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Inheritance Law and Investment in Family Firms

Author

Listed:
  • 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.

Suggested Citation

  • Andrew Ellul & Marco Pagano & Fausto Panunzi, 2009. "Inheritance Law and Investment in Family Firms," EIEF Working Papers Series 0915, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2009.
    • Handle: RePEc:eie:wpaper:0915
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    References listed on IDEAS

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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