<svg viewBox="0 0 1200 900" xmlns="http://www.w3.org/2000/svg"> <!-- Background --> <rect width="1200" height="900" fill="#f3f4f6"/> <!-- Header --> <rect x="0" y="0" width="1200" height="80" fill="#1e3a8a"/> <text x="600" y="50" font-family="Arial, sans-serif" font-size="24" font-weight="bold" text-anchor="middle" fill="white"> Family Firms &amp; Entrepreneurial Finance: When Love Meets Money </text> <text x="600" y="70" font-family="Arial, sans-serif" font-size="16" text-anchor="middle" fill="#93c5fd"> Antoinette Schoar - MIT Entrepreneurship Bootcamp Day 4 </text> <!-- Key Concepts Q&A (Left) --> <rect x="20" y="100" width="560" height="380" rx="10" fill="white" stroke="#e5e7eb" stroke-width="2"/> <text x="300" y="130" font-family="Arial, sans-serif" font-size="18" font-weight="bold" text-anchor="middle" fill="#1e3a8a"> 🎯 Key Concepts Q&amp;A </text> <!-- Q&A Table --> <g font-family="Arial, sans-serif" font-size="14"> <!-- Headers --> <text x="40" y="160" font-weight="bold" fill="#4b5563">Topic</text> <text x="200" y="160" font-weight="bold" fill="#4b5563">Core Question</text> <text x="420" y="160" font-weight="bold" fill="#4b5563">Key Insight</text> <!-- Row 1 --> <line x1="30" y1="170" x2="570" y2="170" stroke="#e5e7eb"/> <text x="40" y="190" fill="#374151">Family CEOs</text> <text x="200" y="190" fill="#374151">Performance impact?</text> <text x="420" y="190" fill="#374151">-14% profitability</text> <!-- Row 2 --> <line x1="30" y1="205" x2="570" y2="205" stroke="#e5e7eb"/> <text x="40" y="225" fill="#374151">Succession</text> <text x="200" y="225" fill="#374151">Why choose family?</text> <text x="420" y="225" fill="#374151">90% do despite costs</text> <!-- Row 3 --> <line x1="30" y1="240" x2="570" y2="240" stroke="#e5e7eb"/> <text x="40" y="260" fill="#374151">Microfinance</text> <text x="200" y="260" fill="#374151">Does it help?</text> <text x="420" y="260" fill="#374151">Can discourage growth</text> <!-- Row 4 --> <line x1="30" y1="275" x2="570" y2="275" stroke="#e5e7eb"/> <text x="40" y="295" fill="#374151">Capital Type</text> <text x="200" y="295" fill="#374151">What's missing?</text> <text x="420" y="295" fill="#374151">Managerial + financial</text> <!-- Row 5 --> <line x1="30" y1="310" x2="570" y2="310" stroke="#e5e7eb"/> <text x="40" y="330" fill="#374151">Returns</text> <text x="200" y="330" fill="#374151">Microenterprise ROI?</text> <text x="420" y="330" fill="#374151">5-7% monthly (!)</text> <!-- Row 6 --> <line x1="30" y1="345" x2="570" y2="345" stroke="#e5e7eb"/> <text x="40" y="365" fill="#374151">Angel Impact</text> <text x="200" y="365" fill="#374151">Does it matter?</text> <text x="420" y="365" fill="#374151">70% higher survival</text> </g> <!-- Problem-Solution Visual (Right Top) --> <rect x="600" y="100" width="580" height="380" rx="10" fill="white" stroke="#e5e7eb" stroke-width="2"/> <text x="890" y="130" font-family="Arial, sans-serif" font-size="18" font-weight="bold" text-anchor="middle" fill="#1e3a8a"> 💡 Core Problem → Solution </text> <!-- Problem Box --> <rect x="620" y="160" width="250" height="140" rx="8" fill="#e9d5ff" stroke="#9333ea" stroke-width="2"/> <text x="745" y="190" font-family="Arial, sans-serif" font-size="16" font-weight="bold" text-anchor="middle" fill="#581c87"> 💜 PROBLEM </text> <text x="745" y="215" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#581c87"> Entrepreneurs face dual </text> <text x="745" y="235" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#581c87"> capital constraints: </text> <text x="745" y="255" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#581c87"> • Financial capital gaps </text> <text x="745" y="275" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#581c87"> • Managerial skill gaps </text> <!-- Arrow --> <path d="M 870 230 L 910 230" stroke="#6b7280" stroke-width="3" fill="none" marker-end="url(#arrowhead)"/> <defs> <marker id="arrowhead" markerWidth="10" markerHeight="10" refX="9" refY="3" orient="auto"> <polygon points="0 0, 10 3, 0 6" fill="#6b7280"/> </marker> </defs> <!