Abstract: Hereditary succession and governance transformation are great puzzles to hinder the development of Chinese family firms, and also hot topics of academic scholars. Based on the theory of allocation of control rights, this paper builds a model to explore the impact of law institutions, manager market and corporate technological capability on the choice and evolution of governance models of family firms, and then makes an empirical test using samples of Chinese family holding enterprises. The results show that, both law institutions and manager market in macro-level and technological capability in micro-level play great role on governance transformation of family firms. Specifically, founders tend to transfer control rights to professional managers with the improvement of law institutions and manager market; otherwise they prefer to descendant succession and implosive family governance. In addition, the dependence of governance transformation on institutional environments reduces with the increasing of technological capability.

Key words: family firms, governance transformation, institutional environment, technological capability