Unfamiliar Family Firms

Mario Daniele Amore (Bocconi University)
Mircea Epure (Universitat Pompeu Fabra and Barcelona GSE)
Orsola Garofalo (Copenhagen Business School)

Abstract: Finding the right company name is a challenging decision with major consequences for firm prospects. Drawing on strategic distinctiveness and legitimacy theories, we study the implications of “unfamiliar” names (i.e. foreign sounding and family-unrelated) for family firm profitability. Our empirical analysis shows that unfamiliar names increase profitability. This result is not due to differences in R&D, industry specialization or geographic scope, and holds using both matching and instrumental variable approaches. Consistent with the idea that unfamiliar names endow the business with greater visibility and recognition in the marketplace, we show that the benefits of “unfamiliar names” are larger for firms in crowded product classes and firms smaller than industry peers. Moreover, we show that cultural values that prioritize the local community and the family dampen the benefit of unfamiliar names, which may raise illegitimacy concerns in the eyes of external stakeholders.