Social network and family business: Uncovering hybrid family firms

What does it mean for a private enterprise in China to be embedded in a family? Our purpose here is twofold: (1) use social network analysis to describe what it means for a firm to be embedded in a family, (2) reveal from the application a new kind of firm, not family, yet akin to family. Armed with data on a large probability sample of private enterprises — a third of which meet ownership and employment criteria of being family businesses — we uncover a category of “hybrid family firms” that look modern in the style of firms that exclude family, but operate socially in ways similar to family firms. Our conclusion from summary statistics on the sample is that there are no differences in average performance level or network advantage for the three categories of businesses: family firms, hybrid family firms, and family-excluded firms. The fact that CEOs of family firms and hybrid family firms more often turn to family as key business contacts is a fact about network composition that raises no question about network mechanisms. Whether the CEO turns to more or fewer family contacts, government help is more likely with stronger political connections, and business success and survival are more likely with a large, open network. That said, the look-modern, act-traditional hybrid family firms stand alone in prospering with a CEO embedded in a closed business network. Recognition of hybrid family firms adds to the literature’s illustrations of social network analysis used to distinguish types of businesses and business people, and extends the population of organizations within which governance and strategy are likely to be better understood when viewed through a family logic.     

IMPACT OF CORRUPTION ON FIRM‐LEVEL EXPORT DECISIONS

This article examines the impact of corruption on the self‐selection of firms into domestic and export markets. A heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive dataset of over 23,000 firms in 80 developing countries. The results confirm both the self‐selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets. (JEL F1, O1)     

QUALITY DIFFERENCES,THIRD‐DEGREE PRICE DISCRIMINATION,AND WELFARE

We propose a model with two markets to analyze the welfare implications of price discrimination with quality differences. In each market a local firm that operates in that market only competes against a global firm that operates in both markets. Local firms produce higher‐quality goods than the global firm. If the quality levels of the local firms' products are the same, price discrimination is never welfare‐decreasing. If they differ, discrimination is welfare‐increasing if quantity increases. Because of a positive allocation effect of price discrimination, there are parameter values such that welfare increases while total output decreases with price discrimination. (JEL D43, D60)     

Education and fertility: policy implications for developing countries

Efforts to reduce the high rates of population growth in Africa are largely hampered by a social and political climate which does not recognize high birth rates as a problem. Only 2 countries (Kenya and Ghana) are actively antinatalist officially, the rest being actively pronatalist or taking no firm stand. The author argues that support for family planning will grow only when governments support mass education programs. A framework showing the linkages between fertility and formal education is developed. On the demographic level, pursuit of higher levels of education delays entry into marriage, directly and through pursuit of occupations which do not encourage early marriage. Lowered infant mortality through improved utilization of modern health care by the educated also leads to reduced fertility. On the sociocultural level, migration to urban centers among the educated leads to new cultural norms and constraints on large families from the pursuit of modern careers. The author asserts that the inverse relation between education and fertility is well known, and that national support for mass education is needed to speed economic development, change the position of women and alter peoples' values.     

Flexible Production on the Working Waterfront: The Social Origins of the Northwest Atlantic Sea Urchin Industry*

Abstract In 1986 the northwest Atlantic sea urchin was little more than a nuisance to local fishermen. Six years later, sea urchins were the second most valuable fishery in Maine, next the lobsters. This paper examines the initiation and early development of the northwest Atlantic sea urchin industry. The industry is unique because of its quick growth and its reliance on international markets. On the basis of ethnographic research, I examine the ability of firms already working in in‐shore fisheries to adapt to the introduction of international markets for a new product. Institutional arrangements of the working waterfront facilitate these adaptations through technological and social flexibility. In addition, flexible adaptation to the sea urchin market was not inhibited by existing formal or informal institutions. This analysis of the sea urchin industry and the working waterfront contributes to current discussions about small‐firm networks and the economic sociology of industries.     

FIRM PRODUCTIVITY AND SALES DESTINATIONS: EVIDENCE FROM WITHIN CHINA

This paper builds on and extends the literature on the linkage between firm productivity and their export destinations to study the productivity of Chinese firms and their sales destinations in other provinces within China. Moving the study from international markets to domestic markets conveniently avoids the hard to control heterogeneity across different destination markets in international trade, as provincial markets within China are less heterogeneous than international markets but segmented by Chinese provincial borders. The paper explicitly controls the fact that many firms only sell in their home provinces by using the zero‐inflated negative binomial method. It finds that firms with higher productivity tend to sell in other provincial markets, and more productive firms enter more provincial markets. The results are robust. (JEL F15, D21, D24)     

Divided self models of the socioeconomic person: the metaeconomics approach

Microeconomics envisions a single decision-maker in a firm or household who is presumed to experience economic relationships only in markets. This theory is largely silent regarding the moral dimension, i.e., the nature of the invisible hand, and how it unconsciously affects the self acting in said markets. Amitai Etzioni, the founder of socioeconomics, offered the vision of the moral dimension as a component of the self. Metaeconomics operationalizes this vision by making explicit the Strict Father moral dimension in the invisible hand and recognizing interdependence of self when Nurturant Parent morality is operant. It builds upon a tripartite, multiple–self concept, with a mediating adult who balances the pleasures with the moral dimension in finding a satisfactory mix of self- and we-interests. By making this dimension explicit, metaeconomics reintegrates ethics and economics, includes values and community, and proposes the starting point for a common analytical engine for all socioeconomists.     