-- Solution Box --> <rect x="910" y="160" width="250" height="140" rx="8" fill="#d1fae5" stroke="#10b981" stroke-width="2"/> <text x="1035" y="190" font-family="Arial, sans-serif" font-size="16" font-weight="bold" text-anchor="middle" fill="#064e3b"> 💚 SOLUTION </text> <text x="1035" y="215" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#064e3b"> Differentiated support: </text> <text x="1035" y="235" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#064e3b"> • Smart capital (angels) </text> <text x="1035" y="255" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#064e3b"> • Flexible microfinance </text> <text x="1035" y="275" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#064e3b"> • Context-aware policy </text> <!-- Key Tradeoff Visual --> <rect x="620" y="320" width="540" height="140" rx="8" fill="#fef3c7" stroke="#f59e0b" stroke-width="2"/> <text x="890" y="350" font-family="Arial, sans-serif" font-size="16" font-weight="bold" text-anchor="middle" fill="#78350f"> ⚖️ The Family vs Performance Tradeoff </text> <g font-family="Arial, sans-serif" font-size="14"> <!-- Left side --> <text x="720" y="380" text-anchor="middle" font-weight="bold" fill="#78350f">Family Control</text> <text x="720" y="400" text-anchor="middle" fill="#92400e">✓ Trust &amp; loyalty</text> <text x="720" y="420" text-anchor="middle" fill="#92400e">✓ Long-term view</text> <text x="720" y="440" text-anchor="middle" fill="#dc2626">✗ -14% performance</text> <!-- Center --> <text x="890" y="410" text-anchor="middle" font-size="20" fill="#78350f">↔</text> <!-- Right side --> <text x="1060" y="380" text-anchor="middle" font-weight="bold" fill="#78350f">Professional Mgmt</text> <text x="1060" y="400" text-anchor="middle" fill="#92400e">✓ Better performance</text> <text x="1060" y="420" text-anchor="middle" fill="#92400e">✓ Access to capital</text> <text x="1060" y="440" text-anchor="middle" fill="#dc2626">✗ Loss of control</text> </g> <!-- Action Items (Left Bottom) --> <rect x="20" y="500" width="560" height="280" rx="10" fill="white" stroke="#e5e7eb" stroke-width="2"/> <text x="300" y="530" font-family="Arial, sans-serif" font-size="18" font-weight="bold" text-anchor="middle" fill="#1e3a8a"> 🛠️ Action Items for Entrepreneurs </text> <g font-family="Arial, sans-serif" font-size="14"> <!-- Action 1 --> <circle cx="50" cy="560" r="4" fill="#10b981"/> <text x="70" y="565" font-weight="bold" fill="#374151">Assess both capital needs honestly</text> <text x="70" y="585" fill="#6b7280">Why: Money alone won't solve managerial gaps</text> <text x="70" y="605" fill="#6b7280">Start: List skills needed vs skills available</text> <!-- Action 2 --> <circle cx="50" cy="630" r="4" fill="#10b981"/> <text x="70" y="635" font-weight="bold" fill="#374151">Design succession plan early</text> <text x="70" y="655" fill="#6b7280">Why: Family succession often destroys value</text> <text x="70" y="675" fill="#6b7280">Start: Define performance-based criteria</text> <!-- Action 3 --> <circle cx="50" cy="700" r="4" fill="#10b981"/> <text x="70" y="705" font-weight="bold" fill="#374151">Match funding type to growth stage</text> <text x="70" y="725" fill="#6b7280">Why: Wrong capital constrains growth</text> <text x="70" y="745" fill="#6b7280">Start: Map capital needs by milestone</text> </g> <!-- Paper Classification Summary (Right Bottom) --> <rect x="600" y="500" width="580" height="280" rx="10" fill="white" stroke="#e5e7eb" stroke-width="2"/> <text x="890" y="530" font-family="Arial, sans-serif" font-size="18" font-weight="bold" text-anchor="middle" fill="#1e3a8a"> 📊 Reading List Classification (MECE) </text> <!-- Distribution Chart --> <g> <!-- Bars --> <rect x="700" y="640" width="80" height="80" fill="#a855f7"/> <!-- 23% --> <rect x="800" y="640" width="80" height="80" fill="#10b981"/> <!-- 23% --> <rect x="900" y="600" width="80" height="120" fill="#f59e0b"/> <!-- 31% --> <rect x="1000" y="655" width="80" height="65" fill="#ef4444"/> <!-- 15% --> <!-- Labels --> <text x="740" y="630" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#374151">🟣 23%</text> <text x="840" y="630" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#374151">♻️ 23%</text> <text x="940" y="590" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#374151">🟧 31%</text> <text x="1040" y="645" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#374151">🔴 15%</text> <!