Inheritance Law and Investment in Family Firms
64 Pages Posted: 16 Apr 2008 Last revised: 12 May 2014
Date Written: November 30, 2009
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.
Keywords: succession, family firms, inheritance law, growth, investment
JEL Classification: G31, G32, G38
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