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 variables approach and a matching approach. Examining 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 partly due to a lower leverage ratio.