Must Love Kill the Family Firm?

39 Pages Posted: 31 Aug 2010 Last revised: 27 Jan 2013

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 Governence Institute; Asian Bureau of Finance and Economic Research

Jungwook Shim

Independent

Yupana Wiwattanakantang

National University of Singapore - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: August 26, 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.

Keywords: Family Business, Corporate Governance, Culture, Institutional Development, Economic Development

JEL Classification: G3, G34, J12, O17, P5, Z1

Suggested Citation

Mehrotra, Vikas and Morck, Randall K. and Shim, Jungwook and Wiwattanakantang, Yupana, Must Love Kill the Family Firm? (August 26, 2010). Available at SSRN: https://ssrn.com/abstract=1668958 or http://dx.doi.org/10.2139/ssrn.1668958

Vikas Mehrotra

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

School of Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2976 (Phone)
780-492-3325 (Fax)

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

Jungwook Shim

Independent ( email )

No Address Available

Yupana Wiwattanakantang

National University of Singapore - Department of Finance ( email )

Business School
Mochtar Riady Building #7-44, 15 Kent Ridge Dri
Singapore, 117592
Singapore
65-6516-1912 (Phone)

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