Adoptive Expectations: Rising Sons in Japanese Family Firms - NBER Working Paper No. 16874 - March 2011

Aug 26, 2026

Adopting adults, even when biological children exist, contributes to unusually strong performance of Japanese family firms. Evidence from a nearly population-wide postwar panel of listed nonfinancial firms indicates inherited family ownership was more significant in postwar Japan than previously recognized, and it also delivered superior results. Adopted heirs outperform blood heirs, and their performance matches or nearly matches founder-run listed firms; both adopted and blood heirs outperform non-family firms. Instrumenting with family structure variables supports a causal effect of adopted heirs via talent displacement and managerial incentives, mitigating the Carnegie conjecture.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages43

Reading Time1 h 48 min

AccessFree to download

Introduction

Background on inherited talent and family-firm advantage

Agency, adverse selection, and CEO tournament effects

The Carnegie conjecture and competing evidence

NBER WORKING PAPER SERIES ADOPTIVE EXPECTATIONS: RISING SONS IN JAPANESE FAMILY FIRMS Vikas Mehrotra Randall Morck Jungwook Shim Yupana Wiwattanakantang Working Paper 16874 [http://www.nber.org/papers/w16874](http://www.nber.org/papers/w16874) NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2011 We are grateful for helpful comments from Joseph Fan, Masaharu Hanazaki, Katsuyuki Kubo, Rafael La Porta, Alice Nakamura, Seki Obata, Hernán Ortiz-Molina, Hugh Patrick, Juro Teranishi sensei, Belen Villalonga, Bernard Yeung, and from seminar and conference participants at the University of Alberta, the University of Calgary, the Chinese University of Hong Kong, Columbia University, Dartmouth’s Tuck Business School, Hitotsubashi University, IIM-Bangalore, the Indian School of Business, Kobe University, Kyoto University, London School of Economics, London Business School, the University of Lugano, the National University of Singapore, Osaka University, Purdue University, the 2010 Western Finance Association meetings in Victoria, and the 2010 NBER summer workshop in corporate finance. We acknowledge financial support from the Grant-in-Aid for Scientific Research (the grant number 18203022) provided by the Japanese Ministry of Education, Culture, Sports, Science and Technology (MEXT), the Murata Foundation, the Japanese Bankers Association Foundation, the Social Sciences and Humanities Research Council, and the Ishii Memorial Securities Research Promotion Foundation. All remaining errors are the authors’ responsibility. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2011 by Vikas Mehrotra, Randall Morck, Jungwook Shim, and Yupana Wiwattanakantang. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Adoptive Expectations: Rising Sons in Japanese Family Firms Vikas Mehrotra, Randall Morck, Jungwook Shim, and Yupana Wiwattanakantang NBER Working Paper No. 16874 March 2011 JEL No. G3,J12,N25 ABSTRACT The practice of adopting adults, even if one has biological children, makes Japanese family firms unusually competitive. Our nearly population-wide panel of postwar listed nonfinancial firms shows inherited family firms more important in postwar Japan than generally realized, and also performing well – an unusual finding for a developed economy. Adopted heirs’ firms outperform blood heirs’ firms, and match or nearly match founder-run listed firms. Both adopted and blood heirs’ firms outperform non-family firms. Using family structure variables as instruments, we find adopted heirs “causing”elevated performance. These findings are consistent with adult adoptees displacing blood heirs in the left tail of the talent distribution, with the “adopted son”job motivating star managers, and with the threat of displacement inducing blood heirs to invest in human capital, mitigating the so-called “Carnegie conjecture” that inherited wealth deadens talent. Vikas Mehrotra University of Alberta School of Business Edmonton, AB, Canada T6G2R6 [vmehrotr@ualberta.ca](vmehrotr@ualberta.ca) Randall Morck Faculty of Business University of Alberta Edmonton, AB T6G 2R6 CANADA and NBER [randall.morck@ualberta.ca](randall.morck@ualberta.ca) Jungwook Shim Business School National University of Singapore Mochtar Riady Building Singapore 119245 [bspv11@nus.edu.sg](bspv11@nus.edu.sg) Yupana Wiwattanakantang Business School National University of Singapore BIZ 1 2-7, 15 Kent Ridge Drive Singapore 119245 [bizyw@nus.edu.sg](bizyw@nus.edu.sg) You c

FAQs

Why are Japanese family firms described as unusually competitive in this paper?

Adult adoption, even alongside biological children, helps sustain competitive performance in Japanese family firms, according to the study’s empirical evidence and analysis.

What comparison does the paper make between adopted heirs and blood heirs?

Adopted heirs’ firms outperform blood heirs’ firms and can match or nearly match founder-run listed firms, while both adopted and blood heir firms outperform non-family firms.

How does the paper address causality rather than only correlation?

Using family structure variables as instruments, the paper finds adopted heirs “causing” elevated performance.

Aug 26, 2026

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