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Inheritance Law and Investment in Family FirmsAndrew EllulIndiana University Bloomington - Department of Finance Marco PaganoUniversity of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) Fausto PanunziBocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR) November 30, 2009 3rd Annual Conference on Empirical Legal Studies Papers ECGI - Finance Working Paper No. 222/2008 Abstract: 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.
Number of Pages in PDF File: 64 Keywords: succession, family firms, inheritance law, growth, investment JEL Classification: G31, G32, G38 working papers seriesDate posted: April 16, 2008 ; Last revised: December 7, 2009Suggested CitationContact Information
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