Inherited Control and Firm Performance

36 Pages Posted: 3 Oct 2002  

Francisco Perez-Gonzalez

National Bureau of Economic Research (NBER); Instituto Tecnológico Autónomo de México (ITAM)

Date Written: July 2002

Abstract

This paper examines the impact of inherited control on firms' performance. To address this issue, I use data from management successions where the departing chief executive officer (CEO) was a member of the controlling family of the corporation. I find that firms where control is inherited undergo large declines in return on assets and market-to-book ratios that are not experienced by firms that promote CEOs not related to the controlling family. Consistent with wasteful nepotism, I find that these declines are particularly prominent in firms that appoint family CEOs that did not attend a selective college. Overall, the results strongly suggest that nepotism hurts firms' performance by limiting the scope of labor market competition.

Keywords: corporate governance, family firms, nepotism, firm performance, CEO successions

JEL Classification: G32, G34, M13

Suggested Citation

Perez-Gonzalez, Francisco, Inherited Control and Firm Performance (July 2002). Available at SSRN: https://ssrn.com/abstract=320888 or http://dx.doi.org/10.2139/ssrn.320888

Francisco Perez-Gonzalez (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

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