names into an English first name/last name format. Finally, BvD also provides a separate dataset providing information on the names and equity shares of owners.

# **_III.B. Product Complexity_**

Following Levchenko (2007) we rely on US data on the number of intermediate products used in production across 4-digit manufacturing industries to proxy for product complexity. We let the dummy Complex _k_ equal one for industries above the median. A ranking of these industries is provided in Table A2 of the Online Appendix.

# **_III.C. Contractual Institutions_**

To measure the quality of contracting institutions, we use (i) the Worldwide Governance Indicators rule of law index and (ii) a measure of trust from the World Value Survey (WVS).<sup>18</sup> While the rule of law index provides a good measure of contractual institutions across countries, unfortunately no similar exists that covers our sample at the subnational level. We therefore use trust as a proxy at the region level. We believe this captures similar variation in the relative cost of hiring professional or family managers. This is because in our model contractual institutions determine the probability agents can get away with acting against the interests of the principle. Whether the principal trusts the manager or whether they are sure they can enforce against any shirking in the courts should therefore be highly correlated. Indeed, this variable has been widely used as a proxy for rule of law by various researchers (Knack and Keefer 1997, La Porta et al. 1997, Zak and Knack 2001). Our trust measure is the share of people within a region that choose the first option in response to the question “Generally speaking, would you say that most people can be trusted, or that you can’t be too careful in dealing with people?”<sup>19</sup> To guage how reasonable the use of this proxy is empirically, Figure III explores the country-level relationship between trust and (i) the rule of law index and (ii) contracting enforcement (as measured in the World Bank Doing Business Survey). Trust is strongly correlated with both stronger rule of law and contract enforcement, providing reassurance that differences in trust across regions captures similar variation to legal institutions and the constraints faced by firm owners in delegating decision-making to managers which is emphasized in the model.

# **_III.D. Regional Income and Human Capital Stock_**

To measure regional income and human capital we rely on data on regional GDP per capita and the share of workers with a college education from Gennaioli et al. (2012). We concord their region codes with those in the WVS and BvD datasets to produce a final set of consistent regional identifiers.

> 18We use data from six rounds of the WVS taken between 1981 and 2014.

> 19One concern is whether trust reported in the survey accurately reflects trust by those who make decisions about who manages the firm. As argued by Glaeser et al. (2000), experimental data has suggested that trust attitudes actually reveal trustworthiness, rather than just a belief that others can be trusted. This suggests trust in the WVS should reflect trust between individuals in a particular region, rather than abstract beliefs.

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