates, the researchers could only interact with those people they met at the various work places they
visited during the period of the data collection. The use of these sampling tools is consistent with the suggestions
by De Vos [88] and Saunders et al. [89].
The probability sampling method employed (i.e. cluster sampling) provided an excellent way to select sam-
ples (the cases study firms) that were quite representative and less biased; while the non-probability sampling
techniques (i.e. convenience and purposive sampling) were employed in the administration of the questionnaires
and conduct of interviews because of the difficulty associated with identifying, contacting, and getting the con-
sent of all the elements in the study’s population of interest (i.e. all staff of all the sampled cases) to participate
in the study. Because they represent different interests in the various family businesses, respondents were cate-
gorized into three, i.e. Management staff, family-member-employees, non-family-member-employees. Upper-
level management personnel (Directors, Chief Executives, Managers, etc.) and middle-level management per-
sonnel (e.g. Supervisors) were combined to constitute the “management” respondents for this study.
A total of 1762 completed questionnaires (414 for Ghana, and 1348 for China) were collected out of the 2432
that were distributed, yielding 72% response rate (refer to Table 1). However, out of the 1762 questionnaires re-
trieved, 1701 (395 for Ghana, and 1306 for China) were usable due to missing values, representing 70% of the
whole. The response rate of 70% was found to be above the acceptable range for such a survey, representing a
high response rate [90].

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Table 1. The Response pattern.

Family Non-family
Country Case Freq Management Total
Employees Employees
Distributed 10 25 60 95
Company
Collected 6 20 44 70
A
% 60 80 73.3 73.4
Distributed 20 35 95 150
Company
Collected 16 25 71 112
B
% 80 71.4 74.7 74.7
Distributed 45 60 165 270
Ghana Company
Collected 39 45 145 229
C
% 86.7 75 87.9 84.8
Distributed 75 120 320 515
Collected 61 90 260 414
Overall % 81.3 75 81.3 79.8
Usable 60 87 248 395
Usable % 80 72.5 77.5 76.7
Distributed 34 24 179 237
Company
D Collected 19 20 131 170
% 55.9 83.3 73.2 71.7
Distributed 80 100 300 480
Company
Collected 44 66 202 312
E
% 55 66 67.3 65
Distributed 200 200 800 1200
China Company
F Collected 92 150 610 852
% 46 75 76.3 71
Distributed 314 324 1279 1917
Collected 156 241 951 1348

Overall % 49.7 74.4 74.4 70.3

Usable 151 225 930 1306
Usable % 48.1 69.4 72.7 68.1

Table 1 shows the response pattern of the study by country. The final usable sample size was 395 for Ghana
and 1306 for China. Out of the 395 Ghanaian respondents, 60 representing 80% response rate of that category
were management personnel; 87 representing 73% response rate of that category were family-member-em-
ployees, and 248 representing 78% response rate of that category were non-family-employees. Also, out of the
1306 Chinese respondents, 151 representing 48% response rate of that category were management personnel,
225 representing 69% response rate of that category were family-member-employees and 930 representing 73%
response rate of that category were non-family-member-employees. The effective response rate was thus 77%
for Ghana and 68% for China, which compares more favourably and higher than similar studies [34].

7. Variables and Measurement

7.1. Dependent Variable
The research aimed at finding the effect of relational and contractual governance on a family firm’s financial

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performance. Hence, the objectives of the research permitted the use of our financial performance variable as the
dependent variable in the regression analysis. As already stated, one of the financial variables indicating a fami-
ly firm’s overall financial performance is the Return on Assets (ROA). ROA is also a widely used accounting
metric of firm performance, which measures firms’ profitability by dividing a company’s earnings before inter-
est and tax by its total assets. ROA measures how effectively a firm uses its assets to create profits, hence a
higher ROA is more favorable [74] [75]. The study’s objective was to measure how effectively family business-
es could use their human assets to create profits, i.e. how much was generated by the family business from in-
vesting an amount of money (say $1) in one individual employee? Thus, in line with previous studies, the res-
pondents were asked to rate themselves on how much profits the company had reaped from them individually by
investing in them over the past five years, using a 7-point Likert scale in which 1 represents “much worse” and 7
represents “much better.” Management respondents were asked to rate individual employees on how much prof-
its the company had reaped from them individually by investing in the individual employees over the past five
years, using the same 7-point Likert scale described above [34] [74] [75].

