Must Love Kill the Family Firm?

40 Pages Posted: 8 Sep 2010 Last revised: 24 Feb 2023

See all articles by Vikas Mehrotra

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Jungwook Shim

Kyoto Sangyo University

Yupana Wiwattanakantang

National University of Singapore - Department of Finance ; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2010

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.

Suggested Citation

Mehrotra, Vikas and Morck, Randall K. and Shim, Jungwook and Wiwattanakantang, Yupana, Must Love Kill the Family Firm? (September 2010). NBER Working Paper No. w16340, Available at SSRN: https://ssrn.com/abstract=1673677

Vikas Mehrotra (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

School of Business
University of Alberta
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Canada
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Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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Jungwook Shim

Kyoto Sangyo University ( email )

Motoyama, Kamigamo, Kita-ku
Kyoto, Kyoto 603-8555
Japan

HOME PAGE: http://https://www.kyoto-su.ac.jp/faculty/professors/ec/shim-jungwook.html

Yupana Wiwattanakantang

National University of Singapore - Department of Finance ( email )

Business School
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European Corporate Governance Institute (ECGI) ( email )

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