Who cares about socioemotional wealth? SEW and rentier perspectives on the one percent wealthiest business households

Abstract

The wealthiest family business owners are recognized as economically powerful, but there is little theoretical underpinning to explain how their behavior differs from their counterparts. To increase our understanding of family firm owners we draw on literature to introduce the concept of the rentier which we contrast with the socioemotional wealth (SEW) perspective of ownership. We test contrasting predictions by examining the strategic behavior of the one percent wealthiest business owning households in the United States using data from Federal Reserve Board’s 2013 Survey of Consumer Finance. Our findings depict an entrepreneurial category of owners who blend aspects of both rentier and SEW modes, but suggest important shortcomings of both perspectives.

Introduction

Over the past decade, an ‘emotional’ perspective of business ownership has become popular among family business scholars. The preservation of socio-emotional wealth (SEW) has become a widely favored explanation of the economic behavior and dynastic intentions of business owning families (Cleary, Quinn, & Moreno, 2018; Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Morgan & Gomez-Mejia, 2014). Socio-emotional wealth refers to ‘non-financial aspects of the firm that meet the family’s affective needs’ (Gómez-Mejía et al., 2007: 106). Proponents of SEW allow for industrious behavior among members of founding generation family businesses, but confirm their inheritance priorities, suggest nepotism and conservatism, and report business behavior that is stodgy, risk-averse, and embedded in a supportive local community (Berrone, Cruz, Gómez-Mejía, & Kintana, 2010; Cennamo, Berrone, Cruz, & Gomez‐Mejia, 2012; Gómez-Mejía, Cruz, Berrone, & De Castro, 2011). Family businesses are often identified as small and medium-sized enterprises, yet some of the world’s largest and most iconic firms are owned and managed by families (La Porta, Lopez-De-Silanes, & Shleifer, 1999), thus SEW theory seeks to explain a wide range of firms of different sizes and varying complexity (Nason, Mazzelli, & Carney, 2019; Schulze & Kellermanns, 2015).

In this paper we draw upon differences in wealth to highlight behavioral and attribute distinctions among two populations of business owning households,¹ and we introduce a rentier perspective as a counter narrative to the emotional view of business ownership that may pertain to the wealthiest business owning households. Specifically, we draw from the literature concerning the existence and resurgence of rentier capitalists in advanced economies (Epstein & Jayadev, 2005; Piketty & Zucman, 2014). The rentier perspective stands in marked contrast to SEW as it emphasizes a wealth management orientation in rich households and also appears consistent with prevailing trends in wealth distribution (Piketty, 2014). Rentiers are said to pursue dynastic strategies aimed at coordinating financial assets, rather than socio-emotional utilities, across generations (Hansen, 2014; Mazumder, 2005; Morck & Yeung, 2003; 2004; Morck, Wolfenzon, & Yeung, 2005). Wealthy rentiers are viewed as generating cash flow from their financial capital and inheritances rather than labor, being deeply embedded in social structures steeped in privilege, and building diversified wealth portfolios (Piketty, 2014). For instance, the wealthy are said to attend prestigious schools and universities and maintain membership in exclusive clubs (Palmer & Barber, 2001). Lester and Cannella (2006) propose that the most prestigious and successful family firms are more likely to be located at the centre of networks of other family controlled companies. In these respects households in the one percent are likely to be characterised by homophily, the tendency of individuals to associate with others who are economically and demographically similar to themselves (DiMaggio & Garip, 2012). This stream of literature has witnessed a revival recently in the wake of growing economic inequality, with small segments of society enjoying relatively great prosperity while others experience income and wealth compression (Björklund, Roine, & Waldenström, 2012).

