The Cultural Origins of Family Firms

Yuan, Song and Xie, Jian (2021): The Cultural Origins of Family Firms.

Abstract

What determines the prevalence of family firms? In this project, we investigate the role of historical family culture in the spatial distribution of family firms. Using detailed firm-level data from China, we find that there is a larger share of family firms in regions with a stronger historical family culture, as measured by genealogy density. The results are further confirmed by an instrumental variable approach and the nearest neighbor matching method. Examining the mechanisms, we find that entrepreneurs in regions with a stronger historical family culture: i) tend to have family members engage more in firms; ii) are more likely to raise initial capital from family members; iii) are more willing to pass on the firms to their children. Historical family culture predicts better firm performance due to a lower leverage ratio.

• Item Type: MPRA Paper
• Language: English
• Keywords: Family Culture; Family Firms; Genealogy; Cultural Origins; Firm Performance
• Subjects: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D2 - Production and Organizations; G - Financial Economics > G3 - Corporate Finance and Governance; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology

References

Alesina, Alberto and Paola Giuliano. 2010. “The power of the family.” Journal of Economic Growth 15(2):93–125.

Alesina, Alberto and Paola Giuliano. 2011. “Family ties and political participation.” Journal of the European Economic Association 9(5):817–839.

Alesina, Alberto and Paola Giuliano. 2014. Family ties. In Handbook of Economic Growth. Vol. 2 Elsevier pp. 177–215.

Alesina, Alberto, Yann Algan, Pierre Cahuc and Paola Giuliano. 2015. “Family values and the regulation of labor.” Journal of the European Economic Association 13(4):599–630.

Algan, Yann and Pierre Cahuc. 2010. “Inherited trust and growth.” American Economic Review 100(5):2060–92.

Allen, Franklin, Jun Qian and Meijun Qian. 2005. “Law, finance, and economic growth in China.” Journal of Financial Economics 77(1):57–116.

Altonji, Joseph G and Charles R Pierret. 2001. “Employer learning and statistical discrimination.” The quarterly journal of economics 116(1):313–350.

Amit, Raphael and Bel´en Villalonga. 2014. “Financial performance of family firms.” The Sage handbook of family business pp. 157–178.

Amore, Mario Daniele, Orsola Garofalo and Alessandro Minichilli. 2014. “Gender interactions within the family firm.” Management Science 60(5):1083–1097.

Anderson, Ronald C, Augustine Duru and David M Reeb. 2009. “Founders, heirs, and corporate opacity in the United States.” Journal of Financial Economics 92(2):205222.

Anderson, Ronald C and David M Reeb. 2003. “Founding-family ownership and firm performance: evidence from the S&P 500.” The Journal of Finance 58(3):13011328.

Anderson, Ronald C, David M Reeb and Wanli Zhao. 2012. “Family-controlled firms and informed trading: Evidence from short sales.” The Journal of Finance 67(1):351–385.

Ayres, Glenn R. 1990. “Rough family justice: Equity in family business succession planning.” Family Business Review 3(1):3–22.

Bai, Xinliang. 2012. The study of academies in the Ming and Qing dynasties (Mingqing Shuyuan Yanjiu). The Forbidden City Press (Beijing).

Bai, Ying and Ruixue Jia. 2016. “Elite recruitment and political stability: the impact of the abolition of China’s civil service exam.” Econometrica 84(2):677–733.

Baker, Hugh DR. 1979. Chinese family and kinship. Columbia University Press.

Banerjee, Abhijit and Lakshmi Iyer. 2005. “History, institutions, and economic performance: The legacy of colonial land tenure systems in India.” American Economic Review 95(4):1190–1213.

Becker, Sascha O and Hans K Hvide. 2019. “Entrepreneur death and startup performance.” Available at SSRN 2199645 .

Bennedsen, Morten, Kasper Meisner Nielsen, Francisco P´erez-Gonz´alez and Daniel Wolfenzon. 2007. “Inside the family firm: The role of families in succession decisions and performance.” The Quarterly Journal of Economics 122(2):647–691.

Bertrand, Marianne and Antoinette Schoar. 2006. “The role of family in family firms.” Journal of Economic Perspectives 20(2):73–96.

Bertrand, Marianne, Simon Johnson, Krislert Samphantharak and Antoinette Schoar. 2008. “Mixing family with business: A study of Thai business groups and the families behind them.” Journal of Financial Economics 88(3):466–498.

