Must Love Kill the Family Firm?
University of Alberta - Department of Finance and Statistical Analysis
University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER)
National University of Singapore - Department of Finance/Strategy and Policy
NBER Working Paper No. w16340
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.
Number of Pages in PDF File: 40
Date posted: September 8, 2010
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