We contend that selective aspects of both SEW and rentier characterizations of business ownership apply, but only partially and for different types of households. Specifically, we argue that there is an important distinction between the wealthiest business owning households and the others, with the former adhering in greater, albeit partial, measure to a rentier profile, and the latter being somewhat more accurately, but again only partly, described by the SEW perspective. We contrast SEW and rentier perspectives by developing hypotheses that theorize differences between one percent and 99% business owning households across strategic dimensions of wealth composition, income composition, risk taking, investment search behavior, and inheritance practices. Our analysis suggests that significant wealth may indeed loosen the binding ties of socioemotional wealth (Gómez-Mejía et al., 2011). However, there are important limits to the accuracy of the calculative wealth preservation strategies proposed by the rentier perspective (Piketty, 2014).

The rentier and SEW perspectives collide in the one percent wealthiest households. We use the one percent figure because of its popularity not only in public discourse, but also as a distinct area of inquiry in academic literature, especially in economics (Alvaredo, Atkinson, Piketty, & Saez, 2013; Piketty, 2015) and sociology (Keister & Lee, 2014; Keister, 2014; Yavorsky, Keister, Qian, & Nau, 2019). However, we expect and establish that our arguments hold above and below that cutoff (indeed our findings are shown to be robust to a continuous wealth variable as well as a five percent cutoff). In the United States, the threshold wealth level for inclusion in the one percent is $8.5 million and the 1.6 million households meeting this distinction constitute a unique economic group (Saez & Zucman, 2014). Whereas the one percent certainly occupy the upper echelons of the socoio-economic strata (in line with the rentier view), they also tend to operate privately owned businesses (in line with the SEW view). We seek to make sense of contradictory predictions by SEW and rentier perspectives regarding business ownership behavior by comparing business owning households in the one percent with those in the 99%. We utilize the Survey of Consumer Finance which provides the most detailed and accurate pictures of household finances, especially amongst the wealthy (Keister, 2014; Keister & Lee, 2014). These data reveal that the typical (i.e. median) one percenter holds some $30 million in total assets. Compared with the business owning households in the lower 99%, one percent business owning households have larger businesses ($37 million in value vs $500,0000 in value) that employ more people (335 vs 35 employees). One percent business owning households are also more likely to be married (88% vs 73%) and have a white household head (94% vs 85%) compared to 99% business owning housholds. One percent business owning households also report being healthier and expect to live longer according to SCF data.

Our analysis reveals a hybrid characterization of the one percent -- an industrious group of households with labor-generated wealth that is highly concentrated in owner managed business interests and with clear intentions to pass on wealth to future generations. Our findings about the one percent business owning households suggests an entrepreneurial group and we discuss the implications for future research on this underexamined but important social strata.

Our refined perspective on the one percent business owning households contributes to the SEW and capitalist rentier literature in several ways. First, we extend research scholarship examining the particularistic interests and behaviors of business owning households. By focusing on the financial and business strategies of wealthy business owning households, we provide insight into such households as an economic group with financial motviations and cosmopolitan characteristics. Second, we delineate the socioemotional wealth perspective, suggesting its relevance for households owning the majority of small and medium enterprises, but drawing attention to significant wealth as an important factor to bound the application of SEW. This endeavour explores sources of heterogeneity among family businesses (Chua, Chrisman, Steier, & Rau, 2012; Miller, Amore, Le Breton-Miller, Minichilli, & Quarato, 2018) and builds theory on the underexamined upper echelons of business families (D’Allura, 2018; Steier, Chrisman, & Chua, 2015). Third, we shed light on the composition of the wealthy in some advanced postindustrial societies as ‘existing schemas of class structure do not specify the capitalist class in an adequate manner’ (Wolff & Zacharias, 2013: 1381). Our findings suggest that these industrious elites embody an entrepreneurial ethic with both an economically rational approach to business and a strong commitment to preserving wealth and status for future family generations.

