Inherited Wealth, Corporate Control and Economic Growth: the Canadian Disease

68 Pages Posted: 26 Dec 1998 Last revised: 30 Jan 2013

See all articles by Randall Morck

Randall Morck

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

David A. Stangeland

University of Manitoba - Department of Accounting and Finance

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: November 1998

Abstract

Countries in which billionaire heirs' wealth is large relative to G.D.P. grow more slowly, show signs of more political rent-seeking, and spend less on innovation than do other countries at similar levels of development. In contrast, countries in which self-made entrepreneur billionaire wealth is large relative to G.D.P. grow more rapidly and show fewer signs of rent seeking. We argue that this is consistent with wealthy entrenched families' having objectives other than creating public shareholder value. Also, the control pyramids through which they are entrenched give wealthy families preferential access to capital and enhanced lobbying power. Entrenched families also have vested interest in preserving the value of existing capital. To investigate these arguments, we use firm-level Canadian data. Heir-controlled Canadian firms show low industry-adjusted financial performance, labor capital ratios, and R&D spending relative to other firms the same ages and sizes. We argue that concentrated, inherited corporate control impedes growth, and dub this the Canadian disease.' Further research is needed to determine the international incidence of this condition. Finally, heir-controlled Canadian firms' share prices fell relative to those of comparable firms on the news that the Canada-U.S. free trade agreement would be ratified. A key provision of that treaty is capital market openness. Under the treaty, heir-controlled Canadian firms' labor capital ratios rose, while the incidence of heir-control fell. We suggest that openness, especially of capital markets, may mitigate the ill effects of concentrated inherited control. If so, capital market openness matters for reasons not captured by standard international trade and finance models.

Suggested Citation

Morck, Randall K. and Stangeland, David A. and Yeung, Bernard Yin, Inherited Wealth, Corporate Control and Economic Growth: the Canadian Disease (November 1998). NBER Working Paper No. w6814. Available at SSRN: https://ssrn.com/abstract=141192

Randall K. Morck (Contact Author)

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

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

David A. Stangeland

University of Manitoba - Department of Accounting and Finance ( email )

Faculty of Management
Winnipeg, MB R3T 5V4
Canada
204-474-6743 (Phone)
204-474-7545 (Fax)

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
143
Abstract Views
2,383
rank
203,313
PlumX Metrics