7.2. Independent Variables

As was done for the dependent variable, the study’s objectives allowed the use of our corporate governance
models (i.e. contractual governance and relational governance) as the independent variables for the regression
analysis. As already indicated in previous sections, contractual governance is the governance mechanism based
on formal principal-agency rules and relationships, and controls through contractual agreements. In this research,
the researchers attempted to apply the concept of contractual governance to the employment contracts or agree-
ments (indicating the roles, responsibilities, position reporting, etc.) existing between managers and employees
of family businesses. Consistent with Macneil [35] and Poppo and Zenger [34], contractual governance was
measured by assessing the degree to which employees were given complex contracts, hence respondents were
asked to indicate their level of agreement with the following statement using a 7-point Likert scale (1 represents
“strongly Disagree” and 7 represent “strongly Agree”):
1) The formal contract of the employees is highly customized, which requires considerable legal work (coded
as “A”).
The measurement of this construct by a single item is limited. To further validate this measure, the survey al-
so requests respondents to indicate the length of the contract (in pages), which previous work has shown as an
indicator of contractual complexity [91]. A lower response rate as well as the use of a single answer (1.5 pages)
by almost all those who answered for this question precluded its use as a second indicator of a complex contract.
Relational governance, on the other hand, refers to the governance based on the creation and usage of social
capital embedded in social relationships among exchange parties. For such relationally-governed exchanges, the
enforcement of obligations, promises, and expectation occurs through social processes that promote norms of
flexibility, solidarity, and information exchange. In this study, relational governance is viewed as composite
factor with the following three underlying norms and dimensions: open communication and sharing of informa-
tion, trust, and cooperation. This specification is consistent with previous measurement [34] [92]. We modified
three indicators from empirical studies and asked respondents to indicate their degree of agreement with each of
the following statements using a 7-point Likert scale (1 = strongly disagree, 7 = strongly agree):
2) Managers and employees have extremely collaborative relationships with each other (i.e. cooperation
among parties, coded as B1);
3) Managers and employees share long-term and short-term goals and plans (i.e. open communication and in-
formation sharing, coded as B2);
4) Managers and employees can rely on each other to keep promises (i.e. trust, coded as B3).

7.3. Control Variables

Control variables are those variables generally held constant in order to assess or clarify the relationship be-
tween two other variables, the dependent and independent variables. Control variables are mostly held constant
and unchanged to test the relative impact of independent variables on dependent variables. Thus since it is al-
most impossible to consider every variable in a single study, the variables that are not measured but can impact
on the results of the study are held constant, or eliminated, so they will not have a biasing effect on the other va-
riables [93] [94]. This study is a social science research which involves the study of human behavior to discover

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the relationship between the dependent and the independent variables in a multivariate analysis. In order to be
able to test how these variables are related and whether the relationship is the same for all family businesses and
industries, the researchers controlled for the firm size, type of industry, and the age of the family business under
consideration. Firm size was measured using the number of employees as a factor. Our use of these control va-
riables are consistent with literature on family business research involving the testing of relationships [95]-[97].

8. Results and Discussion

8.1. Relationships between Governance and Performance in Chinese Family Firms
8.1.1. Analyses of Chinese Family-Member-Employees’ Responses
Table 2 presents the results of the regression analysis from the responses of family-member-employees, non-
family-member-employees, and management of Chinese family businesses. Contractual governance or com-
plexity is represented as “A” while all variables under relational governance (viewed as a composite factor hav-
ing open communication and sharing of information, trust, and cooperation as its underlying norms and dimen-
sions) are represented using “B1,” “B2,” and “B3.” “B1” represents Cooperation, “B2” represents Open com-
munication and information sharing, and “B3” represents Trust. Performance is also measured using Return on
Asset (P). In order to be able to test how these variables are related and whether the relationship is the same for
all family businesses and industries, regardless of the size of the family business, we control for potential dif-
ferences using type of industry, firm size, and age of the business.

Table 2. Relationship between Contractual Governance, Relational Governance and Performance based on responses of
family-member-employees, non-family-member-employees, and management of Chinese family businesses.

Chinese Family-Member-Employees
Dependent Variable Independent Variable Constant Beta Sig

