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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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Publication status: published as Mehrotra, Vikas, Randall Morck, Jungwook Shim & Yupana Wiwattanakantang. 2010. Must Love Kill the Family Firm? Entrepreneurship Theory and Practice 36(6)1121-48.
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. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1.
  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. 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.
  5. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  6. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," NBER Working Papers 12216, National Bureau of Economic Research, Inc.
  7. Marianne Bertrand & Simon Johnson & Krislert Samphantharak & Antoinette Schoar, 2008. "Mixing Family With Business: A Study of Thai Business Groups and the Families Behind Them," NBER Working Papers 13738, National Bureau of Economic Research, Inc.
  8. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
  9. Bernard Yeung & Randall Morck & Daniel Wolfenzon, 2004. "Corporate Governance, Economic Entrenchment and Growth," Working Papers 04-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. repec:aea:jeclit:v:43:y:2005:i:3:p:655-720 is not listed on IDEAS
  11. 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.
  12. Dominique Tabutin & Bruno Schoumaker, 2005. "The Demography of the Arab World and the Middle East from the 1950s to the 2000s. A Survey of Changes and a Statistical Assessment," Population (english edition), Institut National d'Études Démographiques (INED), vol. 60(5), pages 505-615.
  13. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
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Cited by:
  1. Mehrotra, Vikas & Morck, Randall & Shim, Jungwook & Wiwattanakantang, Yupana, 2013. "Adoptive expectations: Rising sons in Japanese family firms," Journal of Financial Economics, Elsevier, vol. 108(3), pages 840-854.
  2. Randall Morck, 2011. "Finance and Governance in Developing Economies," NBER Working Papers 16870, National Bureau of Economic Research, Inc.
  3. Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2013. "Family connections and entrepreneurial human capital: The uncertain destiny of proprietary capitalism," Mo.Fi.R. Working Papers 89, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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