Family Feud: Succession Tournaments and Risk-taking in Family Firms

82 Pages Posted: 14 Dec 2015 Last revised: 2 Jul 2016

See all articles by Jongsub Lee

Jongsub Lee

University of Florida - Warrington College of Business Administration

Hojong Shin

California State University, Long Beach

Hayong Yun

Michigan State University - Department of Finance

Date Written: November 1, 2015

Abstract

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

Suggested Citation

Lee, Jongsub and Shin, Hojong and Yun, Hayong, Family Feud: Succession Tournaments and Risk-taking in Family Firms (November 1, 2015). 11th Annual Mid-Atlantic Research Conference in Finance (MARC). Available at SSRN: https://ssrn.com/abstract=2703571 or http://dx.doi.org/10.2139/ssrn.2703571

Jongsub Lee (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Department of Finance Insurance & Real Estate
P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-273-4966 (Phone)
352-392-0301 (Fax)

Hojong Shin

California State University, Long Beach ( email )

1250 Bellflower Boulevard
Long Beach, CA 90840
United States
517-515-0717 (Phone)

Hayong Yun

Michigan State University - Department of Finance ( email )

645 N Shaw Lane, Room 339
East Lansing, MI 48824-1122
United States
517-884-0549 (Phone)

HOME PAGE: http://https://sites.google.com/site/hayongy/

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