P A 3.381 0.029 0.755

P B1 3.381 −0.295 0.000

P B2 3.381 0.370 0.000

P B3 3.381 0.331 0.001

Chinese Non-Family-Member-Employees

P A 2.204 −0.064 0.092

P B1 2.204 0.223 0.000

P B2 2.204 0.137 0.000

P B3 2.204 0.369 0.000

Chinese Management

P A −0.226 0.216 0.000

P B1 −0.226 0.546 0.000

P B2 −0.226 0.142 0.015

P B3 −0.226 0.134 0.040

Codes - Interpretation

P - Return on Assets

A - Contractual Governance

B1 - Cooperation

B2 - Open Communication and Information Sharing

B3 - Trust

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Statistical inference is inductive in its nature, i.e. propositions are considered true or false only with a certain
probability. The significance level is a pre-selected probability of declaring the null hypothesis false when it is
actually true. Significant levels of 0.05 and 0.01 are widely used in testing hypotheses; but in social sciences, a
significance of 0.1 is still acceptable because it deals with human behavior, opinions, etc., which cannot be easi-
ly measured like the physical sciences. The higher the level of significance was, the higher the margin of error
used [98]. In this study, “p-values” below a level of 0.1 are considered significant. This level of significance was
adopted because of the difficulty associated with collecting data in family business research and the subjective
nature of the variables under consideration.
In examining the relationship between contractual governance and performance, the correlation analysis be-
tween Contractual Complexity and Return on Assets at 0.10 level of significance produced an indication of a
positive relationship between them (r = 0.190, p-value = 0.003), but as shown in Table 2, the regression test to
predict the linear relationship between the two did not produce any significant result. Because the probability
level for the null hypothesis that the correlation between Contractual complexity and Return on Assets is zero in
the data set has a p-value = 0.755, and the level of significance of 0.1 is less than 0.755, we fail to reject the null
hypothesis 1. Therefore the results from the correlation and regression analyses of these variables offer support
for H1.
In examining the relationship between relational governance and performance from the responses of family-
member-employees of Chinese family businesses, the correlation analysis indicated a negative linear relation-
ship between Cooperation (B1) and ROA (P) (r = −0.064, p-value = 0.000) in a correlation test. The regression
test to predict the linear relationship between B1 and P, using P as the dependent variable and B1 as independent,
produced significant results as shown in Table 2. The R2 value for the equation is 20.8%.
This result implies that an increase in cooperation among exchange partners (managers and family-member-
employees) in a family business in China could lead to a reduction in individual performance (in terms of indi-
vidual return on asset) and, ultimately, family firm financial performance. By implication, in order to increase
the returns to be gained from investing in human assets (family-member-employees of family businesses) in
China, managers may need to reduce the extent of their (management) cooperation with them (family-member-
employees), hence not offering support for H3.
Open communication and sharing of information (B2) and Return on Assets (P) yielded a positive linear rela-
tionship (r = 0.300, p-value = 0.000) in the correlation test. A regression test to predict the linear relationship
between B2 and P produced significant results at 0.10 level of significance, as presented in Table 2. This result
suggests that an increase in Open Communication and sharing of information among exchange partners (man-
agers and family-member-employees) in a family business in China could lead to an increase in individual per-
formance (in terms of individual return on labour assets) and, ultimately, family firm financial performance.
Thus in order to increase the returns to be gained from investing in human assets (family-member-employees of
family businesses) in China, managers may need to improve upon their (management) communication and in-
formation sharing with them (family-member-employees). Therefore we reject H3.
Also, the correlation analysis between Trust (B3) and ROA (P) showed a significant positive linear relation-
ship (r = 0.460, p-value = 0.000) between the two variables. Table 2 shows that the regression test to predict the
linear relationship between B3 and P also produced significant positive results. This result suggests that an in-
crease in trust among managers and family-member-employees in a family business in China could lead to an
increase in individual return on assets and, ultimately, family firm financial performance. Thus in order to in-
crease the returns to be gained from investing in family-member-employees of family businesses in China,
managers may need to build trusting relationships with them (family-member-employees). Therefore we reject
H3.
We noted that with the control variables, the age of the business and the firm size were positively corre-
lated (r = 0.957, p-value = 0.000). Age of the business and the type of the business were also positively corre-
lated (r = 0.733, p-value = 0.000), while the size of the company and the type of the business were also posi-
tively correlated (r = 0.503, p-value = 0.000). However, none of the control variables had any significant rela-
tionships with any of the other measured variables.
Figure 1 presents the relationships discussed above graphically.
Figure 1 presents the described relationships between contractual governance, relational governance, and
performance variables based on responses by Chinese family-member-employees graphically. Contractual gov-
ernance or complexity is represented as “A” while all variables under relational governance (viewed as a com-

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Figure 1. Relationships between Contractual Governance, Relational Governance, and Performance

based on responses by family-member-employees of Chinese family businesses.

