The Power of Dynastic Commitment: Employment Policies in Family Firms

34 Pages Posted: 5 Nov 2009

See all articles by Laurent Bach

Laurent Bach

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Nicolas Andre Benigno Serrano-Velarde

Bocconi University

Date Written: November 5, 2009

Abstract

We study how, at times of CEO transitions, the identity of the CEO successor shapes labor contracts within family firms. We propose an alternate view of how family management might underperform relative to external management in family firms. The idea developed in this paper is that, in contrast to external professionals, CEOs promoted from within the family not only inherit control of the firm but also inherit a set of implicit contracts that affects their ability to restructure the firm. Consistent with our dynastic commitment hypothesis, we find that family-promoted CEOs are associated with lower turnover of the workforce, lower wage renegotiation, and greater loyalty for the incumbent workforce.

Keywords: Succession, Family Firms, Implicit Contracts

JEL Classification: D23, G32, J33, J44, M14

Suggested Citation

Bach, Laurent and Serrano-Velarde, Nicolas Andre Benigno, The Power of Dynastic Commitment: Employment Policies in Family Firms (November 5, 2009). Available at SSRN: https://ssrn.com/abstract=1500473 or http://dx.doi.org/10.2139/ssrn.1500473

Laurent Bach

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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