Inheritance Law and Investment in Family Firms
Indiana University Bloomington - Department of Finance
University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Bocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
November 30, 2009
FEEM Working Paper No. 6.2009
EFA 2009 Bergen Meetings Paper
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, G38working papers series
Date posted: January 31, 2009 ; Last revised: December 7, 2009
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