#09-34
The Role of Institutional Development in the Prevalence and Value of Family Firms
Raphael Amit, Yuan Ding, Belen Villalonga and Hua Zhang, November 2009
Abstract:We investigate the role played by institutional development in the prevalence and value of family firms, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across the Chinese provinces with homogeneity in cultural norms, law, and regulation. By decomposing family firms into their ownership, control, and management elements, we are able to test the specific predictions of the investor protection and internal markets explanations. Using hand-collected data from publicly listed Chinese firms, we find that, when institutional efficiency is low, family ownership and management increase value, while family control in excess of ownership reduces value. When institutional efficiency is high, none of these effects are significant. We conclude that institutional development plays an important role in the prevalence and value of family firms.
Keywords: Family firms; Ownership; Control; Management; Value; Institutional development; China
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