Must Love Kill the Family Firm?
AbstractFamily 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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Date of creation: Sep 2010
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Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- P5 - Economic Systems - - Comparative Economic Systems
- Z1 - Other Special Topics - - Cultural Economics
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