Family Firms and Contractual Institutions

Leonardo Iacovone, William Maloney and Nick Tsivanidis

No 8803, Policy Research Working Paper Series from The World Bank

Abstract: This paper offers new evidence on the relationship between contractual institutions, family management, and aggregate performance. The study creates a new firm-level database on management and ownership structures spanning 134 regions in 11 European countries. To guide the empirical analysis, it develops a model of industry equilibrium in which heterogeneous firms decide between family and professional management when the latter are subject to contracting frictions. The paper tests the model's predictions using regional variation in trust within countries. Consistent with the model, the finding show that there is sorting of firms across management modes, in which smaller firms and those in regions with worse contracting environments are more likely to be family managed. These firms are on average 25 percent less productive than professionally managed firms, and moving from the country with the least reliable contracting environment to the most increases total factor productivity by 21.6 percent. Family management rather than ownership drives these results.

Date: 2019-04-03
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eff and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8803

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