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Inheritance Law and Investment in Family Firms

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  • Andrew Ellul

    (Indiana University - Kelley School of Business)

  • Marco Pagano

    (University of Naples "Federico II", CSEF and EIEF)

  • Fausto Panunzi

    (Bocconi University, FEEM, CEPR and ECGI)

Abstract

Entrepreneurs may be legally bound to bequeath a minimal stake to non-controlling 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 non-family firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession.

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Bibliographic Info

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0915.

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Length: 64 pages
Date of creation: 2009
Date of revision: Nov 2009
Handle: RePEc:eie:wpaper:0915

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References

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Laurent Bach & Nicolas Serrano-Velarde, 2009. "The Power of Dynastic Commitment," Working Papers 0924, Oxford University Centre for Business Taxation.
  8. Bianco, Madga & Golinelli, Roberto & Parigi, Giuseppe, 2009. "Family firms and investments," MPRA Paper 19247, University Library of Munich, Germany.
  9. 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.
  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. 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.
  12. 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.
  13. Christian Keuschnigg & Evelyn Ribi, 2013. "Profit taxes and financing constraints," International Tax and Public Finance, Springer, vol. 20(5), pages 808-826, October.

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