Conflicts in Private Family Firms

Abstract

We use Norwegian household-level data and full structures of family relationships to understand how family firm inheritance decisions are made when the family has multiple potential heirs. We argue that the decision on whether the family firm is bequeathed to one or a few heirs is related to the potential of future family conflicts. We rely on the observation that heir conflicts are more likely if the founder has experienced a divorce or a separation, and instrument the founder’s divorce with the frequency of divorces in the extended family relationships outside of the nuclear family, which makes the founder’s divorce more socially acceptable. Our findings suggest that anticipated heir disagreement shapes ownership distributions in the family firms but also defines how long the firms remain in the family’s hands, their investment, and growth.

Keywords: Family Firms, Corporate Governance, Ownership Structures, Divorce

JEL Classification: G32, G34