Do Family Successions (Really) Reduce Firm Performance? Evidence from Large US Firms

Abstract

This paper examines whether founder family successions lower performance in large US firms. We find no significant decreases in either accounting performance or firm value, and instead find evidence that both are improved. Consistent with this, we present evidence that family successions are associated with higher levels of employee trust, and that employee's human capital is not as easily transferable at family firms. Consistent with the literature, we find that the decision to appoint a founder family member as a successor CEO is not random, and occurs in low-growth, yet profitable firms. To mitigate these endogeneity problems, we first propensity match founder family firms with non-founder firms and examine the change in performance around founder successions relative to the matched firms. We also use two instruments of founder family successions in our analysis.

Keywords: founding family firm, family CEO succession, operating performance

JEL Classification: G32, G34