posite factor having open communication and sharing of information, trust, and cooperation as its underlying
norms and dimensions) are represented using B1, B2, and B3. B1 represents Cooperation, B2 represents Open
communication and information sharing, and B3 represents Trust. Performance is also measured using Return
on Assets (P). The use of the arrow indicates the existence of a significant causal relationship between the vari-
ables. The use of the dotted line, however, indicates that there is no significant causal relationship between the
variables. The positive (+) and negative (−) signs are used to indicate positive and negative relationships respec-
tively.
As indicated in the research objectives and the hypotheses, the study sought to unearth the cause-and-effect
relationships that exist between relational governance and contractual governance and performance so as to de-
termine whether the two governance models influence performance positively or negatively, and which model is
better at enhancing individual and ultimately family firm financial performance. Therefore if, after testing the
variables and causality between them using the statistical measures, it is realized that changes in (say) contrac-
tual complexity (denoted as A) do not cause any significant changes in Return on Assets (denoted as P), then a
dotted line would be used to depict this relationship (e.g. AP). If, on the other hand, changes in the independent
variable (e.g. cooperation, coded as B1) could lead to significant changes in the dependent variable (P), then an
arrow is used to represent such a relationship. The negative sign (−) indicates that the relationship between the
two is inverse, i.e. as cooperation increases, ROA decreases. If the significant relationship is positive, it is rep-
resented as shown in B2P, with the positive sign (+), indicating that there is a direct significant relationship be-
tween the two, hence as open communication and sharing of information between the parties increases, individ-
ual performance (in terms of ROA) increases.
Therefore Figure 1 shows that contractual complexity does not exert any significant influence on individual

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ROA. Hence, use of formal written contracts between management and family-member-employees does not af-
fect individual family-member-employees’ financial returns. Similarly, there is a negative significant linear rela-
tionship between B1 and P, suggesting that cooperation among management and family-member-employees ac-
tually leads to a reduction in the financial returns generated by the firm from investing in these family-member-
employees. Hence, if management of family businesses in China want to increase individual family-member-
employee returns on assets, the extent of management cooperation with them (family-member-employees) must
be reduced. However, management of family businesses in China must enrich their communication as well as
take steps to build trust with family-member-employees if management wants to reap significant positive returns
from investing in family-member-employees because there are positive significant relationships between open
communication and ROA as well as between trust and ROA.

8.1.2. Analyses of Chinese Non-Family-Member-Employees’ Responses

In examining whether there is a relationship between contractual complexity or governance and performance as
given by responses from this category of workers in family businesses in China, correlation and regression
analyses between the performance and contractual governance indicators were run at 0.10 level of significance.
The results from the correlation analysis showed a negative relationship between contractual complexity (A) and
ROA (P) (r = −0.267, p-value = 0.000). As shown in Table 2, the regression test to predict the linear relation-
ship between the two (A and P) confirmed a significant negative relationship exists between the two, with R2
value of 37% for the linear equation.
This suggests that the use of complex contracts by managers in dealing with individual non-family-member-
employees could negate those employees’ financial performances, and hence did not offer support for the Null
Hypothesis 1.
Also, the correlation test between Cooperation (B1) and ROA (P) indicated a significant positive linear rela-
tionship between them (r = 0.473, p-value = 0.000). The regression test, shown in Table 2, yielded a positive
significant regression equation with R2 value of 37.2%. This suggests that cooperation among exchange partners
(managers and non-family-member-employees) in a family business in China could exert a positive significant
influence on individual performance (in terms of individual return on asset) and, ultimately, family firm finan-
cial performance, hence we reject H3.
Open Communication and sharing of information (B2) and Return on Assets (P) produced a significant posi-
tive linear correlation between them (r = 0.361, p-value = 0.000). The regression test, shown in Table 2, yielded
a positive significant regression equation with R2 value of 37%, which implies that open communication and
sharing of information among exchange partners (managers and non-family-member-employees) in a family
business in China could significantly influence individual performance (in terms of individual return on asset)
and, ultimately, family firm financial performance positively, hence we reject H3.
The correlation test between Trust (B3) and Return on Assets (P) also yielded significant positive results (r =
0.489, p-value = 0.000). The regression test also produced a positive significant regression equation as shown in
Table 2. This implies that trust among managers and non-family-member-employees of family businesses in
China could significantly influence individual performance (in terms of individual return on asset) and, ulti-
mately, family firm financial performance positively, hence we reject H3.
We noted from the control variables that the age of the business and the firm size were positively correlated
(r = 0.959, p-value = 0.000). Age of the business and the type of industry were also positively correlated (r =
0.832, p-value = 0.000), while the size of the company and the type of industry were also positively correlated (r
= 0.642, p-value = 0.000). However, none of the control variables had any significant relationships with any of
the other measured variables.
Figure 2 simplifies the relationships discussed above graphically.
Figure 2 shows that among non-family-member-employees of family businesses in China, contractual com-
plexity influences return on assets negatively; and all the relational governance variables influence return on as-
sets positively. These relationships presume that in order to increase the returns the family business would gen-
erate from individual non-family-member-employees of family firms in China, management must resort more to
the use of relational governance and less of contractual governance. Thus management must enhance their co-
operation with non-family-member employees, build more trust, and enrich communication and information
sharing at the workplace with this category of workers.

