Inheritance Law and Investment in Family Firms

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Publication Details

Output type: Journal article

Author list: Ellul A, Pagano M, Panunzi F

Publisher: American Economic Association

Publication year: 2010

Journal: American Economic Review (0002-8282)

Volume number: 100

Issue number: 5

Start page: 2414

End page: 2450

Number of pages: 37

ISSN: 0002-8282

eISSN: 1944-7981

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://www.csef.it/WP/wp204.pdf

Abstract

Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling 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 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms but does not affect investment in nonfamily firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession. (JEL G31, G32, K22, L26, O17).

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