Family Firms, Paternalism, and Labor Relations

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