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Inheritance Law and Investment in Family Firms

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  • Andrew Ellul
  • Marco Pagano
  • Fausto Panunzi

Abstract

Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms but does not affect investment in nonfamily firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession. (JEL G31, G32, K22, L26, O17).

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 5 (December)
Pages: 2414-50

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:5:p:2414-50

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Citations

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Cited by:
  1. Leandro D’Aurizio & Tommaso Oliviero & Livio Romano, 2014. "Family Firms, Soft Information and Bank Lending in a Financial Crisis," CSEF Working Papers 357, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Schäfer, Dorothea & Talavera, Oleksandr & Weir, Charlie, 2010. "Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany," JIBS Working Papers 2010-3, Jönköping International Business School.
  3. Leandro D’Aurizio & Livio Romano, 2011. "Family Firms and the Great Recession: Out of Sight, Out of Mind?," Economics Working Papers ECO2011/28, European University Institute.
  4. Christian Keuschnigg & Evelyn Ribi, 2013. "Profit taxes and financing constraints," International Tax and Public Finance, Springer, vol. 20(5), pages 808-826, October.
  5. Keuschnigg, Christian & Egger, Peter & Winner, Hannes, 2011. "Taxation and Incorporation," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48729, Verein für Socialpolitik / German Economic Association.
  6. Leandro D’Aurizio & Tommaso Oliviero & Livio Romano, 2012. "Family firms and the agency cost of debt: The role of soft information during a crisis," Economics Working Papers ECO2012/22, European University Institute.
  7. Bianco, Madga & Golinelli, Roberto & Parigi, Giuseppe, 2009. "Family firms and investments," MPRA Paper 19247, University Library of Munich, Germany.
  8. Matteo Bugamelli & Luigi Cannari & Francesca Lotti & Silvia Magri, 2012. "The innovation gap of Italy’s production system: roots and possible solutions," Questioni di Economia e Finanza (Occasional Papers) 121, Bank of Italy, Economic Research and International Relations Area.
  9. Giorgio Barba Navaretti & Matteo Bugamelli & Riccardo Cristadoro & Daniela Maggioni, 2012. "Are firms exporting to China and India different from other exporters?," Questioni di Economia e Finanza (Occasional Papers) 112, Bank of Italy, Economic Research and International Relations Area.
  10. Andrew Ellul & Tullio Jappelli & Marco Pagano & Fausto Panunzi, 2012. "Transparency, Tax Pressure and Access to Finance," FMG Discussion Papers dp705, Financial Markets Group.
  11. Laurent Bach & Nicolas Serrano-Velarde, 2009. "The Power of Dynastic Commitment," Working Papers 0924, Oxford University Centre for Business Taxation.
  12. Cucculelli, Marco & Marchionne, Francesco, 2012. "Market opportunities and owner identity: Are family firms different?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 476-495.
  13. Vikas Mehrotra & Randall Morck & Jungwook Shim & Yupana Wiwattanakantang, 2010. "Must Love Kill the Family Firm?," NBER Working Papers 16340, National Bureau of Economic Research, Inc.

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