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Inheritance Law and Investment in Family Firms

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 Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 204.

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Date of creation: 21 Sep 2008
Date of revision: 30 Nov 2009
Publication status: Published in the American Economic Review, 2010, 100(5), pp. 2414-50.
Handle: RePEc:sef:csefwp:204
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