Private business ownership is concentrated in the upper reaches of the wealth hierarchy. Seventy-six percent of US households in the wealthiest one percent own and actively manage a business (Carney & Nason, 2016). Business ownership is of course not restricted to the one percent wealthiest families; Fig. 1 graphs the lower 10% (0) – 80% (8) and then 90–99% (9) and top one percent (10) showing a dramatic decline in average business ownership through the lower wealth centiles. Can a single theory explain business ownership and its correlates across the entire wealth hierarchy? Our theory echoes the F. Scott Fitzgerald's dictum that the rich differ from everyone else, and in the following theoretical section we juxtapose two prominent views of business and capital assets ownership to explore this idea.

Rooted in prospect theory (Barberis, 2013), scholars of SEW maintain that business owning families develop binding emotional ties to their firms and are motivated by a strong desire to conserve socioemotional wealth in the firm (Gómez-Mejía et al., 2007, 2011). SEW is the label applied to the collective utilities that family owners derive from the non-financial aspects of the business. Idiosyncratic family utilities such as identity, emotional attachment, and family altruism (Gómez-Mejía et al., 2007, 2011) lead families to govern firms in a manner that maintains their control and preserves their non-financial endowments. SEW scholars maintain that family businesses will be loss-averse regarding accumulated socioemotional wealth endowments, and that family businesses will take economic risks with potentially negative performance consequences in order to retain their control over their firm. The original study developing the concept of socio-emotional wealth showed that small family run Spanish olive mills were less willing than non-family mills to join a cooperative despite clear cash flow advantages. As a result, family businesses that retained family control by rejecting cooperative membership suffered an increased probability of failure and worse financial performance (Gómez-Mejía et al., 2007).

The firm-specific attachments arising from SEW also can result in sub-optimal governance and strategic decisions. For instance, family businesses may show preferential treatment to family employees (Cruz, Justo, & De Castro, 2012; Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Lubatkin, Schulze, Ling, & Dino, 2005; Schulze, Lubatkin, Dino, & Buchholtz, 2001) and eschew economically promising strategies as evidenced by a reluctance to engage in international expansion (Gomez-Mejia, Makri, & Kintana, 2010) and underinvesting in R&D and new technology (Chrisman & Patel, 2012) (but see Duran, Kammerlander, Van Essen, & Zellweger, 2016). According to SEW theory, family businesses are unlikely to exit their business (DeTienne & Chirico, 2013) and tend to take risky decisions only when the firm underperforms significantly or confronts the prospect of failure (Gomez-Mejia et al., 2010). Thus, with the passage of time business families’ socioemotional attachments may deplete the resources needed to adapt to changing business conditions and undermine their financial performance, resulting in declining financial wealth, especially in those firms managed by second and later generation family members (Pérez-González, 2006).

A rentier is an individual who is able to live off the proceeds of his/her invested capital rather than relying primarily on employment wages. The status and economic value of the rentier has long been the subject of analysis in the field of political economy. Historically, the rentier was very much a key figure in the pre-industrial era when land for agricultural production represented the primary source of wealth. However, Marx opined upon the continuing expansion of the rentier class with the onset of industrialization… “a class of men springs up, increases more and more, who by the labors of their ancestors find themselves in position of funds sufficiently ample to afford a handsome maintenance from the interest alone (Marx, 1992 [1894]: p359Marx, 1992Marx, 1992 [1894]: p359).” In the General Theory, Keynes expressed a benign view of the rentier "I see… the rentier aspects of capitalism as a transitional phase which will disappear when it has done its work (1936: 345). Keynes described rentiers as 'functionless investors' (p. 345) and predicted the gradual ‘euthanasia of the rentier’ with the progressive accumulation of capital. For the greater part of the 20th century Keynes’s expectation of the demise of rentiers appeared to be realized. Between 1914 and 1945 war destroyed much of Europe's industrial capital stock and the Great Depression in the US severely restricted returns to capital. After 1945, social democratic policies with respect progressive taxation and rent controls diminished returns to capital (Piketty, 2014).