-- Category names --> <text x="740" y="740" font-family="Arial, sans-serif" font-size="12" text-anchor="middle" fill="#374151">Anomaly</text> <text x="840" y="740" font-family="Arial, sans-serif" font-size="12" text-anchor="middle" fill="#374151">Definition</text> <text x="940" y="740" font-family="Arial, sans-serif" font-size="12" text-anchor="middle" fill="#374151">Generation</text> <text x="1040" y="740" font-family="Arial, sans-serif" font-size="12" text-anchor="middle" fill="#374151">Conception</text> </g> <!-- Key Finding --> <text x="890" y="580" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" font-weight="bold" fill="#374151"> Key Finding: Balanced distribution with 2 paradigm-shifting papers </text> <!-- 3 Key Takeaways (Footer) --> <rect x="0" y="800" width="1200" height="100" fill="#1e3a8a"/> <text x="600" y="830" font-family="Arial, sans-serif" font-size="16" font-weight="bold" text-anchor="middle" fill="white"> 3 Key Takeaways </text> <text x="200" y="860" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> 1. Capital constraints are dual: </text> <text x="200" y="880" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> financial AND managerial </text> <text x="600" y="860" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> 2. Family control has real costs: </text> <text x="600" y="880" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> -14% profitability on average </text> <text x="1000" y="860" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> 3. Context matters: subsistence vs </text> <text x="1000" y="880" font-family="Arial, sans-serif" font-size="14" text-anchor="middle" fill="#dbeafe"> transformational entrepreneurs differ </text> </svg> # Day 4.0 - Antoinette Schoar (MIT & NBER) ## Family Firms & Entrepreneurial Finance 🟣A: Papers that identify puzzles, paradoxes, or problems in entrepreneurship ♻️D: Papers that define challenges or establish needs without providing solutions 🟧G: Papers that generate solutions through models, methods, or mechanisms 🔴C: Papers that conceive new theoretical frameworks or paradigms ### 🟣 A: Papers that Identify Anomalies _(These papers reveal puzzling patterns that challenge existing theory)_ - **Bennedsen, M., Nielsen, K., Perez-Gonzalez, F., & Wolfenzon, D. (2007).** Inside the family firm: The role of families in succession decisions and performance. _Quarterly Journal of Economics_, 122, 647–691. - **The Anomaly**: Family CEOs underperform professional CEOs by 14% in operating profitability, yet family firms overwhelmingly (90%+) choose family successors. This defies profit maximization logic. - **Field, E., Pande, R., Papp, J., & Rigol, N. (2013).** Does the classic microfinance model discourage entrepreneurship among the poor? Evidence from India. _American Economic Review_, 103(6), 2196–2226. - **The Paradox**: Microfinance's rigid repayment structure, designed to help the poor, actually discourages entrepreneurial risk-taking and business growth—the opposite of its intended effect. - **Claessens, S., Djankov, S., & Lang, L. H. P. (2000).** The separation of ownership and control in East Asian corporations. _Journal of Financial Economics_, 58, 81–112. - **The Puzzle**: East Asian firms show extreme ownership concentration (top family controls 25% on average) yet still face severe agency problems, contradicting the view that concentration solves agency issues. ### ♻️ D: Papers that Define Challenges _(These papers frame important problems without providing complete solutions)_ - **Bertrand, M., & Schoar, A. (2006).** The role of family in family firms. _Journal of Economic Perspectives_, 20(2), 73–96. - **The Challenge Defined**: Family firms must navigate competing objectives—maximizing profits versus providing family employment, maintaining control versus accessing capital. The paper maps these trade-offs without prescribing solutions. - **Bruhn, M., Karlan, D., & Schoar, A. (2010).** What capital is missing in developing countries? _American Economic Review_, 100(2), 629–633. - **The Need Articulated**: Developing country entrepreneurs lack not just financial capital but crucially managerial capital. The paper establishes this dual constraint without providing a mechanism to solve it. - **Rajan, R., & Zingales, L. (1998).