Social harmony and the small firm: a reappraisal

Government, academics and the media have, over the past decade, entered fully into the spirit of ‘small business revival’. Many of the contributions to this debate, however, have taken for granted the nature of small firm employment relations. It has frequently been remarked that workers in a small firms behave in ways more compatible with the goals and interests of their employers than employees in large firms. Thus, industrial relations are assumed to be more harmonious. In support of this assertion attention is usually drawn to the relative infrequency of conflict and industrial disputes, and the absence of militant trade unionism as an indication of the small firm workers' greater commitment to the goals of the enterprise and the interests of the employer (Ingham 1970). This paper suggests that such assumptions are unwarranted and provide a potentially misleading starting point for studies of employment relations in small firms. Data from a small number of in-depth interviews with small firm personnel is used to illustrate some of the complex and contradictory processes through which capital-labour relations may be constituted within small enterprises.     

THE DURATION OF FIRM‐DESTINATION EXPORT RELATIONSHIPS: EVIDENCE FROM SPAIN, 1997–2006

This article uses survival analysis to investigate the duration of Spanish firms' trade relationships by destination over 1997–2006. Whereas firm export status is highly persistent, firms' destination portfolio is very dynamic: a typical firm‐country exporting relationship has a median duration of 2 years. Yet, if a firm manages to export to a country beyond 2 years the risk of exiting that market sharply falls afterwards. The results indicate that not only firm heterogeneity but also destination heterogeneity are crucial to explain survival in export markets. In particular, country (political) risk heavily shapes the effect of firm, product, and other destination characteristics on the length of trade relationships. Whereas firm productivity, comparative advantage, partners' GDP, and proximity enhance duration of trade with low‐risk countries, they have no effect on trade survival with high‐risk countries. On the contrary, information spillovers are particularly relevant to enhance survival of trade relationships with high‐risk countries. (JEL C41, F10, F14)     

Wages and the dominant firm

The standard one-period model of an industry populated by one large firm and a fringe of small competitors is used to show that the traditional focus on dominant firm pricing strategies is too narrow. In an era of industry-wide wage-setting or spillover effects, the dominant firm may also improve its position through generous wage contracts that spread to its competitors and raise their costs. Some general observations are made about the model’s applicability and its possible extension to oligopoly theory and stagflation. I wish to thank Richard C. Levin and Derek C. Jones for their many helpful comments on an earlier draft of this paper.     

Critical analysis of contractual regulation mechanisms: An organizational approach

Starting from the contract as a coordination mechanism, this article questions the effectiveness of contractual regulatory mechanisms, i.e. the ability of regulation to attain its goal, not only in efficiency terms through the analysis of the production function, but also in organizational terms. Theories of agency and transaction costs are well-suited to investigation of coordination problems in regulation. The relationship between the regulator and the regulated firm has to be regarded as a principal-agent relationship included in a more general framework taking into consideration the differentiated effects of internal incentives schemes and of the labor, goods and capital markets as additional external incentive mechanisms to correct the behaviour of the regulated firm. Improvement of regulation rests on the regulated firm's capacity to minimize transaction costs associated with the whole coordination problem. The distinction between regulated private enterprise and public enterprise allows one to identify the property rights costs.     

The use of informal networks in Italy: Efficiency or favoritism?

A large body of literature considers the advantages of using informal networks to match workers to jobs. However, family ties may interfere with a genuine process of worker selection, favoring people with connections over more talented workers. We offer a simple model of favoritism to explain these risks and show firms’ trade-off in using informal channels. We then investigate empirically the determinants and consequences of using informal networks in Italy by using the Bank of Italy Survey. We find that informal networks tend to be used by low-educated individuals, in small firms, in low-productivity jobs and in less developed regions. Finally, we show that informal networks have a negative impact on wages, controlling for individual and firm characteristics.     

Social security and firm performance: The case of Vietnamese SMEs

This article investigates how social security provision – a key determinant of formality – impacts on small and medium‐sized firm performance in Viet Nam. Based on enterprise census data covering all registered firms from 2006 to 2011, the authors find that firms which increase their social security coverage by 10 per cent experience a revenue gain of 1.4–2.0 per cent per worker and a profit gain of up to 1.8 per cent, depending on the survival time of the firm. However, given the time lag between “investment” (in social security contributions) and returns (enhanced firm performance), specific policy measures such as initial social insurance subsidies for small firms could increase participation in mandatory schemes.     

