Working Paper: NBER ID: w16340
Authors: Vikas Mehrotra; Randall Morck; Jungwook Shim; Yupana Wiwattanakantang
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 Firms; Arranged Marriages; Cultural Norms; Economic Development
JEL Codes: G3; G34; J12; O17; P5; Z1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Arranged marriage norms (J12) | Family firm dominance (J54) |
| High individualism (P14) | Negative economic impacts of family firm dominance (J12) |
| High cultural predisposition towards power distance (Z13) | Income loss associated with family firm dominance (J54) |