However, the rise of neoliberal policies in much of the West since 1980 is said to have created an economic environment favourable to capital accumulation (Centeno & Cohen, 2012). Economic inequality scholars argue that “Capital is back” (Piketty & Zucman, 2014) thereby enabling the re-emergence of a rentier group. Recalling Marx’s notion of living off ancestors’ wealth, recent analysis identifies the growing importance of inheritance in the composition of the capital stock (Piketty, 2011, 2014). According to this perspective, long-run average returns on capital greater than the rate of economic growth produces widening economic inequality. The growing social concern with inequality has led to a resurgence of interest in wealth holders. Growing inequality is evident in a wider range of mature industrial societies, including Scandanavian societies that are not typically associated with inequality. Hansen (2014), warns of the reappearance in Norway of a closed self-perpetuating collection of old money business families in the one percent wealthiest centile. To preserve their position, “members of the privileged groups use wealth reproduction strategies that vary according to the amount and nature of their assets” (Hansen, 2014: 459). A focus on rentiers in the economic structure of contemporary capitalism reintroduces ‘grand theory’ (Vidal, Adler, & Delbridge, 2015) and enables us to enrich and reframe research into traditional domains such as family business studies.

However, the composition of capitalists in the US is differentiated in terms of the amount of assets they control (Aldrich & Weiss, 1981) and their relationship to the means of production (Wolff & Zacharias, 2013). The former refers to the quantity of wealth but the latter distinguishes between ownership and control of assets. Because influence arises from control it is the capacity to employ and direct the workforce that is considered to be the core ingredient of capitalist ownership. Yet this distinction also includes the owners of relatively small businesses and even the self-employed (Ruef & Reinecke, 2011). At the same time because a substantial proportion of assets are under the control of publicly listed but managerially controlled corporations, it is often assumed that the owners of financial assets may have little influence over the direction of those assets (Zeitlin, 1974). Indeed, one prominent study considers capitalists to include financiers, executives, and other paid professionals and excludes the ultimate owners of equity capital (Sklair, 2012). Hence, defining the composition of the capitalist group in terms of both substantial asset ownership and control over the means of production has proved difficult to specify empirically. The focus on the one percent based upon SCF data is useful in this regard as it identifies ownership of substantial wealth and enables us to distinguish somewhat between households based upon ownership and control of a private business and the extent to which business ownership is an important source of wealth (Keister, 2014).

Compared with the SEW view the rentier perspective points to a very different picture of wealthly private business owning households. Wealthy business owning households are seen as a privileged group that is more concerned with financial wealth than socio-emotional utility. It is said that it spans global boundaries, and its strategies are calculative (Harrington, 2016). Unfortunately, the rentier perspective has been neither adequately tested nor incorporated into family business research. The majority of family business studies tend to focus on small and medium enterprises grounded in local communities (Gomez-Mejia et al., 2010) or families’ continued influence on large public corporations (Anderson, Duru, & Reeb, 2009). We concentrate on one percent business owning households as a unique demographic in the family business population. In the following hypotheses, we seek to unearth theoretical dimensions along which one percent and 99% business owning households can be expected to differ. Specifically, we contrast the rentier perspective with SEW across strategic dimensions that are discussed in both rentier and SEW perspectives, including wealth composition, income composition, risk-taking, search, and inheritance activity.

The hypotheses that follow are conjectures that build on contrasts between the SEW and rentier perspectives, important conceptual models. We do not claim these hypotheses to imply causality nor to be universally surprising.

