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Inheritance Law and Investment in Family Firms

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Author Info
Andrew Ellul () (Kelley School of Business, Indiana University)
Marco Pagano () (Università di Napoli Federico II, CSEF, EIEF and CEPR)
Fausto PAnunzi () (Bocconi University, IGIER and CEPR)

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Abstract

Entrepreneurs may be constrained by the law 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 10,245 firms from 32 countries over the 1990-2006 interval, we find that stricter inheritance law is associated with lower investment in family firms, while it leaves investment unaffected in non-family firms. Moreover, as predicted by the model, inheritance laws affects investment only in family firms that experience a succession.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 204.

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Date of creation: 21 Sep 2008
Date of revision: 30 Jul 2009
Handle: RePEc:sef:csefwp:204

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Related research
Keywords: succession; family firms; inheritance law; growth; investment;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May. [Downloadable!] (restricted)
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  6. Marianne Bertrand & Simon Johnson & Krislert Samphantharak & Antoinette Schoar, 2008. "Mixing Family With Business: A Study of Thai Business Groups and the Families Behind Them," NBER Working Papers 13738, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January. [Downloadable!] (restricted)
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  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  13. McConaughy, Daniel L. & Walker, Michael C. & Henderson, Glenn Jr. & Mishra, Chandra S., 1998. "Founding family controlled firms: Efficiency and value," Review of Financial Economics, Elsevier, vol. 7(1), pages 1-19. [Downloadable!] (restricted)
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Cited by:
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  1. Laurent Bach & Nicolas Serrano-Velarde, 2009. "The Power of Dynastic Commitment," Working Papers 0924, Oxford University Centre for Business Taxation. [Downloadable!]
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