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A Transaction Cost Rationale for Transition of the Firm within the Family

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  • Bjuggren, Per-Olof
  • Sund, Lars-Goran

Abstract

This paper is about the transition of ownership of shares in small and medium-sized enterprises (SMEs) within the family (i.e. from parents to children). In spite of the fact that such successions are rather prevalent among SMEs, there are no explanations in the literature as to why transitions are preferred to outright sale. In this paper we assume that the decisive factor in the choice of succession mode is the desire for efficiency expressed as the highest possible firm value. A firm should stay in the family if this is the most profitable transition alternative. One reason for intergenerational succession to be the most profitable alternative is knowledge idiosyncrasy. However, the benefits of knowledge idiosyncrasy cannot be reaped without an institutional framework that constrains human activities in a proper way. A part of an institutional framework are the laws that act as constraints in successions. Do these laws foster or prevent efficient transition of family firms? This question is addressed in a study of the Swedish inheritance and inheritance tax laws in the light of the policy recommendations on succession made by the European Commission. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Bjuggren, Per-Olof & Sund, Lars-Goran, 2002. "A Transaction Cost Rationale for Transition of the Firm within the Family," Small Business Economics, Springer, vol. 19(2), pages 123-133, September.
    • Handle: RePEc:kap:sbusec:v:19:y:2002:i:2:p:123-33
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    Citations

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    Cited by:

    1. Mann, Stefan, 2003. "Theorie und Empirie agrarstrukturellen Wandels?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 52(03), pages 1-9.
    2. Michael Carney & Eric Gedajlovic & Vanessa M. Strike, 2014. "Dead Money: Inheritance Law and the Longevity of Family Firms," Entrepreneurship Theory and Practice, , vol. 38(6), pages 1261-1283, November.
    3. McCain, Roger, 2016. "Small Business and Liquidity Constraint," School of Economics Working Paper Series 2016-3, LeBow College of Business, Drexel University.
    4. Per-Olof Bjuggren & Lars-Göran Sund, 2014. "A contractual perspective on succession in family firms: a stakeholder view," European Journal of Law and Economics, Springer, vol. 38(2), pages 211-225, October.
    5. Leroy, H. & Manigart, S. & Meuleman, M., 2009. "The planned decision to transfer an entrepreneurial company," Vlerick Leuven Gent Management School Working Paper Series 2009-13, Vlerick Leuven Gent Management School.
    6. Christian Koropp & Dietmar Grichnik & André Gygax, 2013. "Succession financing in family firms," Small Business Economics, Springer, vol. 41(2), pages 315-334, August.
    7. Johan Eklund & Johanna Palmberg & Daniel Wiberg, 2013. "Inherited corporate control and returns on investment," Small Business Economics, Springer, vol. 41(2), pages 419-431, August.
    8. Manchala Seema & Syed Sayf Ali, 2021. "A Study on Succession Planning, Prospective Successor Selection, Transfer of Idiosyncratic Firm Knowledge in Family Owned Businesses of Hyderabad," Shanlax International Journal of Management, Shanlax Journals, vol. 9(1), pages 8-16, July.
    9. Bjuggren, Per-Olof & Sund, Lars-Göran, 2011. "A Contractual Perspective on Succession in Family Firms," Ratio Working Papers 181, The Ratio Institute.
    10. Stefano Ghinoi & Riccardo Vita & Bodo Steiner & Alessandro Sinatra, 2024. "Family firm network strategies in regional clusters: evidence from Italy," Small Business Economics, Springer, vol. 62(1), pages 87-103, January.
    11. Rajiv Agarwal & Arya Kumar & Keith D'Souza, 2016. "Issues in Career Choices of Successors in Family Businesses: Perspective from Literature Review," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(1), pages 1-19, February.
    12. Johan Wiklund & Mattias Nordqvist & Karin Hellerstedt & Miriam Bird, 2013. "Internal versus External Ownership Transition in Family Firms: An Embeddedness Perspective," Entrepreneurship Theory and Practice, , vol. 37(6), pages 1319-1340, November.
    13. Lars-Göran Sund & Per-Olof Bjuggren, 2007. "Family-owned, limited close corporations and protection of ownership," European Journal of Law and Economics, Springer, vol. 23(3), pages 273-283, June.
    14. Wennberg, Karl & Wiklund, Johan & Hellerstedt, Karin & Nordqvist, Mattias, 2011. "Implications of Intra-Family and External Ownership Transfer Of Family Firms: Short Term and Long Term Performance," Ratio Working Papers 172, The Ratio Institute.
    15. Enrico Santarelli & Francesca Lotti, 2005. "The Survival of Family Firms: The Importance of Control and Family Ties," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(2), pages 183-192.
    16. Patrizia Fanasch & Bernd Frick, 2021. "Filling Big Shoes: CEO and COO Succession Planning in Family Businesses," Working Papers Dissertations 69, Paderborn University, Faculty of Business Administration and Economics.
    17. Geraldine Ryan & Bernadette Power & Noreen McCarthy & Paul Braidford, 2011. "Regional Influences of Business Transfers within the British Isles," ERSA conference papers ersa10p1094, European Regional Science Association.
    18. Bjuggren, Per-Olof & Nordström, Louise & Palmberg, Johanna, 2015. "Efficiency of Female Leaders in Family and Non-Family Firms," Ratio Working Papers 259, The Ratio Institute.
    19. Bird, Miriam & Wennberg, Karl, 2014. "Regional influences on the prevalence of family versus non-family start-ups," Journal of Business Venturing, Elsevier, vol. 29(3), pages 421-436.
    20. Mattias Nordqvist & Karl Wennberg & Massimo Bau’ & Karin Hellerstedt, 2013. "An entrepreneurial process perspective on succession in family firms," Small Business Economics, Springer, vol. 40(4), pages 1087-1122, May.
    21. Eric Gedajlovic & Michael Carney, 2010. "Markets, Hierarchies, and Families: Toward a Transaction Cost Theory of the Family Firm," Entrepreneurship Theory and Practice, , vol. 34(6), pages 1145-1172, November.
    22. Deniz Ucbasaran & Andy Lockett & Mike Wright & Paul Westhead, 2003. "Entrepreneurial Founder Teams: Factors Associated with Member Entry and Exit," Entrepreneurship Theory and Practice, , vol. 28(2), pages 107-128, March.

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