The SEW and rentier perspectives suggest opposing views of family wealth concentration: that is the diversification vs concentration of family wealth. The SEW literature suggests that both emotional and financial wealth will be heavily concentrated within the family business. As Gómez-Mejía and his colleagues put it, “there are many reasons to conclude that greater concentration of firm ownership in family hands will increase socioemotional wealth (Gómez-Mejía et al., 2011: 693).” In SEW, the desire to protect valued emotional endowments limits family businesses’ willingness to diversify financial capital. Specifically, SEW theory predicts that family businesses will avoid diversifying into other lines of business since diversification will likely lead to much greater use of independent outsiders such as professional managers, who may compromise the family’s dominance over the business -- a constraint families would rather avoid (Gomez-Mejia et al., 2010: 210). Accordingly, “family firms are said to prefer the risk of financial wealth concentration over the complexity of diversification (Gomez-Mejia et al., 2010: 224).” Wealth concentration is likely to be accentuated in smaller firms where “there is a high overlap between family wealth and firm equity” (Sciascia, Nordqvist, Mazzola, & De Massis, 2003). Hence, SEW theory is strongly suggestive of family wealth concentration in a single firm.

The rentier view presents an alternative view for wealth composition among the wealthy that emphasizes a distancing of emotional attachment and depersonalization of assets. It suggests that although much of the wealth owned by scions of large fortunes is initially tied to the founding firm (Piketty, 2014), over time these fortunes spill over and extend well beyond the firm. Wealthy business owners, at the urging of professional advisors, seek to preserve capital, optimise investment returns, and minimise income and estate taxes (Harrington, 2016; Marcus & Hall, 1992). Household wealth drives the creation of new businesses and is associated with the portfolio entrepreneurship strategies of business families (Quadrini, 1999).

Research in finance supports a wealth diversification hypothesis, indicating that in economies with large and liquid capital markets family owners will dilute their ownership stakes and reallocate their investments as businesses age and ownership becomes widely held (Franks, Mayer, Volpin, & Wagner, 2011). These strategies serve to diversify risk and also allow wealthier households to exploit the scale advantages of contemporary portfolio capital management, thereby earning superior returns (Piketty, 2014). The scale of their wealth allows the wealthiest families to more readily utilise financial instruments with beneficial tax arrangements.

Wealth in the upper echelons is said to be focused on capital held in passive financial investments such as stocks, bonds, trusts, mutual funds and annuitized instruments such as pension plans (Keister, 2014). The financialization of the economy over the last 30 years (Epstein & Jayadev, 2005) has reinforced the perception that rentier income derives from financial assets. Hence, the rentier perspective on wealth dynamics is focused on aggregate capital holdings held in diversified financial investments (Keister, 2014). This suggests that wealthy business owning households utilize financial considerations as a driving force to create a diversified household asset portfolio. Thus, whereas the SEW perspective may be apt for less affluent 99% business owining households, the rentier perspective is likely to apply to wealthier business owning households. Since the one percent wealthiest business owning households are likely to enjoy a substantial cushion against a poor diversification decision and are likely to be assisted in making capital allocation decisions by professionals, we expect that their wealth will be more widely diversified into different asset categories.

Hypothesis 1

One percent business owning households will have wealth less concentrated in a firm and are more likely to diversify their assets than 99% business owning households.

According to the SEW perspective, family businesses have strong incentives to employ family members as this practice serves as both a particularistic benefit of control and a mechanism to maintain control. As a benefit, controlling owners are able indulge their altruism by being “unusually generous” to family members, for example by providing them with comfortable jobs (Schulze et al., 2001: 103). Employing family members produces socioemotional rewards for the family as it provides secure and stable careers and a livelihood for current and later generations who might not otherwise find as satisfying employment (Gómez-Mejía et al., 2011; Miller & Le Breton-Miller, 2014). In addition, hiring family members reinforces families’ control of their organizations. Since family members serve as a loyal and stable base of human resources, family members are placed in leadership positions across all aspects of the business in a way that concentrates family power and ensures that the organization will act in accordance with family wishes. While this practice may be considered socio-emotionally rewarding and economically efficient (Verbeke & Kano, 2012), the result is a focus on deriving benefits from the firm in terms of employment wages and a concentration of family income from on a single source.

