Working Paper: NBER ID: w16874
Authors: Vikas Mehrotra; Randall Morck; Jungwook Shim; Yupana Wiwattanakantang
Abstract: The practice of adopting adults, even if one has biological children, makes Japanese family firms unusually competitive. Our nearly population-wide panel of postwar listed nonfinancial firms shows inherited family firms more important in postwar Japan than generally realized, and also performing well - an unusual finding for a developed economy. Adopted heirs' firms outperform blood heirs' firms, and match or nearly match founder-run listed firms. Both adopted and blood heirs' firms outperform non-family firms. Using family structure variables as instruments, we find adopted heirs "causing" elevated performance. These findings are consistent with adult adoptees displacing blood heirs in the left tail of the talent distribution, with the "adopted son" job motivating star managers, and with the threat of displacement inducing blood heirs to invest in human capital, mitigating the so-called "Carnegie conjecture" that inherited wealth deadens talent.
Keywords: Family Firms; Adult Adoption; Corporate Governance; Japan
JEL Codes: G3; J12; N25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adopted heirs (D14) | firm performance (L25) |
| blood heirs (Y70) | firm performance (L25) |
| adopted heirs displace less capable blood heirs (D15) | managerial talent (M54) |
| managerial talent (M54) | firm performance (L25) |
| threat of displacement (J63) | investment in human capital by blood heirs (J24) |
| adopted heirs (D14) | competitive environment (L13) |