In Simple Words
Think of a store owner who only trusts their own children to operate a cash register; the business can only open new storefront locations if the owner has enough adult children to staff them, regardless of customer demand.
Textile firms near Mumbai
- Owner with no brothers or sons
- Best-managed firm: one plant
- Owners with brothers and sons
- Multiple plants, even if badly managed
Illustrative observed firms; the one-plant case was the best-managed firm. This does not establish causation.
See source →Research question
In developing countries with weak legal systems, business owners refuse to delegate operational decisions to professional managers due to fear of theft and expropriation. Consequently, firm expansion is limited strictly by the size of the owner's trusted family network.
Participants
Large Indian textile manufacturing plants in the BEMMR field sample.
Study Design
Observational field study analyzing firm governance structure, ownership dynamics, and plant expansion.
Results
The number of male relatives (brothers and sons) of a firm owner directly predicts overall firm size and plant count; owners with multiple male relatives establish multiple plants even when poorly managed, whereas the best-managed firm with no male relatives operates only a single plant.
Takeaway
Establish standardized accounting and inventory tracking data systems to mitigate managerial theft risks and enable delegation beyond immediate family members.