Family Firms, Paternalism, and Labor Relations

Abstract

Firm-level evidence suggests that family firms are more apt to honor implicit labor contracts than are widely held firms, making family firms especially successful at winning workers’ loyalty–a trait that is reflected in fewer strikes and lower unionization rates. Accordingly, we might expect to see more family ownership in countries in which labor relations, for cultural or historical reasons, are tensioned. Consistent with this prediction, we find that, controlling for differences in minority shareholder protection, countries with bad labor relations have more family ownership than countries with good labor relations. This result is strikingly robust and holds for a large number of robustness checks. It also holds when we instrument our survey-based measure of labor relations using ‘Labor Origin’, a measure of the ‘intrinsic quality’ of a country’s labor relations based on a classification designed by labor historians to mark the lasting effects which political struggles between the liberal states and the church in the 18th and 19th centuries had on the development of guild structures and the militancy of labor organizations. Finally, our basic result also holds when we replace our survey-based measure of labor relations with actual strike data from the 1960s, which we show can predict differences in family ownership across countries thirty years later.