We investigate the role played by institutional development in the prevalence and performance of firms that are owned and/or managed by entrepreneurs or their families, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across its provinces with homogeneity in cultural norms, law, and regulation. Using hand-collected data from publicly listed Chinese firms, we find that, when institutional efficiency is high, entrepreneur- and family-controlled firms are more prevalent and exhibit superior performance than non-family firms. We find that the positive effects of family ownership and the negative effects of family control in excess of ownership that have been documented in earlier studies around the world are only significant in high-efficiency regions, and only for family-controlled firms proper, but not for entrepreneur-controlled firms. Institutional development also helps reconcile the divergence of results across prior studies regarding the performance impact of founders and their families as managers and not just owners. When institutional efficiency is high, the sign of the management effect is entirely contingent of whether the Chairman or CEO is the entrepreneur himself/herself (positive) or a family member (negative); when institutional efficiency is low, the effect is positive in both cases, and more strongly so in the case of a family member serving as CEO.

Building on recent research linking changes in housing prices to investors’ degree of risk aversion, we posit that there is a negative relation between growth in housing prices and a firm’s cost of equity capital. Consistent with our hypothesis, we find that firms located in states with positive growth rates in housing prices exhibit lower costs of equity capital. We also observe that the effect of changes in housing prices is mainly driven by smaller firms. This housing effect is not only statistically significant but also economically important. Our results hold across various measures of growth rates in housing prices and are robust to controlling for potential biases due to measurement errors in estimating the implied cost of equity capital. This study is the first to establish an association between growth rates in housing prices and firms’ cost of equity capital. It also contributes to the emerging literature on the economic importance of a firm’s geographic location.