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Must Love Kill the Family Firm?

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

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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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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  1. 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.
  2. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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  4. Ellul, Andrew & Pagano, Marco & Panunzi, Fausto, 2008. "Inheritance Law and Investment in Family Firms," CEPR Discussion Papers 6977, C.E.P.R. Discussion Papers.
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  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.
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  10. repec:aea:jeclit:v:43:y:2005:i:3:p:655-720 is not listed on IDEAS
  11. Randall Morck & Daniel Wolfenzon & Bernard Yeung, 2004. "Corporate Governance, Economic Entrenchment and Growth," NBER Working Papers 10692, 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. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1, September.
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