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Figure 2. Relationships between Contractual Governance, Relational Governance, and Performance

based on responses by non-family-member-employees of Chinese family businesses.

8.1.3. Analyses of Chinese Management’s Responses

We examined whether there is a relationship between contractual complexity or governance and performance as
given by responses from this category of workers in family businesses in China. In doing so, correlation and re-
gression analyses between the performance and contractual governance indicators were run at 0.10 level of sig-
nificance. The results from the correlation analysis showed a positive relationship between them (r = 0.657,
p-value = 0.000). As shown in Table 2, the regression test to predict the linear relationship between the two (A
and P) predicted a significant regression equation with R2 value of 82%. This suggests that the use of complex
contracts by managers in dealing with individual employees of family businesses in China could boost up em-
ployee and cumulatively family firm financial performance. Therefore we reject H1.
Also, the correlation test between Cooperation (B1) and ROA (P) produced an indication of a positive sig-
nificant linear relationship between them (r = 0.854, p-value = 0.000). The regression test to predict the linear
relationship between the two (B1 and P), as shown in Table 2, confirmed a significant positive linear relation-
ship, suggesting that from management’s perspective, cooperation among managers in dealing with individual
employees of family businesses in China could boost up employee and cumulatively family firm financial per-
formance. Therefore we reject H3.
Open Communication and sharing of information (B2) and Return on Assets (P) predicted a positive linear
relationship after a correlation test (r = 0.749, p-value = 0.006). The regression test to predict the linear rela-
tionship between the two (B2 and P), presented in Table 2, was positively significant, implying that open com-
munication and sharing of information among exchange partners (managers and employees) in a family business
in China could significantly and positively influence individual performance (in terms of individual return on
asset) and, ultimately, family firm financial performance, hence we reject H3.

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The correlation test between Trust (B3) and Return on Assets (P) (r = 0.771, p-value = 0.000) predicted a
positive linear relationship. The regression test to predict the linear relationship between the two (B3 and P) pre-
dicted a significant positive linear equation, thus from management perspective, the trust that managers build in
dealing with individual employees of family businesses in China could boost up employee and family firm fi-
nancial performance (i.e. return on assets). Therefore we reject H3.
The control variables revealed that the age of the business and the firm size were positively correlated (r =
0.954, p-value = 0.000), age of the business and the type of industry were positively correlated (r = 0.784,
p-value = 0.000), and type of industry and the firm size were positively correlated (r = 0.563, p-value = 0.000).
The age of the business and contractual complexity were, however, negatively correlated (r = −0.166, p-value =
0.023), age of the business and open communication and information sharing were negatively correlated (r =
−0.218, p-value = 0.004), age of the business and cooperation were negatively correlated (r = −0.234, p-value =
0.002), and age of the business and trust were negatively correlated (r = −0.165, p-value = 0.024). Likewise, age
of the business and ROA were negatively correlated (r = −0.215, p-value = 0.001).
Also, the size of the business and contractual complexity were negatively correlated (r = −0.158, p-value =
0.029), size of the business and open communication and information sharing were negatively correlated (r =
−0.229, p-value = 0.003), size of the business and cooperation were negatively correlated (with r = −0.245 and
p-value = 0.002), and size of the business and trust were negatively correlated (r = −0.140, p-value = 0.047). In
the same vein, the size of the business and ROA were negatively correlated (r = −0.221, p-value = 0.009).
The type of industry and contractual complexity were negatively correlated (r = 0.131, p-value = 0.058), type
of industry and open communication and information sharing were negatively correlated (r = −0.127, p-value =
0.064), type of industry and cooperation were negatively correlated (r = −0.138, p-value = 0.049), and type of
industry and trust were negatively correlated (r = −0.165, p-value = 0.024). The type of industry and ROA were
also negatively correlated (r = −0.135, p-value = 0.026).
Figure 3 presents graphically the relationships between contractual governance, relational governance, and
performance variables based on responses by Chinese managers.

Figure 3. Relationships between Contractual Governance, Relational Governance, and

Performance based on responses by management of Chinese family businesses.

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The views of management of Chinese family businesses, as illustrated in Figure 3, shows that contractual
complexity influences return on assets positively; and all the relational governance variables influence return on
assets positively as well. These relationships presume that, as far as management of Chinese family businesses
are concerned, in order to increase the returns the family business would generate from individual employees of
family firms in China, and management must deepen the use of both contractual and relational governance mod-
els. Thus management must increase the complexity of the contractual obligations of parties, enhance their co-
operation with employees using social processes and norms, build more trust, and enrich communication and
information sharing at the workplace with workers if they intend to maximise the returns they could reap from
investing in employees.

