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According to the real environment of China, the authors collect micro data about Chinese family firms (FFs) to explain why some Chinese FFs still tend to introduce external managers though they have to face governance conflict between family-based managers and external managers.

This study analyzes the effect of governance conflict between family-based managers and external managers on firm performance by using ordinary least square test, which is also used to test which factor has influence on governance conflict’s profit promotion effect.

This study finds that governance conflict significantly improves firm performance (profit promotion effect). The governance conflict caused by the introduction of external managers in Chinese FFs can significantly improve a firm’s performance by raising its management efficiency and capital investment.

The governance conflict of the family business needs to be further refined in following research. Besides, this study is only based on the empirical study of cross-section data.

Different from the existing related research is mainly based on the sample data of listed family enterprises, the China employer-employee matched survey data includes a large number of small and medium-sized FFs, and has obtained the actual situation of how many of the middle and senior managers are external not family members.