The Causal (Non-)Effect of Dynastic Control on Firm Performance

33 Pages Posted: 16 Sep 2015 Last revised: 16 Nov 2016

See all articles by Laurent Bach

Laurent Bach

ESSEC Business School - Finance Department; Swedish House of Finance

Date Written: October 13, 2016

Abstract

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

Bach, Laurent, The Causal (Non-)Effect of Dynastic Control on Firm Performance (October 13, 2016). Swedish House of Finance Research Paper No. 16-13; Paris December 2016 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2660464 or http://dx.doi.org/10.2139/ssrn.2660464

Laurent Bach (Contact Author)

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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