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Inheritance Law and Investment in Family Firms

  • Fausto Panunzi

    (Università Bocconi)

  • Andrew Ellul

    (Indiana University)

  • Marco Pagano

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

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 law affects investment only in family firms that experience a succession.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.6.

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Date of creation: Jan 2009
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Handle: RePEc:fem:femwpa:2009.6
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