In the context of a transitional economy, the determinants of corporate violations remain insufficiently understood, and the impact of founder control on such misconduct has received limited attention. Drawing on psychological ownership theory, this study aims to investigate the relationship between founder control and corporate violations, and further examines how clan culture and donation culture moderate this relationship.
This study uses a sample of 1,975 privately controlled listed firms in China from 2008 to 2020. The proposed hypotheses are tested using logit models and negative binomial regression models.
The empirical results show that founder control reduces the likelihood of corporate violations. Further analysis indicates that clan culture, as an inward-oriented cultural form, strengthens this restraining effect. Donation culture, as an outward-oriented cultural form, exerts a similar reinforcing effect. In addition, this negative effect is more pronounced in firms with a private-sector origin, those with qualified disclosure transparency, in receipt of government subsidies, and subject to low analyst attention.
This study highlights the governance role of founder control in reducing the risk of corporate violations. The findings offer important implications for firms seeking to build effective internal governance mechanisms and for policymakers aiming to improve regulatory frameworks.
This study makes three contributions. First, it provides empirical evidence on the theoretical paradox of founder governance by showing that founder control can mitigate corporate violations, thereby lending support to the stewardship perspective relative to the managerial power view. Second, it extends psychological ownership theory from its traditional focus on value creation to the domain of ethical constraint and the prevention of corporate violations. Finally, it enriches the literature on informal institutions by differentiating the distinct governance mechanisms of clan culture and donation culture, thereby revealing their heterogeneous effects on corporate ethics.
