Families run a large fraction of business groups around the world. In this paper, we analyze how the structure of the families behind these business groups affects the groups' organization, governance and performance. To address this question, we constructed a unique data set of family trees and business groups for nearly 100 of the largest business families in Thailand. We find a strong positive association between family size and family involvement in the ownership and control of the family business. The sons of the founders play a central role in both ownership and board membership, especially when the founder of the group is gone. The availability of more sons is also associated with lower firm-level performance, especially when the founder is no longer present. We identify a possible governance channel for this performance effect. Excess control by sons, but not other family members, is associated with lower firm performance. In addition, excess control by sons increases with the number of sons and with the death of the founder. One hypothesis that emerges from our analysis is that part of the decay of family-run groups over time may be due to a dilution of ownership and control across a set of equally powerful descendants of the founder, which creates a race to the bottom in tunneling resources out of the group firms.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13738.
Length: Date of creation: Jan 2008 Date of revision: Handle: RePEc:nbr:nberwo:13738
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Find related papers by JEL classification: D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation G30 - Financial Economics - - Corporate Finance and Governance - - - General J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure Z19 - Other Special Topics - - Cultural Economics - - - Other
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Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999.
"Corporate Ownership Around the World,"
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Francesco Caselli & Nicola Gennaioli, 2006.
"Dynastic Management,"
CEP Discussion Papers
dp0741, Centre for Economic Performance, LSE.
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Francesco Caselli & Nicola Gennaioli, 2003.
"Dynastic Management,"
NBER Working Papers
9442, National Bureau of Economic Research, Inc.
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Andrew Ellul & Marco Pagano & Fausto PAnunzi, 2008.
"Inheritance Law and Investment in Family Firms,"
CSEF Working Papers
204, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 30 Jul 2009.
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