8.2. Relationships between Governance and Performance in Ghanaian Family Firms

8.2.1. Analyses of Ghanaian Family-Member-Employees’ Responses
Table 3 presents the results of the regression analysis from the responses of family-member-employees, non-
family-member-employees, and management of Ghanaian family businesses.
We examined whether there is a relationship between contractual complexity or governance and performance
as given by responses from this category of workers in family businesses in Ghana. In doing so, correlation and
regression analyses between the performance and contractual governance indicators were run at 0.10 level of
significance. The results from the correlation analysis between Contractual Complexity (A) and Return on As-
sets (P) indicated a negative relationship between them (r = −0.277, p-value = 0.005). The regression analysis
revealed a relatively significant negative linear relationship between the two (contractual complexity and ROA)
with R2 value of 27.7%. This result suggests that an increase in contractual complexity between exchange part-
ners (managers and family-member-employees) in a family business in Ghana could lead to a reduction in indi-
vidual performance (in terms of individual ROA) and, ultimately, family firm financial performance. Therefore,
to improve individual family-member-employee and firm performance, management should reduce the use of
formal controls through formal contracts (refer to Table 3).
The probability level for the null hypothesis that the correlation between contractual complexity or govern-
ance and ROA is zero in the data set has a p-value of 0.000. Since p-value = 0.000 is less than the level of
significance of 0.10, we reject the null hypothesis 1, hence changes in the level of contractual complexity or
governance would lead to changes in individual and ultimately family firm financial performance.
A look at the control variables revealed that the age of the business and the firm size were positively corre-
lated (r = 0.775, p-value = 0.000) but none of the two had any significant relationships on return on assets (ROA)
or contractual complexity. The type of industry showed no effect on the results because all the companies sur-
veyed from Ghana were in the same industry.
There was also an indication of a negative linear relationship between Cooperation (B1) and ROA (P) (r =
−0.047, p-value = 0.022) in a correlation test. The regression test (see Table 3) to predict the linear relationship
between B1 and P, using P as the dependent variable and B1 as independent, produced significant negative re-
sults. The R2 value for the linear relationship is 28%.
The probability level for the null hypothesis that the correlation between cooperation and ROA is zero in the
data set has p-value = 0.012. Since p-value of 0.012 is less than the level of significance of 0.10, we reject the
null hypothesis 2. This result implies that an increase in cooperation among exchange partners (managers and
family-member-employees) in a family business in Ghana could lead to a reduction in individual performance
(in terms of individual return on asset) and, ultimately, family firm financial performance. By implication, in
order to increase the returns to be gained from investing in human assets (family-member-employees of family
businesses) in Ghana, managers may need to reduce the extent of their (management) cooperation with them
(family-member-employees).
We noted that, on the part of the control variables, the age of the business and the firm size were positively
correlated (r = 0.775, p-value = 0.000) but none of the two had any significant relationships with return on assets
(ROA) or cooperation. The type of industry showed no effect on the results because all the companies surveyed
from Ghana were in the same industry.
The correlation test between Open Communication and sharing of information (B2) and Return on Assets (P)
also showed positive linear relationship (r = 0.260, p-value = 0.008). The regression test to predict the linear re-
lationship between B2 and P confirmed the significant positive relationship between the two variables, as shown

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in Table 3.
The probability level for the null hypothesis that the correlation between open communication and sharing of
information and return on assets has p-value of 0.002, which is less than the level of significance of 0.01, hence
we reject H3. This result suggests that an increase in Open Communication and sharing of information among
exchange partners (managers and family-member-employees) in a family business in Ghana could lead to an in-
crease in individual performance (in terms of individual return on labour assets) and, ultimately, family firm
financial performance. Thus in order to increase the returns to be gained from investing in human assets (fam-
ily-member-employees of family businesses) in Ghana, managers may need to improve upon their (management)
communication and information sharing with them (family-member-employees).
The correlation test between Trust (B3) and ROA (P) also indicated a weak positive linear relationship (r =
0.333, p-value = 0.001) between the two variables. As shown in Table 3, the regression test to predict the linear
relationship between B3 and P produced significant results, suggesting that an increase in trust among managers
and family-member-employees in a family business in Ghana could lead to an increase in individual return on
assets and, ultimately, family firm financial performance. Consequently, in order to increase the returns to be
gained from investing in family-member-employees of family businesses in Ghana, managers may need to build
trusting relationships with them (family-member-employees). The probability level for the null hypothesis that
the correlation between trust and ROA is zero is 0.02, which is less than the level of significance of 0.10.
Therefore we reject H3.
With the control variables, the age of the business and the firm size were positively correlated (r = 0.775, p-
value = 0.000) but none of the two had any significant relationships with return on assets (ROA), contractual
complexity, cooperation, open communication and information sharing, or trust. The type of industry showed no
effect on the results because all the companies surveyed from Ghana were in the same industry.