The rentier perspective provides a contrasting picture of income composition for the wealthy, once again driven by financial considerations rather than other utilities. Rentiers are not believed to be wed to or sentimentally attached to a single business or its rewards, but rather are rational managers of capital and recipients of multiple non firm-related sources of cash flow. Piketty suggests that in the contemporary era there are fewer great estate inheritances found than in 18^th century ancien regime, but that the volume of inherited wealth as a share of total wealth is producing a large number of inheritances between €1 million and €2 million. He reasons that such inheritances are typically too small to allow beneficiaries to give up their careers and to simply live on the capital interest, dividends and capital gains, but such inheritances are nevertheless substantial, producing a society of ‘petits rentiers’ (2014). This creates a society with a small number of very wealthy rentiers as well as a large number of individuals deriving income from both employment and capital. Rentiers, deriving income from their capital as well as earnings from employment have been described as the 'working rich' (Saez, 2015). In Norway, Hansen (2014: 457) finds that ‘the very top’ wealth category appears to be a rentier group with higher incomes from capital than from earnings.

These findings suggest that income composition is structured very differently between one percent and 99% business owning households. Due to a substantial capital base that provides a stream of annual income, one percent business owning households can avoid the rigours of competitive labour markets as they are less reliant on income from employment. Due to their wealth, family members of business owning households can engage in less remunerative occupations in the community and in philanthropy. Instead, in an era of sustained growth in asset prices, the potential benefit of capital gains may outweigh the incremental annual accumulation of employment wages. In this way, one percent business owning households could be argued to have less concern with socio-emotional endowments and less need to employ spouses and adult children in management positions in comparison to 99% business owning households. Thus, they will derive more of their income from capital assets than from employment.

Hypothesis 2

One percent business owning households are likely to receive more income from capital than from wages and have a higher percentage of total income derived from capital compared to 99% business owning households.

Whereas much of the family business literature emphasizes family businesses’ risk aversion, a central theoretical component of SEW is the concept of loss-aversion which suggests that family members are more concerned with minimizing current socioemotional losses over maximizing future financial gains. Thus, for example, whereas investing in a new venture may produce long-term benefits, in the short term it may compromise socioemotional attachments because family members may become overly dependent upon experts or bankers who may threaten family control and therefore SEW. Hence, family businesses may curtail some propitious investments, which causes financial underperformance but preserves socioemotional wealth. Accordingly, SEW scholars argue that family decision-makers may be simultaneously prone to risk taking, yet risk averse in their strategic choices (Wiseman & Gómez-Mejia, 1998). A consequence of loss aversion is that family businesses take risks with potentially damaging economic consequences in an effort to retain their control over the firm (Gómez-Mejía et al., 2007).

The growing body of knowledge on contemporary rentiers may provide a more accurate depiction of risk management in wealthy business owning households. In this view, wealthy families’ employ highly professionalized wealth management agents such as family offices (Zellweger & Kammerlander, 2015) and most trusted advisors (Strike & Rerup, 2016). These agents rationalize and optimize risk according to client risk preferences. Piketty (2014) argues that the very wealthy enjoy superior expertise in portfolio management that provides higher returns on capital than is available to less wealthy investors.

We contend that, compared to 99% business owning households, one percent business owning households are more likely to reflect the risk taking behavior and attitudes of the rentier perspective rather than the SEW perspective. This is driven by wealthy business owning households’ resources to endure risk and their use of professional agents promoting risk-seeking investments. We suggest that this tendency applies to their attitudes towards risk as well as their actual risk taking practices in managing their firm’s and household’s finances.

Hypothesis 3

One percent business owning households are likely to exhibit greater objective and subjective risk tolerances with respect to their wealth compared with 99% business owning households.