** Financial dependence and growth. _American Economic Review_, 88(3), 559–586. - **The Framework Challenge**: Industries have inherent technological needs for external finance that must be matched with financial system capabilities. Maps this alignment problem across countries without solving the development path. ### 🟧 G: Papers that Generate Solutions _(These papers provide models, methods, or mechanisms that solve identified problems)_ - **De Mel, S., McKenzie, D., & Woodruff, C. (2008).** Returns to capital in microenterprises: Evidence from a field experiment. _Quarterly Journal of Economics_, 123(4), 1329–1372. - **The Solution Method**: Randomized grants to microenterprises provide causal estimates of returns to capital (5-7% monthly). The experimental design solves the identification problem of measuring true returns. - **Kerr, W. R., Lerner, J., & Schoar, A. (2014).** The consequences of entrepreneurial finance: A regression discontinuity analysis. _Review of Financial Studies_, 27, 1–34. - **The Identification Engine**: Regression discontinuity around angel group funding thresholds identifies causal effects—funded firms have 70% higher survival rates and 30% more employees after four years. - **La Porta, R., López-de-Silanes, F., Shleifer, A., & Vishny, R. (1998).** Law and finance. _Journal of Political Economy_, 106(6), 1113–1155. - **The Measurement Model**: Creates systematic indices of investor protection across 49 countries, showing common law countries have stronger protections. This quantification engine enables testing how legal origins affect financial development. - **Karlan, D., & Zinman, J. (2009).** Observing unobservables: Identifying information asymmetries with a consumer credit field experiment. _Econometrica_, 77, 1993–2008. - **The Mechanism Design**: Uses randomized interest rates to separately identify moral hazard from adverse selection in credit markets. The experimental design solves the long-standing problem of distinguishing these information frictions. ### 🔴 C: Papers that Conceive New Frameworks _(These papers fundamentally reframe how we think about entrepreneurship)_ - **Schoar, A. (2010).** The divide between subsistence and transformational entrepreneurship. In J. Lerner & S. Stern (Eds.), _Innovation Policy and the Economy_ (Vol. 10). University of Chicago Press. - **The New Paradigm**: Reframes entrepreneurship as two distinct phenomena—subsistence (self-employment for survival) versus transformational (growth-oriented ventures). This conceptual split changes how we think about entrepreneurship policy, showing the same intervention can have opposite effects on different entrepreneur types. - **Lerner, J., Schoar, A., Sokolinski, S., & Wilson, K. (forthcoming).** The globalization of angel investments: Evidence across countries. _Journal of Financial Economics_. - **The Integrative Framework**: Reconceptualizes angel investing as a global phenomenon shaped by three interacting forces: local institutions (macro), investor networks (meso), and entrepreneurial ecosystems (micro). Bridges international finance and entrepreneurship literatures. --- ## Recommended Readings _(Additional papers organized by contribution type)_ - **Bertrand, M., Johnson, S., Samphantharak, K., & Schoar, A. (2008).** Mixing family with business: A study of Thai business groups and the families behind them. _Journal of Financial Economics_, 88(3), 466–498. - **[🟣 A]** Documents the anomaly that family business groups use pyramids and cross-ownership to maintain control while accessing capital, but this creates massive value destruction through tunneling. - **Udry, C., & Anagol, S. (2006).** The return to capital in Ghana. _American Economic Review_, 96(2), 388–393. - **[🟧 G]** Provides additional experimental evidence on capital returns in Africa, using randomized grants to estimate monthly returns of 7-10% in small enterprises. --- ## Classification Summary - **4 Anomaly papers (🟣)**: Reveal surprising patterns in family firms and finance - **3 Definition papers (♻️)**: Frame key challenges without full solutions - **4 Solution papers (🟧)**: Provide rigorous methods and causal estimates - **2 Framework papers (🔴)**: Offer paradigm-shifting ways to think about entrepreneurship This distribution shows family firm research excels at identifying puzzles and developing methods but has room for more conceptual frameworks that integrate findings.