Table 3. Relationship between Contractual Governance, Relational Governance and Performance based on responses of
family-member-employees, non-family-member-employees, and management of Ghanaian family businesses.

Ghanaian Family-Member-Employees
Dependent Variable Independent Variable Constant Beta Sig
P A 4.115 −0.185 0.066
P B1 4.115 −0.294 0.012
P B2 4.115 0.378 0.002
P B3 4.115 0.307 0.002
Ghanaian Non-Family-Member-Employees
P A 4.383 0.091 0.188
P B1 4.383 0.014 0.835
P B2 4.383 0.024 0.720
P B3 4.383 0.059 0.397
Ghanaian Management
P A −1.726 0.178 0.089
P B1 −1.726 0.594 0.000
P B2 −1.726 −0.035 0.748
P B3 −1.726 0.273 0.024
Codes - Interpretation
P - Return on Assets
A - Contractual Governance
B1 - Cooperation
B2 - Open Communication and Information Sharing
B3 - Trust

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Figure 4 presents the relationships discussed above graphically.

Figure 4 presents the described relationships between contractual governance, relational governance, and
performance variables based on responses by Ghanaian family-member-employees graphically. It can be ob-
served that contractual complexity and cooperation exert bear relationships with return on assets; while trust and
open communication and sharing of information have direct relationships with return on assets. These relation-
ships presume that, as far as family-member-employees of Ghanaian family businesses are concerned, in order
to increase the returns the family business would generate from individual employees of family firms in Ghana,
management must lessen the use of both contractual complexity and cooperative behaviour with employees who
are members of the owning family. However, management must build more trusting relationships and encourage
open communication and information sharing with employees who are members of the owning family if they
(management) intend to maximise the returns they could reap from investing in family-member-employees.

8.2.2. Analyses of Ghanaian Non-Family-Member-Employees’ Responses

In examining whether there is a relationship between contractual complexity or governance and performance as
given by responses from this category of workers in family businesses in Ghana, correlation and regression
analyses between the performance and contractual governance indicators were run at 0.10 level of significance.
The correlation analysis between Contractual Complexity and Return on Assets (ROA) produced an indication
of a weak positive relationship between them (r = 0.096, p-value = 0.066) but the regression test did not yield
any significant linear relationship between the two (contractual complexity and ROA), as presented in Table 3.
This suggests that the use of complex contracts by managers in dealing with individual non-family-member-
employees of Ghanaian family businesses does not have any direct relationships or effects on their financial
performance, and hence offers support for the Null Hypothesis 1.

Figure 4. Relationships between Contractual Governance, Relational Governance, and Performance

based on responses by family-member-employees of Ghanaian family businesses.

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Also, the correlation test between Cooperation (B1) and ROA (P) did not produce any indication of a signifi-
cant linear relationship between them (r = 0.040, p-value = 0.265). This suggests that cooperation among ex-
change partners (managers and non-family-member-employees) in a family business in Ghana may not exert
any significant influence on individual performance (in terms of individual return on asset) and, ultimately, fam-
ily firm financial performance, hence we do not reject H3.
Open Communication and sharing of information (B2) and Return on Assets (P) failed to predict a linear rela-
tionship after a correlation test (r = 0.041, p-value = 0.262) at 0.10 level of significance. This implies that open
communication and sharing of information among exchange partners (managers and non-family-member-em-
ployees) in a family business in Ghana may not exert any significant influence on individual performance (in
terms of individual return on asset) and, ultimately, family firm financial performance, hence we do not reject
H3.
In addition to the above, a correlation analysis between Trust (B3) and Return on Asset (P) produced a weak
positive linear relationship (r = 0.091, p -value = 0.076) between the two variables. However, as shown in Table
3, the regression test to predict the linear relationships between these variables did not produce any significant
results, suggesting that variations in the level of trust among managers and non-family-member-employees of
family businesses in Ghana may not exert any influence on individual performance (in terms of individual return
on assets). Therefore we do not reject H3.
With the control variables, the age of the business and the firm size were positively correlated (r = 0.649, p-
value = 0.000), age of the business and contractual complexity were also positively correlated (r = 0.132 and
p-value = 0.019), and age of the business and open communication and sharing of information were positively
correlated (r = 0.149, p-value = 0.009). However, age of the business and return on assets were negatively cor-
related (r = −0.113, p-value = 0.038), age of the business and cooperation were negatively correlated (r = −0.166,
p-value = 0.004), but the size of the business did not have any significant relationships with any of the variables.
The type of industry showed no effect on the results because all the companies surveyed from Ghana were in the
same industry.
Figure 5 shows that among non-family-member-employees of family businesses in Ghana, both contractual

Figure 5. Relationships between Contractual Governance, Relational Governance,

and Performance based on responses by non-family-member-employees of Ghana-
ian family businesses.

