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The Power of Dynastic Commitment

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  • Laurent Bach

    (Paris School of Economics and CREST)

  • Nicolas Serrano-Velarde

    (Oxford University Centre for Business Taxation)

Abstract

We study how, at times of CEO transitions, the identity of the CEO successor shapes labor contracts within family firms. We propose an alternate view of how family management might underperform relative to external management in family firms. The idea developed in this paper is that, in contrast to external professionals, CEOs promoted from within the family not only inherit control of the firm but also inherit a set of implicit contracts that affects their ability to restructure the firm. Consistent with our dynastic commitment hypothesis, we find that family-promoted CEOs are associated with lower turnover of the workforce, lower wage renegotiation, and greater loyalty for the incumbent workforce.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0924.

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Date of creation: 2009
Date of revision:
Handle: RePEc:btx:wpaper:0924

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Keywords: Succession; Family Firms; Implicit Contracts;

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References

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  1. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2010. "Matching Firms, Managers, and Incentives," Harvard Business School Working Papers 10-073, Harvard Business School, revised Aug 2011.
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  5. Morten Bennedsen & Kasper Meisner Nielsen & Francisco Pérez-González & Daniel Wolfenzon, 2007. "Inside the Family Firm: the Role of Families in Succession Decisions and Performance," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 647-691, 05.
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  7. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  8. David Sraer & David Thesmar, 2004. "Performance and Behavior of Family Firms : Evidence from the French Stock Market," Working Papers 2004-24, Centre de Recherche en Economie et Statistique.
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  13. Mueller, Holger M & Philippon, Thomas, 2006. "Family Firms, Paternalism and Labour Relations," CEPR Discussion Papers 6017, C.E.P.R. Discussion Papers.
  14. Augustin Landier & David Sraer & David Thesmar, 2009. "Optimal Dissent in Organizations," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 761-794.
  15. Ellul, Andrew & Pagano, Marco & Panunzi, Fausto, 2008. "Inheritance Law and Investment in Family Firms," CEPR Discussion Papers 6977, C.E.P.R. Discussion Papers.
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  19. Fabiano Schivardi & Francesco Lippi, 2009. "Corporate Ownership and Managerial Selection," 2009 Meeting Papers 721, Society for Economic Dynamics.
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Cited by:
  1. Rebérioux, Antoine & Caroli, Eve & Breda, Thomas & Bassanini, Andrea, 2013. "Working in family firms : less paid but more secure ? Evidence from French matched employer-employee data," Economics Papers from University Paris Dauphine 123456789/7244, Paris Dauphine University.
  2. Leandro DÂ’Aurizio & Livio Romano, 2013. "Family firms and the Great Recession: out of sight, out of mind?," Temi di discussione (Economic working papers) 905, Bank of Italy, Economic Research and International Relations Area.
  3. repec:hal:wpaper:halshs-00564972 is not listed on IDEAS

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