Nick Bloom, Labor Topics, 2015 LABOR TOPICS Nick Bloom “Bossonomics”: economics of CEOs and family firms

Nick Bloom, Labor Topics, 2015 Family firms are extremely common, particularly in developing countries (1/2) Data from “Corporate ownership around the world” by La Porta, Lopez-de- Silanes and Shleifer, JF Looks at 20 largest publicly quoted firms in each country – figures for medium and smaller firms much more extreme

Nick Bloom, Labor Topics, 2015 share family CEO (2 nd + generation) share founder CEO (1 st generation) share government owned Ownership shares from Bloom and Van Reenen (2010, JEP) Family firms are extremely common, particularly in developing countries (2/2)

Nick Bloom, Labor Topics, 2015 Argentina Australia Brazil Canada Chile China France Germany Great Britain Greece India Italy Japan Mexico New Zealand Poland Portugal Republic of Ireland Sweden United States Correlation=0.872 Family and founder owned firms are common in countries with weak rule of law Source: Bloom, Genakos, Sadun and Van Reenen (2012, Academy of Management Perspectives). Size of circle is number of interviews World Bank Contract Enforcement Quality Ranking (2009) Share of firms run by family or founders

Nick Bloom, Labor Topics, 2015 Primary reason seems to be the difficulty in separating ownership and control Legal protection for investors is often weak for shareholders in developing countries – i.e. Indian legal system As a result families rarely sell out and use external management, as is common in the US (i.e. Wal-Mart) This is a still very under researched topic simply because of a lack of data, so papers focus on Denmark and the US.

Nick Bloom, Labor Topics, 2015 “Inherited control and firm performance” American Economic Review, 2006 Francisco Perez-Gonalez

Nick Bloom, Labor Topics, 2015 Reasonably well cited paper for it’s age

Nick Bloom, Labor Topics, 2015 Family-firm paper which uses clever identification – high-frequency CEO change Looks at the management transitions in US publicly quoted firms ( ) with concentrated family holdings Publicly quoted less likely to be family controlled, but still finds 335 transitions with (prior) family ownership In basic statistics reports that: A third (122) of transitions are to other family members Family CEOs are 8 years younger on average

Nick Bloom, Labor Topics, 2015 Looks at the transition and find that announcement that a firms founding CEO will step-down leads to: Big stock rise if the next CEO is not a family-member Big drop if the next CEO is a family member Drop driven by those from “non-selective colleges” (defined as outside top 189 US Colleges) Finds similar differences in accounting measures like Return on Assets This was from Perez-Gonzalez PhD thesis but was not his main paper (a 2 nd year paper I think) So for empirical work worth pushing analysis as hard to tell where this will eventually end up! Family-firm paper which uses clever identification – high-frequency CEO change

Nick Bloom, Labor Topics, 2015 “Inside the family firm: the role of families in succession decisions and performance” Quarterly Journal of Economics, 2007 Morten Bennedsen Kasper Nielsen Francisco Perez-Gonalez Daniel Wolfenzon

Nick Bloom, Labor Topics, 2015 Exploits a massive Danish dataset matching up firms and families to look at the impact of family ownership Show that having a female first-born child (which is random, certainly in Denmark during 1980s and 1990s) is more likely to lead to continued family ownership This family ownership leads to far worse performance (growth, profits, etc) and the IV>>OLS Family underperformance particularly large in hi-tech, highly-skilled, rapidly changing industries Family-firm paper which uses gender of first board as a clever identification approach

Nick Bloom, Labor Topics, 2015 The key table of results, OLS (1-2) & IV (3-8)