Bian, Yanjie. 1994. “Guanxi and the allocation of urban jobs in China.” The China Quarterly 140:971–999.

Biao, YOU. 2007. “Clan, ancestral hall, and sacrifice in the Song Dynasty.” Frontiers of History in China 2(2):166–180.

Bloom, Nicholas and John Van Reenen. 2007. “Measuring and explaining management practices across firms and countries.” The quarterly journal of Economics 122(4):1351–1408.

Bøhren, Øyvind, Bogdan Stacescu, Line F Almli and Kathrine L Søndergaard. 2019.

“When does the family govern the family firm?” Journal of Financial and Quantitative Analysis 54(5):2085–2117.

Bol, Peter Kees. 2008. Neo-Confucianism in history. Harvard University Press.

Buggle, Johannes and Ruben Durante. 2017. “Climate risk, cooperation, and the co-evolution of culture and institutions.”.

Burkart, Mike, Fausto Panunzi and Andrei Shleifer. 2003. “Family firms.” The journal of finance 58(5):2167–2201.

Cai, Hongbin, Hongbin Li, Albert Park and Li-An Zhou. 2013. “Family ties and organizational design: Evidence from Chinese private firms.” Review of Economics and Statistics 95(3):850–867.

Campello, Murillo. 2006. “Debt financing: Does it boost or hurt firm performance in product markets?” Journal of Financial Economics 82(1):135–172.

Cao, Jerry, Douglas Cumming and Xiaoming Wang. 2015. “One-child policy and family firms in China.” Journal of Corporate Finance 33:317–329.

Card, David and Alan B Krueger. 2015. Myth and Measurement: The New Economics of the Minimum Wage-Twentieth-Anniversary Edition. Princeton University Press.

Chen, Shuping, Xia Chen, Qiang Cheng and Terry Shevlin. 2010. “Are family firms more tax aggressive than non-family firms?” Journal of Financial Economics 95(1):41–61.

Chen, Ting, James Kai-sing Kung and Chicheng Ma. 2017. “Long live Keju! The persistent effects of China’s imperial examination system.” The Persistent E ff ects of China’s Imperial Examination System (June 26, 2017) .

Chen, Zhiwu, Chicheng Ma and Andrew Sinclair. 2020. “Banking on the Confucian Clan: Why Did China Miss the Financial Revolution?” Available at SSRN 3671280 .

Claessens, Stijn, Simeon Djankov, Joseph PH Fan and Larry HP Lang. 2002. “Disentangling the incentive and entrenchment effects of large shareholdings.” The journal of finance 57(6):2741–2771.

Claessens, Stijn, Simeon Djankov and Larry HP Lang. 2000. “The separation of ownership and control in East Asian corporations.” Journal of Financial Economics 58(1-2):81–112.

Conley, Timothy G. 1999. “GMM estimation with cross sectional dependence.” Journal of econometrics 92(1):1–45.

Dalci, Ilhan. 2018. “Impact of financial leverage on profitability of listed manufacturing firms in China.” Pacific Accounting Review .

Davis, John A, Marion McCollom Hampton, Ivan Lansberg et al. 1997. Generation to generation: Life cycles of the family business. Harvard Business Press. Doepke, Matthias and Fabrizio Zilibotti. 2008. “Occupational choice and the spirit of capitalism.” The Quarterly Journal of Economics 123(2):747–793.

Ebrey, Patricia Buckley, James L Watson et al. 1986. Kinship Organization in Late Imperial China, 1000-1940. Vol. 5 Univ of California Press.

Ellul, Andrew, Marco Pagano and Fausto Panunzi. 2010. “Inheritance law and investment in family firms.” American Economic Review 100(5):2414–50.

Enke, Benjamin. 2019. “Kinship, cooperation, and the evolution of moral systems.” The Quarterly Journal of Economics 134(2):953–1019.

Fan, Joseph PH, Qiankun Gu and Xin Yu. 2021. “Collectivist Cultures and the Emergence of Family Firms.” Forthcoming in Journal of Law and Economics . Fan, Xiaoping. 2004. Confucian temples in China (Zhongguo Kongmiao). Sichuang Wenyi Chubanshe.

