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A sequential choice model of family business succession

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  • Timothy Mathews

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  • Tim Blumentritt

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Abstract

Management succession is a critical process, especially in family-owned businesses. Current models of management succession focus on elements such as personal development of potential successors and decision-making processes by incumbents and governance bodies, but do not account for interactions among actors. This paper addresses this weakness using a game-theoretic approach applied to the setting of family businesses. We model a tournament-style game in which two siblings pursue the CEO position of a family business. In the course of our analysis, we consider a variety of factors, such as the predispositions of the founder to choose one sibling over the other, the value placed on winning the top job by each sibling, the cost for the siblings of pursuing the job, and the possibility of “first-mover advantages.” We close the paper by discussing implications of our work for both family businesses and corporations. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Timothy Mathews & Tim Blumentritt, 2015. "A sequential choice model of family business succession," Small Business Economics, Springer, vol. 45(1), pages 15-37, June.
  • Handle: RePEc:kap:sbusec:v:45:y:2015:i:1:p:15-37
    DOI: 10.1007/s11187-015-9628-2
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    File URL: http://hdl.handle.net/10.1007/s11187-015-9628-2
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    References listed on IDEAS

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    1. Naveen, Lalitha, 2006. "Organizational Complexity and Succession Planning," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 661-683, September.
    2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    3. P.-J. Jost & M. Kräkel, 2005. "Preemptive behavior in sequential-move tournaments with heterogeneous agents," Economics of Governance, Springer, vol. 6(3), pages 245-252, November.
    4. Oliver Gürtler, 2010. "Collusion in homogeneous and heterogeneous tournaments," Journal of Economics, Springer, vol. 100(3), pages 265-280, July.
    5. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    6. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-364, June.
    7. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
    8. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
    9. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
    10. Johan Eklund & Johanna Palmberg & Daniel Wiberg, 2013. "Inherited corporate control and returns on investment," Small Business Economics, Springer, vol. 41(2), pages 419-431, August.
    11. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    12. Morgan, John, 2003. "Sequential Contests," Public Choice, Springer, vol. 116(1-2), pages 1-18, July.
    13. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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    Cited by:

    1. Jayantilal, Shital & Jorge, Sílvia Ferreira & Palacios, Tomás M. Bañegil, 2016. "Effects of sibling competition on family firm succession: A game theory approach," Journal of Family Business Strategy, Elsevier, vol. 7(4), pages 260-268.

    More about this item

    Keywords

    Applied game theory; Family business; Management succession; M50; D20; C70; L26;

    JEL classification:

    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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