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Must Love Kill the Family Firm?

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  • Vikas Mehrotra
  • Randall Morck
  • Jungwook Shim
  • Yupana Wiwattanakantang

Abstract

Family firms depend on a succession of capable heirs to stay afloat. If talent and IQ are inherited, this problem is mitigated. If, however, progeny talent and IQ display mean reversion (or worse), family firms are eventually doomed. This is the essence of the critique of family firms in Burkart, Panunzi and Shleifer (2003). Since family firms persist, solutions to this succession problem must exist. We submit that marriage can transfuse outside talent and reinvigorate family firms. This implies that changes to the institution of marriage – notably, a decline in arranged marriages in favor of marriages for “love” – bode ill for the survival of family firms. Consistent with this, the predominance of family firms correlates strongly across countries with plausible proxies for arranged marriage norms. Interestingly, family firm dominance interacted with arranged marriage norms also correlates with lower GDP per capita, suggesting that cultural inertia may also impede convergence to more efficient economic organization.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16340.

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Date of creation: Sep 2010
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Handle: RePEc:nbr:nberwo:16340

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References

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  1. Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, 01.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1992. "The Carnegie Conjecture: Some Empirical Evidence," Working Papers 682, Princeton University, Department of Economics, Industrial Relations Section..
  3. Ellul, Andrew & Pagano, Marco & Panunzi, Fausto, 2008. "Inheritance Law and Investment in Family Firms," CEPR Discussion Papers 6977, C.E.P.R. Discussion Papers.
  4. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEP Discussion Papers dp0716, Centre for Economic Performance, LSE.
  5. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1, October.
  6. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2005. "The Rise and Fall of the Widely Held Firm: A History of Corporate Ownership in Canada," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 65-148 National Bureau of Economic Research, Inc.
  7. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
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  9. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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Cited by:
  1. Randall Morck, 2011. "Finance and Governance in Developing Economies," NBER Working Papers 16870, National Bureau of Economic Research, Inc.
  2. Vikas Mehrotra & Randall Morck & Jungwook Shim & Yupana Wiwattanakantang, 2011. "Adoptive Expectations: Rising Sons in Japanese Family Firms," NBER Working Papers 16874, National Bureau of Economic Research, Inc.

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