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Inheritance Law and Investment in Family Firms

  • Ellul, Andrew
  • Pagano, Marco
  • Panunzi, Fausto

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6977.

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Date of creation: Sep 2008
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Handle: RePEc:cpr:ceprdp:6977
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