Family Feud: Succession Tournaments and Risk-taking in Family Firms
82 Pages Posted: 14 Dec 2015 Last revised: 2 Jul 2016
Date Written: November 1, 2015
We study the impact of succession tournaments on risk-taking in family firms. More sons (less daughters) in controlling families are associated with higher income volatility and lower performance – especially, in opaque private firms with pyramidal ownership structure. Contestants exhibit managerial myopia such as higher dividend payouts and less R&D investments. Overall, succession tournaments induce risk-taking and managerial myopia among sons, but positive externalities through marriages (sons-in-law) mitigate these concerns. Using the sudden death of a chairman as an exogenous shock to a succession tournament, we confirm a causal link between increased competition among succession contestants and corporate risk-taking.
Keywords: succession tournaments, business group, risk shifting, family composition, sons, daughters, sons-in-law
JEL Classification: G30
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