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Must Love Kill the Family Firm?

Author Info

  • 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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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
Note: CF
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Keywords:

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, Innovation, 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

References listed on IDEAS
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  1. Andrew Ellul & Marco Pagano & Fausto Panunzi, 2009. "Inheritance Law and Investment in Family Firms," EIEF Working Papers Series 0915, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2009.
  2. 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.
  3. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEP Discussion Papers dp0716, Centre for Economic Performance, LSE.
  4. repec:aea:jeclit:v:43:y:2005:i:3:p:655-720 is not listed on IDEAS
  5. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  6. 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.
  7. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
  8. Bertrand, Marianne & Johnson, Simon & Samphantharak, Krislert & Schoar, Antoinette, 2008. "Mixing family with business: A study of Thai business groups and the families behind them," Journal of Financial Economics, Elsevier, vol. 88(3), pages 466-498, June.
  9. Francesco Caselli & Nicola Gennaioli, 2006. "Dynastic Management," CEP Discussion Papers dp0741, Centre for Economic Performance, LSE.
  10. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1, December.
  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. 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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Cited by:

  1. 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.
  2. Randall Morck, 2011. "Finance and Governance in Developing Economies," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 375-406, December.
  3. Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2013. "Family Firm Connections and Entrepreneurial Human Capital in the Process of Development," 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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