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The Power of Dynastic Commitment

  • Laurent Bach

    (Paris School of Economics and CREST)

  • Nicolas Serrano-Velarde

    (Oxford University Centre for Business Taxation)

We study how, at times of CEO transitions, the identity of the CEO successor shapes labor contracts within family firms. We propose an alternate view of how family management might underperform relative to external management in family firms. The idea developed in this paper is that, in contrast to external professionals, CEOs promoted from within the family not only inherit control of the firm but also inherit a set of implicit contracts that affects their ability to restructure the firm. Consistent with our dynastic commitment hypothesis, we find that family-promoted CEOs are associated with lower turnover of the workforce, lower wage renegotiation, and greater loyalty for the incumbent workforce.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0924.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0924
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