Advertisement

The rise and fall of family firms in the process of development

  • Maria Rosaria Carillo
  • Vincenzo LombardoEmail author
  • Alberto Zazzaro
Article

Abstract

This paper explores the causes and the consequences of the evolution of family firms in the growth process. The theory suggests that in early stages of development, valuable family specific human capital stimulated the productivity of family firms and the development process. However, in light of the rise in the importance of managerial talents for firms’ productivity in later stages, family firms generated a misallocation of managerial talents, curbing productivity and economic growth. Evidence supports the dual impact of family firms in the development process and the role of socio-cultural characteristics in observed variations in the productivity of family firms.

Keywords

Family firms Economic development and growth Culture and social structure Allocation of talents Industrialization 

JEL Classification

D2 J62 L26 O14 O33 O4 Z1 

Notes

Acknowledgements

We are extremely grateful to Oded Galor (Editor-in-Chief) for the guidance and valuable comments that greatly improved this paper and to four anonymous referees for their suggestions. We warmly thank, for useful comments and suggestions, Francesco Drago, Stelios Michalopoulos, Holger Strulik and Fabrizio Zilibotti, as well as participants at the Conference on Intergenerational Transmission of Entrepreneurship, Occupations and Cultural Traits in the process of long-run economic growth (University of Naples Parthenope), Workshop on Economic Growth (OFCE-Nice), 2012 Annual Meeting of the Italian Economic Society (Matera), Workshop on Structural Change, Dynamics and Economic Growth (Livorno), NEUDC 2013 Conference (Harvard University), \(5^{th}\) Workshop on Equilibrium Analysis (University of Naples Federico II), 2014 Annual Conference of the Royal Economic Society (Manchester), 2014 Summer School in Economic Growth (Capri), 2014 Summer Workshop in Economic Growth (University of Warwick), 2015 Barcelona GSE Summer Forum (Barcelona), 2015 European Economic Association – Annual Meeting (Mannheim), 2017 13th CISEI (Capri), ASREC Europe 2017 (Bologna), and seminars held at Brown University, CSEF, Kobe University, Polytechnic University of Marche and University of Cagliari. Maria Rosaria Carillo and Vincenzo Lombardo gratefully acknowledge financial support from University of Naples Parthenope through the research funds programme “Bando di Ateneo per il sostegno alla partecipazione ai bandi di ricerca competitiva per il triennio 2016–2018”.

Supplementary material

10887_2019_9163_MOESM1_ESM.pdf (772 kb)
Supplementary material 1 (pdf 772 KB)
10887_2019_9163_MOESM2_ESM.pdf (34 kb)
Supplementary material 2 (pdf 34 KB)
10887_2019_9163_MOESM3_ESM.zip (754 kb)
Supplementary material 3 (zip 754 KB)

