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Inherited Control and Firm Performance

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  • Francisco Pérez-González

Abstract

I use data from chief executive officer (CEO) successions to examine the impact of inherited control on firms? performance. I find that firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and market-to-book ratios, relative to firms that promote unrelated CEOs. Consistent with wasteful nepotism, lower performance is prominent in firms that appoint family CEOs who did not attend ?selective? undergraduate institutions. Overall, the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition. (JEL G32, G34, L25, M13)

Suggested Citation

  • Francisco Pérez-González, 2006. "Inherited Control and Firm Performance," American Economic Review, American Economic Association, vol. 96(5), pages 1559-1588, December.
  • Handle: RePEc:aea:aecrev:v:96:y:2006:i:5:p:1559-1588
    Note: DOI: 10.1257/aer.96.5.1559
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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