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governance and relational governance do not exert any significant influence on individual return on assets,
hence the dual governance models and the returns to be generated from investing in employees who are not
members of the owning family stand independent of each other. These relationships suggest that management of
family businesses in Ghana must conduct further research into the factors that may enhance the returns to be
generated from investing in this category of workers, other than the governance relationships pursued with them.

8.2.3. Analyses of Ghanaian Management’s Responses

We examined whether there is a relationship between contractual complexity or governance and performance as
given by responses from this category of workers in family businesses in Ghana. In doing so, correlation and re-
gression analyses between the performance and contractual governance indicators were run at 0.10 level of sig-
nificance. The correlation analysis between Contractual Complexity (A) and ROA (P) indicated a positive rela-
tionship between them (r = 0.188, p-value = 0.075). Table 3 shows that the regression test to predict the linear
relationship between the two (A and P2), showed a significant positive relationship. This suggests that, from
management’s perspective, the use of complex contracts by managers in dealing with individual employees of
family businesses in Ghana could boost up employee and cumulatively family firm financial performance.
Therefore we reject H1.
Also, the correlation test between Cooperation (B1) and ROA (P) produced an indication of a positive sig-
nificant linear relationship between them (r = 0.655, p-value = 0.000). From Table 3, the regression test con-
firmed the significant linear relationship between the two (B1 and P). The R-Square value for the equation is
57.1%. This suggests that cooperation among managers in dealing with individual employees of family busi-
nesses in Ghana could boost up employee and cumulatively family firm financial performance. Therefore we
reject H3.
Open Communication and sharing of information (B2) and Return on Assets (P) predicted a linear relation-
ship after a correlation test (r = 0.321, p-value = 0.006). However, the regression test to predict the linear rela-
tionship between B2 and P did not produce significant results (as shown in Table 3). This implies that, as far as
management is concerned, open communication and sharing of information among exchange partners (managers
and employees) in a family business in Ghana may not exert any significant influence on individual performance
(in terms of individual return on asset) and, ultimately, family firm financial performance, hence we do not re-
ject H3.
The correlation test between trust (B3) and return on assets (P) (r = 0.547, p-value = 0.000) predicted a posi-
tive linear relationship. Management responses from Table 3 reveals that the regression test to predict the linear
relationship between the two (B3 and P) yielded significant positive results, suggesting that the trust that man-
agers build in dealing with individual employees of family businesses in Ghana could boost up employee and
family firm financial performance (i.e. return on assets), hence we reject H3.
The control variables showed that the age of the business and the firm size were positively correlated (r =
0.593, p-value = 0.000), but both did not show any significant relationships with any of the other variables. The
type of industry showed no effect on the results because all the companies surveyed from Ghana were in the
same industry.
Figure 6 presents graphically the relationships between contractual governance, relational governance, and
performance variables based on responses by Ghanaian managers.
Figure 6 shows that among managers of family businesses in Ghana, the opinions are that contractual gover-
nance influences return on assets positively; and cooperation and trust also influence return on assets positively.
Thus managers wishing to reap more benefits from investing in individual employees of family businesses in
Ghana would have to use complex contracts detailing the rights, obligations, etc. of parties as well as take steps
to build trust and cooperation among managers and employees. The views of management, as illustrated in Fig-
ure 6, reveal that open communication and sharing of information does not have any significant relationship
with return on assets.

9. Limitations and Further Research

This research concentrated on family businesses that are not listed and most of whom are Small- and Medium-
Scale Enterprises (SMEs), and on six family businesses in two developing economies (i.e. China and Ghana).
Future research could include large-scale and listed family businesses and in other developing countries with

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Figure 6. Relationships between Contractual Governance, Relational Governance, and Performance

based on responses by management of Ghanaian family businesses.

different cultural practices as well. Also, it has been seen that both contractual and relational governance influ-
ence family firm financial performance when the concepts are applied to the governance relationships between
management and employees. Future research could concentrate on whether these two governance models should
be practiced concurrently or as substitutes.

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