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Inheritance Law and Investment in Family Firms

  • Andrew Ellul

    (Indiana University - Kelley School of Business)

  • Marco Pagano

    (University of Naples "Federico II", CSEF and EIEF)

  • Fausto Panunzi

    (Bocconi University, FEEM, CEPR and ECGI)

Entrepreneurs may be legally bound 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 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms, but does not affect investment in non-family firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession.

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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0915.

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Length: 64 pages
Date of creation: 2009
Date of revision: Nov 2009
Handle: RePEc:eie:wpaper:0915
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