The Riddle of the Great Pyramids
NBER Working Paper No. 14858
Large pyramidal family controlled business groups are the predominant form of business organization outside America, Britain, Germany, and Japan. Large pyramidal groups comprising dozens, even hundreds, or listed and unlisted firms place the governance of large swathes of many countries' big business sectors in the hands of a few of their wealthiest families. These structures plausibly substitute for weak market institutions in economies undergoing rapid early-stage industrialization. They may also substitute for weak governments in coordinating Big Push growth programs to establish numerous interdependent simultaneously. However, no such role is evident in developed or in slowly growing developing economies, where such structures appear prone to agency problems and political rent-seeking. If sufficiently large, they may also add to economy volatility by rendering the risk of misgovernance systematic, rather than firm-specific.