The Influence of National Culture and Institutional Voids on Family Ownership of Large Firms: A Country Level Empirical Study

Abstract

There is considerable variation across countries in both the extent to which large publicly listed firms are family-owned and the dominance of such family-owned firms in stock markets. The literature presents competing theoretical viewpoints on what influences such country-level variation. On one hand, institutional economists suggest that institutional voids can have a strong influence. On the other hand, cultural sociologists suggest that a country's culture can have a strong influence. One type of institutional void is a lack of institutional norms and regulations needed for monitoring contracts (which can discourage owners from hiring professional agents for top management positions in their firms) and another type of institutional void is a lack of financial credit availability (i.e. credit crunch) in the country. Cultural dimensions include collectivism (i.e. cohesion within in-groups/families) and power distance (i.e. inequalities in society). This country-level empirical study suggests that both national culture and institutional voids influence family ownership patterns around the world, and that institutional voids moderate the influence of national culture. National culture has a stronger influence when a country has institutional voids; however, the influence of national culture weakens when institutional voids are overcome.

Keywords: Family, Ownership, Culture, Collectivism, Power Distance, Institution, Institutional Void, Agency Theory, Financial Credit, Credit Crunch, Credit Crisis

JEL Classification: Z1, Z10, A14, G32, M14, B15, B25, F33, G2, G21, N2, O17, P3, H3, E5