The Bright Side of Nepotism: Market Frictions and Managing Family Firms in Uncertain Environments

Research Seminar

Management & Human Resources

Speaker: Ulya TSOLMON

Olin Business School, Washington University in St. Louis

Bernard Ramanantsoa room

Abstract

Using the market frictions logic, we examine how multi-unit family firms manage heterogeneous units by redeploying family managers to units with greater exposure to opportunism. We conceptualize how family managers can extend family control to units where familial relationships are an important resource. Using a novel data set of over 6,000 multi-unit family firms in 15 European countries, we find that diversified, partly owned, and geographically distant units are more likely to be allocated family managers, especially in regions where institutions are weak. We also find that firms are more likely to send family managers in response to exogenous shocks that increase frictions, especially where institutions are weak. We discuss the implications of our findings on how the contingency view of nepotism can shed light on the conditions under which family firms can gain a competitive advantage by leveraging familial relationships.