Fei, John CH and Tsui-Jung Liu. 1982. “The growth and decline of Chinese family clans.” Journal of Interdisciplinary history pp. 375–408.

Feng, Erkang and Jianhua Chang. 2008. The history of Chinese Clans (Zhongguo Zongzu Shi ). Shanghai Renmin Chubanshe (Beijing).

Fern´andez, Raquel and Alessandra Fogli. 2009. “Culture: An empirical investigation of beliefs, work, and fertility.” American economic journal: Macroeconomics 1(1):146–77.

Fincher, Corey L, Randy Thornhill, Damian R Murray and Mark Schaller. 2008. “Pathogen prevalence predicts human cross-cultural variability in individualism/collectivism.” Proceedings of the Royal Society B: Biological Sciences 275(1640):1279–1285.

Galasso, Vincenzo and Paola Profeta. 2018. “When the state mirrors the family: the design of pension systems.” Journal of the European Economic Association 16(6):1712–1763.

Galor, Oded and ¨Omer ¨Ozak. 2016. “The agricultural origins of time preference.” American Economic Review 106(10):3064–3103.

Gernet, Jacques. 1995. Buddhism in Chinese society: an economic history from the fifth to the tenth centuries. Columbia University Press.

Gethin, Rupert et al. 1998. The foundations of Buddhism. Oxford University Press. Giavazzi, Francesco, Fabio Schiantarelli and Michel Serafinelli. 2013. “Attitudes, policies, and work.” Journal of the European Economic Association 11(6):1256– 1289.

Giuliano, Paola. 2007. “Living arrangements in western europe: Does cultural origin matter?” Journal of the European Economic Association 5(5):927–952.

G´omez-Mej´ıa, Luis R, Katalin Tak´acs Haynes, Manuel N´u˜nez-Nickel, Kathyrn JL Jacobson and Jos´e Moyano-Fuentes. 2007. “Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills.” Administrative science quarterly 52(1):106–137.

Gowdy, John and Lisi Krall. 2016. “The economic origins of ultrasociality.” Behavioral and Brain Sciences 39.

Greif, Avner and Guido Tabellini. 2010. “Cultural and institutional bifurcation: China and Europe compared.” American economic review 100(2):135–40.

Greif, Avner and Guido Tabellini. 2017. “The clan and the corporation: Sustaining cooperation in China and Europe.” Journal of Comparative Economics 45(1):1–35.

Harrell, Stevan. 1987. “On the holes in Chinese genealogies.” Late Imperial China 8(2):53–79.

Harrell, Stevan et al. 1995. Chinese historical microdemography. Univ of California Press. Vol. 20

Huillery, Elise. 2009. “History matters: The long-term impact of colonial public investments in French West Africa.” American economic journal: applied economics 1(2):176–215.

Jensen, Michael C and William H Meckling. 1976. “Theory of the firm: Managerial behavior, agency costs and ownership structure.” Journal of financial economics 3(4):305–360.

Ji, Xiaofeng. 1996. A distionary of academies in China (Zhongguo Shuyuan Cidian). Zhejiang Educational Press.

Kelly, Morgan. 2019. “The standard errors of persistence.”.

Kong, Xianglin and Zhe Kong. 2011. The study of Confucian temples in the world (Shijie Kongzimiao Yanjiu). Zhongyang Bianyi Chubanshe.

La Porta, Rafael, Florencio Lopez-de Silanes and Andrei Shleifer. 1999. “Corporate ownership around the world.” The Journal of Finance 54(2):471–517.

Lang, Larry, Eli Ofek and Ren´eM Stulz. 1996. “Leverage, investment, and firm growth.” Journal of financial Economics 40(1):3–29.

Li, Hongbin, Lingsheng Meng, Qian Wang and Li-An Zhou. 2008. “Political connections, financing and firm performance: Evidence from Chinese private firms.” Journal of Development Economics 87(2):283–299.

Lins, Karl V, Paolo Volpin and Hannes F Wagner. 2013. “Does family control matter? International evidence from the 2008–2009 financial crisis.” The Review of Financial Studies 26(10):2583–2619.

Liu, Hui-chen Wang, Wang Liu et al. 1959. The traditional Chinese clan rules. Vol. 7 JJ Augustin.

Lv, Simian. 2018. A brief of Chinese clan institutions (Zhongguo Zongzu Zhidu Xiaoshi ). Zhishi Chanquan Chubanshe (Beijing).

