Working Paper: NBER ID: w13738
Authors: Marianne Bertrand; Simon Johnson; Krislert Samphantharak; Antoinette Schoar
Abstract: Families run a large fraction of business groups around the world. In this paper, we analyze how the structure of the families behind these business groups affects the groups' organization, governance and performance. To address this question, we constructed a unique data set of family trees and business groups for nearly 100 of the largest business families in Thailand. We find a strong positive association between family size and family involvement in the ownership and control of the family business. The sons of the founders play a central role in both ownership and board membership, especially when the founder of the group is gone. The availability of more sons is also associated with lower firm-level performance, especially when the founder is no longer present. We identify a possible governance channel for this performance effect. Excess control by sons, but not other family members, is associated with lower firm performance. In addition, excess control by sons increases with the number of sons and with the death of the founder. One hypothesis that emerges from our analysis is that part of the decay of family-run groups over time may be due to a dilution of ownership and control across a set of equally powerful descendants of the founder, which creates a race to the bottom in tunneling resources out of the group firms.
Keywords: family firms; business groups; governance; performance; Thailand
JEL Codes: D13; G30; J12; Z19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger family sizes (J12) | Lower firm-level performance (L25) |
| Excess control by sons (J12) | Lower firm performance (L25) |
| Presence of founder (L26) | Higher firm-level performance (L25) |
| Dilution of ownership and control (G34) | Inefficiencies and potential conflicts within family-run firms (L22) |