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 1999.

Looks at 20 largest publicly quoted firms in each country – figures for medium and smaller firms much more extreme

Nick Bloom, Labor Topics, 2015

Family firms are extremely common, particularly in developing countries (2/2) Sweden Japan US France Poland Canada Australia Germany China Great Britain Republic of Ireland Northern Ireland Italy Brazil Portugal Greece India share

family CEO

(2 nd + generation) share

founder CEO

(1 st generation) share

government

owned 0

Nick Bloom, Labor Topics, 2015

.2

.4

Ownership shares from Bloom and Van Reenen (2010, JEP) mean of family mean of government .6

.8

mean of founder

Family and founder owned firms are common in countries with weak rule of law Correlation=0.872

India Greece Portugal Argentina Mexico Chile Republic of Ireland China Great Britain United States Canada Poland Sweden Brazil Italy 0 50 100 150 200 World Bank Contract Enforcement Quality Ranking (2009)

Nick Bloom, Labor Topics, 2015

Source: Bloom, Genakos, Sadun and Van Reenen (2012, Academy of Management Perspectives). Size of circle is number of interviews

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 (1980-2001) 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

Family-firm paper which uses clever identification – high-frequency CEO change • 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!

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

Family-firm paper which uses gender of first board as a clever identification approach • 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

Nick Bloom, Labor Topics, 2015

The key table of results, OLS (1-2) & IV (3-8)

Nick Bloom, Labor Topics, 2015