Mehrotra, Vikas, Randall Morck, Jungwook Shim and Yupana Wiwattanakantang. 2013. “Adoptive expectations: Rising sons in Japanese family firms.” Journal of Financial Economics 108(3):840–854.

Michalopoulos, Stelios and Elias Papaioannou. 2013. “Pre-colonial ethnic institutions and contemporary African development.” Econometrica 81(1):113–152.

Miller, Danny, Isabelle Le Breton-Miller, Richard H Lester and Albert A Cannella Jr. 2007. “Are family firms really superior performers?” Journal of corporate finance 13(5):829–858.

Mueller, Holger M and Thomas Philippon. 2011. “Family firms and labor relations.” American Economic Journal: Macroeconomics 3(2):218–45.

Nee, Victor. 1992. “Organizational dynamics of market transition: Hybrid forms, property rights, and mixed economy in China.” Administrative science quarterly pp. 1–27.

Nicholson, N. 2008. “Evolutionary psychology, corporate culture and family business.” Academy of Management Perspectives 22:73–84.

Nunn, Nathan and Diego Puga. 2012. “Ruggedness: The blessing of bad geography in Africa.” Review of Economics and Statistics 94(1):20–36.

Opler, Tim C and Sheridan Titman. 1994. “Financial distress and corporate performance.” The Journal of finance 49(3):1015–1040.

Padr´o i Miquel, Gerard, Nancy Qian, Yiqing Xu and Yang Yao. 2015. “Making democracy work: Culture, social capital and elections in china.” Social Capital and Elections in China (April 2015). NBER Working Paper (w21058).

Peng, Yusheng. 2004. “Kinship networks and entrepreneurs in China’s transitional economy.” American Journal of Sociology 109(5):1045–1074.

P´erez-Gonz´alez, Francisco. 2006. “Inherited control and firm performance.” American Economic Review 96(5):1559–1588.

Robb, Alicia M and David T Robinson. 2014. “The capital structure decisions of new firms.” The Review of Financial Studies 27(1):153–179.

Schmid, Thomas. 2013. “Control considerations, creditor monitoring, and the capital structure of family firms.” Journal of Banking & Finance 37(2):257–272.

Shen, Na and Jun Su. 2017. “Religion and succession intention-Evidence from Chinese family firms.” Journal of Corporate Finance 45:150–161.

Shiue, Carol H. 2016. “A culture of kinship: Chinese genealogies as a source for research in demographic economics.” Journal of Demographic Economics 82(4):459482.

Sraer, David and David Thesmar. 2007. “Performance and behavior of family firms: Evidence from the French stock market.” Journal of the European Economic Association 5(4):709–751.

Tabellini, Guido. 2010. “Culture and institutions: economic development in the regions of Europe.” Journal of the European Economic Association 8(4):677–716.

Telford, Ted A. 1986. “Survey of social demographic data in Chinese genealogies.” Late Imperial China 7(2):118–148.

Tsoutsoura, Margarita. 2015. “The effect of succession taxes on family firm investment: Evidence from a natural experiment.” The Journal of Finance 70(2):649–688.

Twitchett, Denis. 1959. “The Fan clan’s charitable estate, 1050-1760.” Confucianism in Action 97:133.

Villalonga, Belen and Raphael Amit. 2006. “How do family ownership, control and management affect firm value?” Journal of Financial Economics 80(2):385–417.

Voigtl¨ander, Nico and Hans-Joachim Voth. 2012. “Persecution perpetuated: the medieval origins of anti-Semitic violence in Nazi Germany.” The Quarterly Journal of Economics 127(3):1339–1392.

Wang, Shanjun. 2013. “The spatial variation of Song clans and its reasons.” Anhui Shixue 1.

Watson, James L. 1982. “Chinese kinship reconsidered: Anthropological perspectives on historical research.” The China Quarterly 92:589–622.

Whyte, Martin King. 1995. “The social roots of China’s economic development.” The China Quarterly 144:999–1019.

Whyte, Martin King. 1996. “The Chinese family and economic development: Obstacle or engine?” Economic development and cultural change 45(1):1–30.

Zhang, Chuanchuan. 2020. “Clans, entrepreneurship, and development of the private sector in China.” Journal of Comparative Economics 48(1):100–123.