References

  1. Acemoglu, D., Aghion, P., & Zilibotti, F. (2006). Distance to frontier, selection and economic growth. Journal of the European Economic Association, 4(1), 37–74.Google Scholar
  2. Alesina, A., & Giuliano, P. (2010). The power of the family. Journal of Economic Growth, 15(2), 93–125.Google Scholar
  3. Alesina, A., & Giuliano, P. (2014). Family ties. In Aghion, P., & Durlauf, S.N. (Eds.) Handbook of economic growth, vol 2, North Holland, chap 4, pp 177–215Google Scholar
  4. Alesina, A., & Giuliano, P. (2015). Culture and institutions. Journal of Economic Literature, 53(4), 898–944.Google Scholar
  5. Amore, M. D. (2016). Social capital and family control. Explorations in Economic History, 65, 106–114.Google Scholar
  6. Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. The Journal of Finance, 58(3), 1301–1328.Google Scholar
  7. Ashraf, Q., & Galor, O. (2011). Cultural diversity, geographical isolation, and the origin of the wealth of nations. Working Papers 2011-16, National Bureau of Economic Research.Google Scholar
  8. Ashraf, Q., & Galor, O. (2013). The “Out of Africa” hypothesis, human genetic diversity, and comparative economic development. The American Economic Review, 103(1), 1–46.Google Scholar
  9. Ashraf, Q. H., & Galor, O. (2018). The macrogenoeconomics of comparative development. Journal of Economic Literature, 56(3), 1119–1155.Google Scholar
  10. Atack, J. (1986). Firm size and industrial structure in the United States during the nineteenth century. Journal of Economic History, 46(2), 463–475.Google Scholar
  11. Bennedsen, M., & Fan, J. P. (2014). The family business map. Basingstoke: Palgrave Macmillan.Google Scholar
  12. Bennedsen, M., & Foss, N. (2015). Family assets and liabilities in the innovation process. California Management Review, 58(1), 65–81.Google Scholar
  13. Bentzen, J.S., Kaarsen, N., & Wingender, A.M. (2013). The timing of industrialization across countries. Dept. of economics discussion paper 13–17, University of Copenhagen.Google Scholar
  14. Bertrand, M., & Schoar, A. (2006). The role of family in family firms. The Journal of Economic Perspectives, 88(2), 73–96.Google Scholar
  15. Bertrand, M., Johnson, S., Samphantharak, K., & Schoar, A. (2008). Mixing family with business: A study of Thai business groups and the families behind them. Journal of Financial Economics, 20(3), 466–498.Google Scholar
  16. Bhattacharya, U., & Ravikumar, B. (2001). Capital markets and the evolution of family businesses. The Journal of Business, 74(2), 187–219.Google Scholar
  17. Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. The Quarterly Journal of Economics, 122(4), 1351–1408.Google Scholar
  18. Bloom, N., & Van Reenen, J. (2010). Why do management practices differ across firms and countries? The Journal of Economic Perspectives, 24(1), 203–224.Google Scholar
  19. Bloom, N., Genakos, C., Sadun, R., & Van Reenen, J. (2012). Management practices across firms and countries. The Academy of Management Perspectives, 26(1), 12–33.Google Scholar
  20. Bloom, N., Sadun, R., & Van Reenen, J. (2016). Management as a technology? Working Paper 22327, National Bureau of Economic Research.Google Scholar
  21. Buggle, J.C. (2017). Growing collectivism: Irrigation, group conformity and technological divergence, working paper.Google Scholar
  22. Bunkanwanicha, P., Fan, J. P., & Witwattanakantang, Y. (2013). The value of marriage to family firms. Review of Financial Studies, 48(2), 611–636.Google Scholar
  23. Burkart, M., Panunzi, F., & Shleifer, A. (2003). Family firms. The Journal of Finance LVII, I(5), 2167–2201.Google Scholar
  24. Caselli, F., & Gennaioli, N. (2013). Dynastic management. Economic Inquiry, 51(1), 971–996.Google Scholar
  25. Chandler, A. D. J. (1977). The visible hand. The managerial revolution in American business. Cambridge: Harvard University Press.Google Scholar
  26. Chandler, A. D. J. (1990). Scale and scope. The dynamics of industrial capitalism. Cambridge: Harvard University Press.Google Scholar
  27. Chung, C. N., & Luo, X. R. (2013). Leadership succession and firm performance in an emerging economy: Successor origin, relational embeddedness, and legitimacy. Strategic Management Journal, 34, 338–357.Google Scholar
  28. Doepke, M., & Zilibotti, F. (2008). Occupational choice and the spirit of capitalism. The Quarterly Journal of Economics, 123(2), 747–793.Google Scholar
  29. Doepke, M., & Zilibotti, F. (2014). Culture, entrepreneurship and growth. In Aghion, P., & Durlauf, S.N. (Eds.) Handbook of Economic growth, vol 2, North Holland, chap 1, pp 1–48.Google Scholar
  30. Ellul, A., Pagano, M., & Panunzi, F. (2010). Inheritance law and investment in family firms. The American Economic Review, 100(5), 2414–2450.Google Scholar
  31. Fisman, R. (2001). Estimating the value of political connections. The American Economic Review, 91(4), 1095–1102.Google Scholar
