The Causal (Non-)Effect of Dynastic Control on Firm Performance
33 Pages Posted: 16 Sep 2015 Last revised: 16 Nov 2016
Date Written: October 13, 2016
The conventional wisdom is that dynastic control provides sharp incentives to entrepreneurs ex-ante, when founders run firms in anticipation of their progeny being in charge once they retire, and bad management ex-post, when untalented heirs take over. Using data on Swedish private firms and the individuals who control them, I construct a cross-sectional measure of owners’ dynastic intentions based on the presence in the board of children of the current chairman, and provide instruments for dynastic control using the main owner’s family characteristics. Dynastic intentions make it three times less likely that the firm will be taken over by outsiders in the future and they also immediately lead to less delegation of management to outsiders. Yet, my estimations rule out any first-order effect, positive or negative, of dynastic control on firm profitability.
Keywords: Dynasties; Family Firms; Successions
JEL Classification: G32, G34
Suggested Citation: Suggested Citation