DP6017 Family Firms, Paternalism and Labour Relations

Author(s): Holger M Mueller , Thomas Philippon

Publication Date: December 2006

Keyword(s): family firms , labour relations

JEL(s): G32 , J52 , J53

Programme Areas: Financial Economics

Link to this Page: www.cepr.org/pubs/dps/DP6017.asp.asp

Using firm-, industry-, and country-level data, we document a link between family ownership and labour relations. Across countries, we find that family ownership is relatively more prevalent in countries in which labour relations are difficult, consistent with firm-level evidence suggesting that family firms are particularly effective at coping with difficult labour relations. Our cross-country results are robust to controlling for minority shareholder protection and other potential determinants of family ownership. Our results also hold if we use strike data from the 1960s to predict cross-country variation in family ownership thirty years later. We address causality in two ways. First, we instrument our measure of the quality of labour relations using 'Labour Origin', a variable describing the extent to which the emerging European liberal states in the 18th and 19th centuries confronted guilds and labour organizations. Second, making use of within-country variation at the industry level, we show that - controlling for industry and country fixed effects - industries that are more labour dependent have relatively more family ownership in countries with worse labour relations.