Family Firms and Contractual Institutions

59 Pages Posted: 4 Apr 2019

See all articles by Leo Iacovone

Leo Iacovone

World Bank; University of Sussex

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Nick Tsivanidis

Dartmouth College

Date Written: April 3, 2019

Abstract

This paper offers new evidence on the relationship between contractual institutions, family management, and aggregate performance. The study creates a new firm-level database on management and ownership structures spanning 134 regions in 11 European countries. To guide the empirical analysis, it develops a model of industry equilibrium in which heterogeneous firms decide between family and professional management when the latter are subject to contracting frictions. The paper tests the model's predictions using regional variation in trust within countries. Consistent with the model, the finding show that there is sorting of firms across management modes, in which smaller firms and those in regions with worse contracting environments are more likely to be family managed. These firms are on average 25 percent less productive than professionally managed firms, and moving from the country with the least reliable contracting environment to the most increases total factor productivity by 21.6 percent. Family management rather than ownership drives these results.

Suggested Citation

Iacovone, Leonardo and Maloney, William F. and Tsivanidis, Nick, Family Firms and Contractual Institutions (April 3, 2019). World Bank Policy Research Working Paper No. 8803. Available at SSRN: https://ssrn.com/abstract=3365331

Leonardo Iacovone (Contact Author)

World Bank ( email )

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University of Sussex ( email )

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United Kingdom

William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

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Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Nick Tsivanidis

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

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