Post by Sapphire Capital on Apr 22, 2009 10:16:57 GMT 4
Inheritance Law and Investment in Family Firms
Andrew Ellul Indiana University Bloomington - Department of Finance
Marco Pagano University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Fausto Panunzi University of Bocconi - Department of Economics (DEP); Fondazione Eni Enrico Mattei (FEEM); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
September 2008
CEPR Discussion Paper No. DP6977
Abstract: Entrepreneurs may be constrained by the law to bequeath a minimal stake to non-controlling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,245 firms from 32 countries over the 1990-2006 interval, we find that stricter inheritance law is associated with lower investment in family firms, while it leaves investment unaffected in non-family firms. Moreover, as predicted by the model, inheritance laws affects investment only in family firms that experience a succession.
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