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Inheritance Law and Investment in Family Firms


Andrew Ellul


Indiana University Bloomington - Department of Finance

Marco Pagano


University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Fausto Panunzi


Bocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
September 2008

CEPR Discussion Paper No. DP6977

Abstract:     
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.

Number of Pages in PDF File: 62

Keywords: Family firms, Inheritance law, Investor protection

JEL Classification: G32

working papers series


Date posted: December 2, 2008  

Suggested Citation

Ellul, Andrew, Pagano, Marco and Panunzi, Fausto, Inheritance Law and Investment in Family Firms (September 2008). CEPR Discussion Paper No. DP6977. Available at SSRN: http://ssrn.com/abstract=1308048

Contact Information

Andrew Ellul
Indiana University Bloomington - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
Marco Pagano (Contact Author)
University of Naples Federico II - Department of Economics ( email )
Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http:/www.ecgi.org
Fausto Panunzi
Bocconi University - Department of Economics ( email )
Via Roentgen 1
20136 Milan
Italy
+39 02 5836 5327 (Phone)
+39 02 5836 5343 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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