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The Origin of Firm Boundaries: Ancestral Connection and Corporate Alliances

This paper studies the cultural origin of firm boundaries. We first measure ancestral connection between different areas, using historical immigration from different countries to different areas of the U.S., and demonstrate its role in transmitting exogenous ideological shocks. Next, we show that, when forming business alliances, the ancestral composition of the area in which firms locate plays an important role in their choices of partners and the location of new ventures. Exploiting immigration to the U.S. cities induced by WWI and the immigration acts of the 1920s, we find that ancestral connection driven by the supply-push component of the historical immigrant inflows increases alliance formation today. Further, partnering firms experience significantly better performance when the ancestral connection between their headquarters or between their inventors is stronger. Shared values and beliefs between firms’ key stakeholders, as opposed to connections between corporate leaders, likely underlie the role of ancestral connection.