A Note on Dual Internal Labor Markets and Wages of Temporary Workers: Evidence from Linked-Employer-Employee Data

I use linked employer-employee data from the German Federal Statistical Office to estimate within-firm wage differentials between temporary workers with fixed-term contracts and workers with permanent contracts in the context of dual internal labor markets. Wage-tenure profiles of permanent workers are estimated separately for each firm to obtain a proxy for the prevalence of internal labor markets. Temporary workers earn significantly lower wages in firms with steeper wage-tenure profiles. This finding is consistent with the segmentation in a primary permanent workforce with high wages and a secondary temporary workforce with low wages, if internal labor markets are more prevalent.     

The Use of Owner Resources in Small and Family Owned Businesses: Literature Review and Future Research Directions

This paper integrates relevant literature and the Sustainable Family Business Model regarding interchange of financial resources between family and business. Two distinct literatures on the use of owner resources in small businesses are examined: the intermingling of business and household resources from the family firm literature and financial bootstrapping studies from the small business finance literature. What has not been addressed in both literatures about the use of owner resources is discussed and the risks that owner resource bootstrapping and intermingling may place on the household and the business are considered. Recommendations and propositions for future research are suggested. To fully understand the makeup and success of household financial portfolios and family businesses, it is important to understand the use of owner resources in a holistic manner.     

BETA, FIRM SIZE, and CONCENTRATION

The asset beta of a firm is defined as the uncertainty about the firm's future value scaled by its current value. Empirically, beta is negatively related to a firm's size and concentration in its major product market. This relation has been interpreted as evidence that monopoly power affects beta. This paper shows that this empirical result is also consistent with competitive product markets where greater firm size and concentration are due to greater efficiency in production. Thus, the correlation between beta, firm size and concentration is not prima facie evidence of widespread monopoly power.     

BEQUEST RECEIPT AND FAMILY SIZE EFFECTS

This article tests the connection between credit constraints and negative family size effects on child earnings using bequest receipt to signal access to credit markets. The dominant economic model of fertility predicts a negative relationship between family size and child achievement. In the model, limits on borrowing create this "quality-quantity trade-off." This article tests for the relevance of credit constraints using Panel Study of Income Dynamics data to compare family size effects across groups defined by bequest receipt. Contrary to the credit constraints explanation, those receiving large bequests exhibit large family size effects, while those not receiving bequests show little to no effect . ( JEL J13, D1, I2)     

Children and the Modern Farming Movement

In the twenty‐first century, a small percentage of U.S. children have ties to family‐based agriculture. Yet with the rise of the modern farming movement that emphasizes local and family‐based production, new spaces may exist for involving children and youth in farming. This article focuses on the social value of children to family‐based agriculture in the contemporary era. Drawing on a qualitative study of families that farm in the capital region of New York—an epicenter for the modern food movement—we consider why families farm, how they involve children in their farms, and how they understand children's contributions. Interviews with 76 adult members of 50 families show children to be central to families' goals; they often rationalize farming as a lifestyle choice undertaken for the benefit of their children. Families also actively involve their own children—and other people's children—in their farms. By documenting the way families talk about children and farming, we shed light on the logic used to incorporate children into modern productive enterprises. The centrality of children, we argue, helps explain the success of the modern food movement and the persistence of family‐based agriculture despite conditions that make it economically difficult to accomplish.     

Financial Resources and Product Market Development: Strategic Choice and Institutional Processes During China's Transition

During an economic transition from socialism, market exchange replaces redistribution. We study firm decisions to enter product markets to understand the factors that influence this process. Managers in Chinese State Owned Enterprises operated within institutional constraints to make strategic decisions, and state intervention shaped which factors were salient. Firms financed through central government and bond issues relied less on markets. Firms funded through local government moved into markets faster; firms funded by banks were initially faster to markets but slower to markets after bank reform shifted lending policies. Thus, the accessibility, flexibility, and stability of financing shaped decisions about market entrance.     

COMPETITIVE FIRM BEHAVIOR UNDER RISK IN DISEQUILIBRIUM TRADING

The objective of this paper is to study the behavior of the purely competitive firm in a market in which traders' plans may not be realized each period. The emphasis of the study is motivated by a desire to introduce explicit price-makers into the theory of competitive markets. The method of introducing price-makers may lead to situations in which markets are not cleared each period and shortages may arise with the realization of plans being in doubt. In this environment traders learn to adjust decisions to offset periodic disappointment. Multiperiod models are introduced to analyze the decision process of the competitive firm in the market and stochastic dynamic programming methods are used to obtain characteristics of optimal plans. Results are compared to the situation in which plans are always realized.