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The Power of Dynastic Commitment

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Author Info
Laurent Bach (Paris School of Economics and CREST)
Nicolas Serrano-Velarde (Oxford University Centre for Business Taxation)

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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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File URL: http://www.sbs.ox.ac.uk/centres/tax/Documents/working_papers/WP0924.pdf
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Publisher 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
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Handle: RePEc:btx:wpaper:0924

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Related research
Keywords: Succession; Family Firms; Implicit Contracts;

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility

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This page was last updated on 2009-11-5.

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