Family firms and labor market regulation

In a panel across 28 countries over 10 years, we show that family firms on average have performance advantages over non-family firms only when labor markets are less regulated. We confirm the result in a matched firm sample and when we use a survey-based instrument for family control. Furthermore, family firms exhibit a lower variation of employment levels in less regulated labor markets, supporting the notion that labor relations drive family firms’ performance advantages. Our results are consistent with the notion that both family ownership and labor market reforms provide employment protection and thus partly substitute as governance mechanisms.