Captain on the Bridge: Corporate Restructuring in the U.S.-China Trade War

Abstract

Will corporate leaders centralize their control in response to survival threats, and why? This paper investigates the corporate restructuring decisions of family-controlled listed companies in China triggered by the U.S.-China trade war since 2018. We first construct a novel measure to capture the exposure of individual firms to the trade war, on a sample of 937 family-controlled listed companies in China over 2012-2023. Our results show that family firms more heavily exposed to the trade war were less likely to undergo family successions. Instead, family owners significantly increased their ultimate control rights and direct ownership stakes. The heavily-exposed firms featured no excessive cash extractions, no increased tunneling behavior, and no extra share pledging for extra liquidity; while being more active in injecting new capital, and establishing overseas entities and subsidiaries. Overall, the controlling families underscore their commitment to weathering the crisis by showing more alignment than entrenchment.