  32. Fogli, A., & Veldkamp, L. (2018). Germs, social networks and growth. Staff Report 572, Federal reserve bank of Minneapolis, Research Division.Google Scholar
  33. Galor, O., & Michalopoulos, S. (2012). Evolution and the growth process: Natural selection of entrepreneurial traits. Journal of Economic Theory, 147(2), 759–780.Google Scholar
  34. Galor, O., & Moav, O. (2000). Ability-biased technological transition, wage inequality, and economic growth. The Quarterly Journal of Economics, 115(2), 469–497.Google Scholar
  35. Giuliano, P., & Nunn, N. (2017). Understanding cultural persistence and change. Working paper 23617, National Bureau of Economic Research.Google Scholar
  36. Gollin, D. (2008). Nobody’s business but my own: Self-employment and small enterprise in economic development. Journal of Monetary Economics, 55, 219–233.Google Scholar
  37. Gorodnichenko, Y., & Roland, G. (2011). Individualism, innovation, and long-run growth. Proceedings of the National Academy of Sciences, 108(Supplement 4), 21316–21319.Google Scholar
  38. Gorodnichenko, Y., & Roland, G. (2017). Culture, institutions and the wealth of nations. Review of Economics and Statistics, 99(3), 402–416.Google Scholar
  39. Hassler, J., & Mora, J. V. R. (2000). Intelligence, social mobility, and growth. The American Economic Review, 90(4), 888–908.Google Scholar
  40. Hémous, D., & Olsen, M. (2017). Long-term relationships: Static gains and dynamic inefficiencies. Journal of the European Economic Association, 16(2), 383–435.Google Scholar
  41. Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind (3rd ed.). New York: McGraw-Hill.Google Scholar
  42. van Hoorn, A. (2014). Individualism and the cultural roots of management practices. Journal of Economic Behavior & Organization, 99, 53–68.Google Scholar
  43. Iyigun, M. F., & Owen, A. L. (1999). Entrepreneurs, professionals, and growth. Journal of Economic Growth, 4, 213–232.Google Scholar
  44. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: A summary of methodology, data and analytical issues. Working paper 5430, World Bank Policy Research.Google Scholar
  45. La Porta, R., Lopez-de Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471–517.Google Scholar
  46. Lindquist, M. J., Sol, J., & Van Praag, M. (2015). Why do entrepreneurial parents have entrepreneurial children? Journal of Labor Economics, 33(2), 269–296.Google Scholar
  47. Lucas, R. E. J. (1978). On the size distribution of business firms. The Bell Journal of Economics, 9(2), 508–523.Google Scholar
  48. Mehrotra, V., Morck, R., Shim, J., & Wiwattanakantang, Y. (2013). Adoptive expectations: Rising sons in Japanese family firms. Journal of Financial Economics, 108(3), 840–854.Google Scholar
  49. Morck, R. K., & Yeung, B. (2003). Family firms and the rent seeking society. Entrepreneurship, Theory & Practice, 28(3), 391–409.Google Scholar
  50. Mueller, H. M., & Philippon, T. (2011). Family firms and labor relations. American Economic Journal: Macroeconomics, 3(1), 218–245.Google Scholar
  51. Olsson, O., & Paik, C. (2016). Long-run cultural divergence: Evidence from the neolithic revolution. Journal of Development Economics, 122, 197–213.Google Scholar
  52. Pérez-González, F. (2006). Inherited control and firm performance. The American Economic Review, 96(5), 1559–1588.Google Scholar
  53. Pollak, R. A. (1980). A transaction cost approach to families and households. Journal of Economic Literature, 23(2), 581–608.Google Scholar
  54. Rajan, R. G., & Zingales, L. (1998). Financial dependence and growth. The American Economic Review, 88(3), 559–586.Google Scholar
  55. Sraer, D., & Thesmar, D. (2007). Performance and behavior of family firms: Evidence from the French stock market. Journal of the European Economic Association, 5(4), 709–751.Google Scholar
  56. Tabellini, G. (2008). Presidential address: Institutions and culture. Journal of the European Economic Association, 6(2–3), 255–294.Google Scholar
  57. Tabellini, G. (2010). Culture and institutions: Economic development in the regions of Europe. Journal of the European Economic Association, 8(4), 677–716.Google Scholar
  58. Terviö, M. (2008). The difference that CEOs make: An assignment model approach. The American Economic Review, 98(3), 642–668.Google Scholar
  59. Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Fianancial Economics, 80, 385–417.Google Scholar
  60. Xu, N., Yuan, Q., Jiang, X., & Chan, K. C. (2015). Founder’s political connections, second generation involvement, and family firm performance: Evidence from China. Journal of Corporate Finance, 33(August), 243–259.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Dipartimento di Studi Aziendali ed EconomiciUniversità degli Studi di Napoli Parthenope, Palazzo PacanowskiNaplesItaly
  2. 2.Dipartimento di Scienze economiche e statistiche and CSEFUniversità degli Studi di Napoli Federico II, Complesso Universitario di Monte Sant’AngeloNaplesItaly
  3. 3.MoFiRAnconaItaly

Personalised recommendations