Search refers to business family households’ tendencies to scan for superior financial returns and employ professional agents, such as lawyers, brokers and financial planners in this process. SEW theory suggests that emotional endowments are threatened by reliance upon such specialized professionals due to the information asymmetries and uncertainties arising from their expertise. Referring to banks and venture capitalists, Gomez-Mejia et al. (2010: 669) state: “These outsiders… are likely to claim a say in the firm's affairs such as selecting top management… something the family would rather avoid.” Nevertheless, family businesses cannot function without some reliance upon external stakeholders. When they do so, SEW theory predicts that because they are deeply embedded in their local communities (Berrone et al., 2010), they will prefer to deal with local stakeholders with whom they have close personal relationships (Cennamo et al., 2012; Miller & Le Breton-Miller, 2014), which can include local banks and financial institutions.

In contrast to the SEW view, the rentier perspective suggests that wealthy families will have few reservations about utilizing external financial expertise. Their socialization is not limited or primarily focused on local communities and embedded relationships, but rather global markets and other successful families. As a result, they will avail themselves of the most modern and sophisticated portfolio managers (Piketty, 2014). Indeed, scholars have documented that wealthy families make use of a diverse range of professionals to manage their financial affairs, for example calling upon “expertise to preserve intergenerational family wealth through estate planning and prenuptial agreements” (Beaverstock, Hall, & Wainwright, 2013). Arrangements include multifamily offices, which are professional organizations that provide customized wealth management, taxation, and estate planning to several business families and thus require less net worth than dedicated family offices (Wessel, Decker, Lange, & Hack, 2014). The specialized nature of such intermediaries induces them to locate within major metropolitan and financial centers, far from the local communities in which business families are situated. We refer to such practices as cosmopolitan search, reflecting its non-local and specialised character. Thus, the rentier perspective suggests that, compared to the 99% business owning households, those in the one percent are more likely to be avid in their pursuit of advantageous financial terms and investments. To do so, they are more willing to search broadly for investment opportunities and to utilize professional agents located beyond their local communities.

Hypothesis 4

One percent Business owning households are more likely to exhibit cosmopolitan search practices with respect to the management of household wealth compared with 99% business owning households.

The SEW literature has focused extensively on identifying family businesses’ motives and preferences for intrafamily succession. Given that succession by family members may lead to a decline in family business performance (Pérez-González, 2006; Villalonga & Amit, 2006), it is reasoned that a preference for family succession is driven by non-financial factors and that socioemotional wealth preservation is an important explanation for family businesses’ preference for a next generation family member to succeed to the leadership of the family-owned enterprise (Gómez-Mejía et al., 2011). Accordingly, SEW theory sees intergenerational, perhaps even dynastic family strategies as aimed at securing the inheritance of a particular business.

In contrast, the rentier perspective suggests that both inheriting and passing on financial wealth, not a business itself, is a core element of dynastic family strategies. The conventional wisdom on “old money” business families suggests that they were focused upon wealth preservation for the next generation and concerned with establishing trusts and foundations as a means of transmitting wealth (Marcus, 1980). The literature on intergenerational transfers and wealth accumulation show that wealth transfers are highly concentrated (60%) in the top net worth decile (Gale & Scholz, 1994) and find strong correlations between parents and childrens’ wealth (Mazumder, 2005). Recent work on inequality suggests that this strong correlation may be in large part driven by inheritance preferences and activity. Keister (2005: 124) has established that inheritance has a very strong impact on adult wealth. Based on 2010 SCF data, Keister and Lee (2014:19) find that over 42% of the wealthiest one percent households have inherited wealth, with the average amount being $2 million.

Whereas SEW and rentier perspectives converge regarding the importance of receiving and leaving inheritances, the rentier perspective emphasizes wealthy families’ superior capacity to provide inheritances. With higher levels of accumulated wealth, business owning households are apt to have received inheritances that place them in the upper wealth echelons and they are likely to pass on their wealth as it cannot be reasonably consumed within their lifetime. For these reasons, we propose that receiving and leaving inheritances will be more prevelant in one percent business owning households compared to 99% business owning households.

Hypothesis 5

One percent business owning households are more likely to receive an inheritance and are more likely to expect to leave an inheritance than 99% business owning households.